What Lies Beyond The Window?

It is obvious to many that the High Street of 2017 looks very different to its 1990s self. Following the stampede of relocations during the nineties and early noughties to out of town shopping centres, many High Streets throughout the country have been left decimated. So much so that vacant units and ‘temporary’ facades are now common place and almost the accepted norm.

In a post-recession and pre-Brexit economy the retail outlook for 2017 and beyond therefore presents retailers with both a challenge but also an opportunity.

Stepping into the unknown

The recent retail downturn has seen dwindling footfall on the High Street and a shift in consumer spending patterns, with consumers now more attracted towards the overall buying experience rather than simply the price of physical goods. Together with other serious challenges in the form of Brexit, a weakening pound, higher import costs, the living wage, rising business rates, as well as further economic austerity and inflationary pressures, the future High Street retailer must continue to adapt and focus on the customer experience in order to entice, and ultimately transact with, those customers. The increasing risk of consumers viewing stores as a form of ‘retail library’, utilising them to simply ‘try before you buy online’, has never been more prevalent than in the current market economy and during such times of reduced consumer spending power.

A key example of such pressures came last month when Next Plc reported a fall in annual profits for the first time in eight years, with in store sales falling by nearly 3% to £2.3bn. Although Next’s Directory sales (which have risen each year for the past ten) rose by 4% to £1.7bn, the company has openly questioned that with increasing amounts of business being transferred online “it is legitimate to question the long term viability of retail stores and whether the possession of a retail portfolio is an asset or liability” (John Barton, Chairman of Next Plc).

Further to this, the recent administrations of Jaeger and Brantano, as well as other retailers such as Jones Bookmaker and Jimmy Choo being up for sale, highlights the changing landscape of our High Street and the potential increase in future insolvencies or business restructures. The large corporate aside, this could also have significant personal solvency implications for those retailers operating as sole traders or in a partnership.

As such, many within the Restructuring profession would be unsurprised by more casualties on the High Street given the above challenges.

To online … and beyond

“However, while we agree that economic factors have played a part in the decline, from our experience we know that the rise of digital technology has had a greater impact” (a spokesperson from brand commerce agency KHWS)

Undoubtedly the biggest challenge facing the High Street however is online. The instantly accessible 24/7 global market, available across multi devices, and often supplemented by price comparison tools and cash back websites, offers consumers with enhanced convenience and unlimited choice.

For retailers, the online market brings enhanced competition but also presents an opportunity. There is no doubting the digital world has revolutionalised the way businesses engage, interact and transact with customers and retailers must therefore focus on effective marketing and enhancing the customer experience, enticing customers with a superior ‘buying experience’.

While recent months have seen some of the largest High Street retailers report a fall in profits and online competitors such as Amazon, ASOS and Boohoo continuing to go from strength to strength, those that have embraced the digital change have shown that a middle ground between the High Street and online is possible.

Indeed this month JD Sports reported record profits with revenue increasing 31% to £2.3 billion and pre-tax profits up 81% to £238 million in the year to 28 January. Like-for-like sales also grew by 10% in the period, despite economic uncertainties regarding Brexit and rising inflation.

HMV, despite entering administration in January 2013 and ultimately rescued by Hilco, last November overtook Amazon to become the UK’s largest music retailer. HMV has also been boosted by investment in its ecommerce. Its online business relaunched in June 2015 and between 24 October 2016 and 28 February 2017, increased the number of transactions on HMV.com by 67% as overall revenues rose 76%. Basket size was also up by 69%.

Online obviously allows a retailer to reach an increased customer base with less overheads and offers the potential for increased profitability. However this also presents a challenge to not come at the cost of its High Street performance. Indeed the largest retailer in the world, Amazon, owns no stores nor has any High Street presence (yet!) however its Chief Executive, Jeffery P. Bezos, has spoken openly about doing “something uniquely Amazon” and “if we can find that idea, and we haven’t found it yet, but if we can find that idea, we would love to open physical stores.”

Meanwhile Randy Burt, Partner in the food and beverage practice of A. T. Kearney, cautioned that other online retailers with physical stores, for example Bonobos, were now “recognizing, for certain things you can’t digitize and replicate online all the experience one has in a store. The ability to create experiences is going to be critical for them to continue to get share.”

A fine balance

Of course this is not the first time High Street retailers have faced such adversity. The recession of 2008 also saw the industry as a whole faced with huge challenges which they subsequently recovered from.

The challenge to retailers of managing the ‘try before you buy’ culture and enticing customers with an enhanced buyer experience still remains. To fully grasp the current opportunity retailers must embrace change and continue to adapt to consumer’s changing wants and needs in order to compete effectively with online.

High Street retailers must concentrate on not simply becoming a library of the shopping world, and prevent customers of the future from asking ‘what lies beyond the shop window?’