Written by: Alex Lowe
It is safe to say that 2020 was not the best year for a variety of sectors of the economy. One particular sector that was adversely affected was retail, specifically traditional brands that relied on UK High Street stores to prop up sales. Legal restrictions imposed to fight COVID-19 such as the closure of non-essential shops meant there was a 49.5% drop in footfall in UK High Streets throughout 2020. That being said, it is clear that there has been a significant shift in shopping habits over the last ten years. More retailers have moved online, and some of the most successful retailers in the last decade (Gymshark, Boohoo, Asos) are all exclusively online. This change is shown through comparisons of stock market value. Household name Debenhams was listed on the stock market in 2011, valued at £1.1bn. Compare this to Boohoo who are now valued at £4.4bn and were only founded in 2006. This means the future of the high street has been an area of concern for some time, only compounded further by the pandemic. This article seeks to explore the latest high profile exits from the high street, why people are moving towards online shopping, and what this means for the future of the high street.
The most significant loser of the recent high street slump in 2021 has been Philip Green’s Arcadia Group. The group has been split up between three buyers: Asos, Boohoo and Australian company City Chic. Focusing on the first two major companies, Asos has bought the brands of Topman, Topshop, Miss Selfridge and HIIT for a combined £295m. This was followed by Boohoo who bought brands Burton, Wallis, and Dorothy Perkins for £25m. In an even more lucrative deal for Boohoo, they purchased the 242-year-old brand of Debenhams for £55m.
These purchases have some distinct similarities. The first is that both Asos and Boohoo have modelled themselves as being online exclusive retailers. They have followed the lead of other online exclusive retailers such as Amazon, relying on major logistic operations to provide cheap, fast delivery of products. The aim of the acquisitions is to instil their technology and marketing to make the brands renowned worldwide. In the case of Asos, this purchase is part of their journey to become “the number one destination for fashion-loving 20-somethings throughout the world”, as described by their CEO, Nick Beighton.
A more significant similarity in respect of the future of the High Street is that both companies have taken the same approach of buying the brands, but not taking over the stores. According to property advisors Altus Group, this means there will be a hole in the high street of 15m square feet, equal to 200 full sized football pitches. In times of such economic anxiety, landlords face a challenge to find new occupiers, especially when traditional ‘High Street’ names are streamlining their services by cutting back on the bricks and mortar they rent.
Why Has There Been a Shift to Online?
Now, over 20% of all retail sales are online, and 83% of people use online shopping outlets as opposed to just 53% in 2010. One of the main reasons behind this is flexibility. Online shopping provides an instantaneous guarantee of products, and a 24/7 service. When ordering online, a consumer can log on to a website or app at any time of the day, and order what they want, browsing tens of items a minute, and can choose the exact day they want that product delivered. This offers more than traditional shops with limited store opening times that may clash with other commitments, and the unknown of what products are in stock.
Additionally, there has been a boom in flexible payment applications over the last five years. This has had a drastic impact on the way retail can be purchased. Companies like Klarna or Clearpay offer a new way to access products through their ‘buy now, pay later’ policies. Klarna currently has an estimated ten million UK customers. This allows consumers to choose to pay thirty or sixty days after purchase or break-down payments into three or four instalments without interest.
Not only is this attractive for consumers, but for retailers alike. Klarna have estimated that they can increase the value per transaction by 34%, and the average online stores orders by 30%. This offering just is not available in traditional stores which means not only are more people buying online, but more retailers are focusing marketing strategies towards online as its importance grows ever stronger.
Finally, whilst the introduction of financial agility and product readiness via online retailers has sown the seed for the demise of traditional high street stores, COVID-19 has been the final straw. As alluded to earlier, the tough lockdown restrictions have stopped people from accessing retail shops, and it has made people realise they can still get their products without visiting stores. Furthering this, the increase of sales in Supermarkets has indicated a shift to more one-stop-shop models where consumers can buy groceries, clothing, appliances, and technology all in one place. This may have the knock-on effect in the future of an increase in the amount of concessions seen within UK supermarkets. This has already started with over 90 Argos stores now located in Sainsburys since the takeover in 2018, along with Lloyds Pharmacy. Supermarkets have always been a place for more than just groceries, but could we see a future where traditional retail brands find common place in Supermarkets using a click-and-collect service, similar to the structure of John Lewis within Waitrose?
What will the future hold?
One way in which high street landlords are proposing to increase their offering is through facilitating re-purposing, something backed by the government. This can be shown through the trampoline company, Gravity, taking over the 80,000 sq ft former Debenhams store in Wandsworth. The plan is to build a trampoline park to coincide with a Go-Karting track amongst other traditional entertainment such as bowling alleys and arcades. There is more optimism that following the COVID-19 pandemic, entertainment venues could see a rise as people are determined to socialise and take part in fun activities.
Another area is housing. A Think Tank, Social Market Foundation (SMF), have predicted that high street sites could accommodate up to 800,000 new affordable homes. This is a real possibility as the government are aligned to the idea of changing the rules allowing more commercial-to-residential developments. Some critics say this lackadaisical, rushed solution to Britain’s housing crisis is a sign of poor planning which could lead to low quality housing. They also allude to it being a knee-jerk reaction to retails current crisis, believing it is a sign of the government giving up on a potential high-street comeback, removing life and character from town centres. Others in favour of housing development argue that the declining state of the high street is one which extends further than the surface issues of COVID, and hoping to bring shoppers is wishful, just postponing the inevitable collapse. They feel new housing will bring new employment opportunities and revitalise more local, independent shops.
Whether there will be a big enough bounce back for traditional retail stores to trigger investment back into the high street is currently unknown, but looking at the factors outlined above, and the more than likely permeant changes in shopping habits, there will likely be a new look to traditional high streets. The Arcadia Group is not the first retailer that has failed to survive recent downward trends, and they are unlikely to be the last. Will others also be snapped up by online exclusive retailers? If so, does that mean there will be a total removal of the ‘High Street’ as we know it in years to come? This remains to be seen.