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07 May 2020

The Contribution of the Takeaway Market to the UK Economy

This report provides a snapshot of the valuable economic, social and cultural contribution made by the takeaway sector to the UK. Based on research conducted by Retail Economics (and Prevision), the report examines the entrepreneurial opportunity the sector presents, the huge steps takeaway restaurants have taken to respond to changing consumer appetites and the challenges posed by government regulation, which threatens to stifle a vibrant sector.

It uses industry-standard macroeconomic models to quantify the economic contribution of the UK takeaway sector to the UK economy. The models use data from the Office for National Statistics, the Business Register and Employment Survey, the Labour Force Survey, the Annual Survey of Hours and Earnings, HMRC and proprietary data from Retail Economics. Data was also supplied by Just Eat. A survey of 300 takeaway owners from across the UK was also conducted by Prevision. Interviews took place between the 10 July to the 24 July 2019.

Headline statistics

Over the last three years, the takeaway sector has been cooking on gas, growing at almost twice the rate of the overall economy, with total spending rising from £10.6 billion to £12.5 billion between 2015 and 2018. In response to consumer demand and to satisfy appetites, the number of dedicated takeaways is estimated to have risen from 30,189 in 2015 to 37,732 in 2018. Additionally, the average household spent £38 per month on takeaways in 2018, an increase of 15% since 2015, and such growth suggests people will only become hungry for more.

This increase in demand for takeaways is estimated to have added £5.9 billion in value to the UK economy in 2018 and £307 million in direct taxes to the UK Government. That figure leaps to £1.8 billion if we take indirect taxes like VAT and employee national insurance into account. Such is the explosive growth of the sector that measured by revenue, it is greater in size than the architecture and TV production industries.

Technology has been pivotal in the sector serving up a feast and has provided new and innovative routes to market for small, independent takeaway restaurants, with almost 35,000 takeaways and restaurants now using online apps.

Accordingly, the sector has responded quickly to changes in consumer appetites. Vegan orders have increased by 388% from 2016 to 2018, and with consumers more conscious about sustainability and industry practices that figure will likely increase. In that same time, Persian food has seen growth of 34% and Nepalese takeaway restaurants have increased by 16%.

Takeaways are one of the most ethnically diverse parts of the UK economy and the sector offers a gateway for would-be entrepreneurs, with 40% of takeaway owners considering themselves first-time entrepreneurs. The sector was also responsible for 286,798 jobs in 2018, an increase of 13,000 jobs since 2015, employing more people than the Telecoms, Advertising and Insurance sectors.

Interestingly, small businesses make up the majority of the sector and are growing with such ferocity that 30% of takeaways now employ more than ten people. What’s more, the creation of jobs doesn’t discriminate by region, with employment stretching the length and breadth of the UK. Since 2015, Yorkshire and Humber has seen the largest increase in job creation, followed closely by the East and West Midlands and the North East.

As well as providing a healthy serving of employment opportunities, the takeaway sector makes a vital contribution to the UK economy, accounting for a 12% slice of the food services industry pie, which includes restaurants, cafés, pubs, bars and events.

The takeaway market is set to expand further and grow at approximately 3.7% a year for the next five years, remaining an important source of revenue for the Government. Consumer appetites look like they’ll only get bigger too, with spending on takeaways forecast to rise to £15 billion by 2023, an increase of 20% on 2018, which will result in a value of £7.1 billion to the economy. 

Report recommendations

However, there are great challenges on the horizon for the takeaway sector with government legislation potentially stirring up trouble. A more in depth analysis is covered in the full report, where we look into seven recommendations that will ensure the sector continues to flourish, creating further job opportunities and allowing entrepreneurs to grow their businesses. Our recommendations look at the areas of skills, immigration and health, and they are:

  • Mandated wages for T-level students during their industry placements
  • Bring forward the Catering and Hospitality T-level to 2021
  • Explore the feasibility of a grant to incentivise businesses to offer placements
  • Reduce the salary threshold for chefs on the Shortage Occupation List
  • Introduce the duration of short-term visas to two years
  • Increase a medium and long-term strategic skills list
  • Introduce an online calorie calculator as exists in Northern Ireland and Scotland

Our full report also contains a snapshot of the valuable economic, social and cultural contribution made by the takeaway sector to the UK, and examines the entrepreneurial opportunity the sector presents, and the huge steps takeaway restaurants have taken to respond to changing consumer appetites.

Download the full report for a feast of information...

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07 May 2020

The Retail Cash Crunch: The Impact of COVID-19 on Major Non-Food UK Retailers

Published: April 2020

The world is facing an extraordinary crisis. The COVID 19 pandemic has sent shockwaves throughout global communities, dislocated international supply chains and triggered steep selloffs in financial markets. It has already become clear that the high street will take  on a very different form once the pandemic is over.

Weaker players will unfortunately cease to exist, leaving behind a smaller but more resilient  sector that have acted fast. In the Office for Budget Responsibility’s (OBR) coronavirus analysis, they assume a three month lockdown due to public health followed by another three month period when they are partially lifted. Against this backdrop, real GDP falls 35 per cent in the second quarter but bounces back quickly. Unemployment rises by more than 2 million to 10 per cent in the second quarter, but then declines more slowly than GDP recovers.

However, at present, an accurate assessment of the duration and trajectory of the virus is difficult to  determine. Coordinated action from global policymakers and central banks has been swift. The UK Government has taken unprecedented action to support businesses and protect jobs, while the Bank of England has cut interest rates to new record lows. The result is a flood of cheap credit, quantitative easing, liquidity injections, loan guarantees, cash hand outs, tax breaks and generous employment subsidies which will cushion the blow to a certain extent.

The trauma will be acute for retailers, despite an unprecedented government support package. Retail Economics estimate that non food retailers could see a decline in sales of c.17% over 2020 equating to over £37 billion of lost revenue. 

Government aid has provided significant support for retailers to manage cash flow. A 12 month business rates holiday and the Job Retention Scheme are particularly significant for the retail sector, given these two components comprise a large proportion of operating costs. Further concessions including the option to defer Value Added Tax (VAT), the Coronavirus Business Interruption Loan Scheme, the COVID-19 Corporate Financing Facility and protection from eviction for commercial tenants will undoubtedly help those under intense pressure. 

These support measures, in combination with lending facilities offered by banks, will be a lifeline for retailers of all sizes and across all channels which are pivoting towards a focus on cash and rightsizing their operations. With these measures in place, our scenario analysis suggests that near term liquidity over an initial three month lockdown period looks manageable for most large retailers. But working capital demands would intensify from June and beyond.

However, should a lockdown persist beyond June, and without further government intervention, large parts of the sector would come under  intense pressure, with many retailers falling into administration by September as cash reserves and credit facilities become exhausted... [download full report to read more]

The impact on retail sales and consumer behaviour

The COVID-19 pandemic has already fundamentally altered consumer behaviour. Lockdowns, social distancing and other restrictions are forcing many households to jostle parental and home schooling responsibilities while working from home. The closure of gyms, cancellation of sporting events and social distancing is challenging how people spend their time, re ordering priorities and altering routines.

The sudden shock to everyday life has forcibly introduced new shopping behaviours, but the impact will be felt unevenly across retail sub sectors. The closure of non essential retail stores has necessitated a shift towards online, forcing many consumers to engage new  customer journeys.

The initial shift towards online shopping will fail to offset the overall decline in demand. Non food retailing is expected to fall by 16.7% in 2020 as most stores remain affected until June 2020 and demand is undermined by weak consumer confidence and elevated levels of unemployment. Elsewhere, food retailers will benefit from increased volumes as almost all meals are now consumed in the home. The transfer of spending from the closure of restaurants, bars, cafes and pubs will flood the grocery sector with increased demand across both foods and alcoholic beverages... [download full report to read more]

The impact assessment for UK non food retail

The impact of COVID-9 has caused a mandated lockdown of around 70% of non food retailing in the U.K. The initial period of store closures will last for three weeks before it is subject to review. However, it is widely expected to be extended. Retail shops allowed to remain open include:

  • Supermarkets and other food shops
  • Health shops, pharmacies including non dispensing pharmacies
  • Petrol stations, bicycle shops, home and hardware shops
  • Laundrettes and dry cleaners 
  • Bicycle shops, garages, car rentals, pet shops
  • Corner shops, newsagents, post offices, and banks

Even retailers allowed to remain open have faced significant challenges. Enforcing social distancing measures in the workplace has created a 
significant issue. Food retailers are limiting the number of shoppers into their stores at any one time while also providing staff with Personal 
Protective Equipment (PPE). Clear protective screens have also been installed at checkouts to further safeguard staff at retailers such as Aldi, 
Morrisons, Iceland and Sainsbury’s. 

Elsewhere, other retailers have been caught in a difficult middle ground; technically allowed to open under Government guidelines but finding significant operational challenges when servicing customers effectively. For example, hardware stores are unaffected by the lockdown, but B&Q stores are closed, only allowing online ordering for home delivery, but also servicing click and collect in carparks with a contact free service... [download full report to read more]

How long can retailers survive in the current status quo assuming a 70% reduction in sales?

This scenario addresses the question of how long non food retailers can survive the current status quo assuming an on going lockdown of  stores for the foreseeable future without access to further capital. 

Assumptions are based on the likely hit to revenue from store closures as of 3 March, the wider impact on consumer spending and Retail Economics’ retail sales and consumer panel data. As a result, it is expected that non food sales are likely to fall in the region of 70% during the period of lockdown. 

Empirical judgements are also included in the methodology regarding how much operating expenses, investment, and cash returns to shareholders would decline as a result of falling sales and inclusion of Government measures to support businesses. Revolving credit facilities are also factored for, together with a lagged decline in the cost of goods sold and other carefully considered assumptions (e.g. retailers will try to reduce labour costs by 50% through furloughed employees; and essential retailers will continue to see sales hold up better than retailers whose stores that have been forced to close)... [download full report to read more]

What next for the industry?

Government measures to support businesses will be a lifeline for retailers of all sizes and across all channels. Our scenario analysis suggests  that near term liquidity over an initial three month lockdown period looks manageable for most large retailers with government support in place.
Working capital demands intensify from June and beyond. 

By August, an ongoing lockdown would decimate large segments of the sector and see swathes of retailers fall into administration as cash reserves and credit facilities are exhausted without further government intervention. Distressed discounting would erode margins significantly as retailers desperately trade over the summer months. While the duration of the pandemic remains uncertain, being nimble, innovative and quick to react in a fast paced environment will be critical, as will offering something that is meaningful to the customer in this challenging time. This unprecedented environment has dictated fundamental changes to most retailers’ operating models.

Inditex, owners of Zara, have switched some of their supply chains to the production to clinical face masks and hospital gowns. Likewise,  Burberry has started the production of PPE equipment from its West Yorkshire factory and shared plans with the Government to dedicate its global supply chain to delivering more than 100,000 surgical masks to the NHS for use by medical staff. 

Boots is also supporting the Government to establish new ‘drive through’ testing stations that provide COVID 19 tests for frontline NHS staff. Along with Amazon, they are also planning to help in the distribution of antibody tests that people will be able to conduct themselves at home. 

Elsewhere, Brew Dog, Coty and Louis Vuitton have started to produce hand sanitiser. Dunelm and B&Q have introduced a carry to car option for online orders and has also scrapped signing on delivery to reduce the spread of the virus. Sweaty Betty has also introduced free online workouts. 

Strategic partnerships are also likely to emerge as mutually beneficial and collaborative arrangements are used to cuts costs and leverage sales opportunities... [download full report to read more]

Download the full report to gain deeper insights into the cash cruch from the impact of COVID-19...

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07 May 2020

What's happening to Retail Property?

For much of the last three decades in retail, aggressive expansion of physical space drove market share as retailers’ key strategies involved ‘land grab’, while the broadening of the grocery sector into non-food proposition created even fiercer competition.

A rapid increase in stores across high streets and shopping centres ensued, as well as the development of larger ‘big-box’ stores, frequently located in out-of-town retail parks. In part, large chain retailers and landlords were able to turn to capital markets to fund extensive real estate build-outs, leading to the development of new shopping centres, retail parks and lifestyle centres, which added to and cannibalisedthe traditional town centresthey encroached upon. This expansion led to oversupply in many regions across the UK, creating ‘clone’ high streets that lacked relevance to their immediate communities and over time suffered from underinvestment and local authority complacency. What’s more, mass marketing strategies focused on an aggressive pricing strategy with the aim of capturing market share, which often diluted profit margins, brand equity and anonymisedcustomer relationships.

This expansionary era dovetailed with vibrant economic growth, as households (responsible for 2/3rds of the economy) saw real incomes rise by c.3% each year from 1997 to 2007, and more sophisticated global supply chains drove consistent deflation across core retail categories such as clothing, electricals and homewares. Resultantly, the retail expansion strategy worked for decades.

Over the last few years there has been a reversal of many of these trends.This was a catalyst for consumers to start looking for cheaper alternatives at a time when improvements in technology brought-about heightened transparency in pricing, service and quality, and the discounters had a much firmer foothold in the market.

The rise of online

Digital transformation led to the emergence of more sophisticated multichannel propositions, supported by higher penetration of smartphone ownership and online shopping, ultra-convenient home deliveries and more efficient click-and-collect.

The composition of retail spending shifted rapidly online. In the past decade, the value of online retail has risen four-fold, worth an estimated £70 billion in 2018 and accounting for just under £1 in every £5 spent. For some sectors such as clothing, this proportion rises to over a third, which is particular pertinent in some town centres where clothing occupants comprise over 40% of the physical presence.

Forward-thinking omnichannel retailers and the emergence of pure online players offering strong online propositions exploited these trends, while benefitting from collecting vast amounts of consumer data. Efforts by retailers late to the party that mimicked the mechanics of offering an online proposition frequently proved dilutive, as additional infrastructure and investment were deployed to service the same customer and the same order.

But crucially, the fast-paced adoption of consumer technologies presented shoppers with an array of digital touchpoints which fundamentally altered the way they interacted in physical locations. A linear customer journey that had existed for decades quickly dissolved and reformed to a more complex structure. Shoppers now expect to be able to seamlessly transition between channels, redefining the boundaries between physical, digital and on the move.

The experience economy

Engaging in meaningful experiences has become a differentiator of choice for many consumers. An abundance of material possessions has left consumers attaching more value to experiences; evidenced by the reduction in retail spending from 30% of household expenditure in the 1960s, to 27% in 2004 and 24% in 2016. Our forecasts suggest that this will fall further to 20% in the next 10 years.

Although the shift towards experiences has arguable come at the expense of retail, its role in the customer journey is undeniable. While consumers claim to spend more time browsing products online than they do in-store, the relative importance in the discovery and research of retail products is more influential in physical locations, in particular flagship destinations where ‘experiences’ matter.

Retailers and landlords alike recognise that staging meaningful experiences are critical in the moments that matter: moments of discovery; moments of desire; and moments of action.

What’s more, consumers expect digitally enhanced physical environments (such as Instagram walls, Facebook check-ins and Snapchat codes) that inspire, excite and offer experiences that cannot be replicated online/

Operating Costs

Against these seismic shifts, retailers have also faced a backdrop of spiralling operating costs. Successive rises in business rates, National Living Wage (NLW), National Minimum Wage (NMW), logistics, utilities and other central costs has put intense pressure on profitability. Indeed, the Retail Economics Retail Cost Base Index shows that operating costs rose by 2.4% in 2018. However, over the last five years, operating costs facing retailers have risen by 10.8%, with labour costs constituting more than half of the increase.

Indeed, consecutive increases in NLW and NMW and costs associated with the Apprenticeship Levy have driven an acute rise in labour costs which constitute around 46% of total operating costs. Wage hikes among lower paid groups have a ‘ripple effect’ across entire wage distributions as businesses retain wage differentials. We estimate that the increase in NLW costs the industry in the region of c.£1.5bn per year to implement.

Business rates also remain a significant burden on retailers who have a disproportionate exposure to property. Retail Economics estimates that business rates cost the retail industry an estimated £7.5bn in 2018, and in some parts of the country exceed retailers’ rental values.

How has the industry reacted?

The collision between these seismic structural shifts, rising operating costs and squeezed profitability has led to a broad polarisation in the retail property market.
On the one hand, these challenges have led to a host of high profile retailers such as New Look, Toys R Us and Debenhams either closing their doors for good or cut back on the number of stores as they restructure.

On the other, a furious churn of small independent firms continues to drive overall growth in the number of outlets occupied by retailers and leisure businesses alike. Since 2012, the overall number of retail and leisure units has risen by over c.60,000 units, an average 2.9% increase each year. The rate of increase has been more pronounced in leisure (+5.2%) units than in retail (+1.8%) during the period.

However, this conceals a polarisation in retail between independents and multiple retailers. Against the backdrop of these challenges, cost cutting plans emerged as the overriding priority for many retail boardrooms, with store disposals decisions a priority. Resultantly, there has been a consistent net loss of over 7,000 stores in the last six years, the largest fall occurring in 2018.

What’s more, landlords are finding it increasingly difficult to reoccupy empty units. Vacancy rates across high streets (11.5%), shopping centres (13.6%) and retail parks (7.1%) in the second half of 2018 all rose on the previous year. Retail park vacancy rates are now at their highest level since 2014.

It’s estimated that around 37,000 units lie empty across high streets, shopping centres and retail parks in the UK, with almost a third (11,600 units) having been unoccupied for more than three years.

Store closure programmes have been part of a wider cost cutting exercise for many multiple retailers as they battle against rising costs and shifting consumer behaviour. Retailers have been forced to adopt a forensic approach to reduce costs beyond store closures, including reducing head count and simplifying business models.

As a result, the industry has seen a rise in the number of retail redundancies, as well as cutting back on hours worked and reducing employee benefits. In the 12 months to March 2019, 4,500 retail jobs have been lost every month and the number of employees in the industry has been steadily declining c.1% each year since 2015... [extract]

Download the full report to get a deeper insight into how the retail property market is changing in the UK

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06 May 2020

The impact of AI on the UK retail industry

In this report, Retail Economics (and international law firm CMS) start by plotting some of the applications and implications of AI throughout the customer journey from the perspective of the customer and the retailer, using the five stages of the Retail Economics Customer Journey. 

While not exhaustive, at each stage we look at the most prevalent or game-changing applications and, using the insights gleamed from our surveys, examine how ready consumers and business really are. We then take a deeper look at how businesses plan to adopt AI technologies in their organisations, the areas they will target for investment, and the key challenges they foresee.

Once the preserve of science fiction movies and books, Artificial Intelligence (AI) is not only a reality today but an increasingly common feature of life. Through voice and image recognition, natural language processing and machine learning, our smart phones and speakers are an integral part of our day-to-day. In this report we look at how AI is helping to answer questions like:

  • How can a retailer ensure that a particular brand or promotion will catch the eye of a millennial shopper when browsing products and prices online?
  • How do they convert awareness into a sale online or in store?
  • Once a product has been purchased online, what technology is needed to ensure the quickest and most cost-effective delivery to a customer?
  • What about aftersales support, how is that best provided?
  • And what can a retailer learn from a purchase about a shopper’s buying habits which might help prompt further sales in the future?

What features below is extracted content from the report on a chapter which focusses on the use of AI in the first stage of the customer journey - Awareness & Influence. 

Stage 1 of the Customer Journey (consumer perspective) - Awareness

Awareness is a primary battleground for any consumer brand or retailer to win in the hunt for sales and profits. There are various ways a customer can become aware of a brand, including TV or print advertising, personalised emails, recommendations from friends and family, as well as targeted online advertising. Retailers, seeking any advantage they can in an increasingly competitive marketplace, are turning to AI technologies to help them create greater customer awareness. Two of the most dominant, if still nascent, that are being used are personalisation and product recommendations.

Personalisation

It is generally accepted that shoppers are more likely to purchase items in-store or online from retailers which send them relevant, personalised promotions and  ailored offerings. Current personalisation includes online fashion retailers serving personalised landing pages, only displaying clothing available in a customer’s  ize and or preferred brands. Shop Direct’s technology allows 1.2 million versions of its very.co.uk landing page. Amazon attributes 35% of sales to its personalisation strategies (McKinsey). In the past it has been possible to personalise experiences using simple rules — now machine learning can analyse  normous and seemingly disconnected sets of data deeply and quickly — and then act in real-time based on that analysis. This will take personalisation to a new level.

CMS’ consumer panel survey found that while shoppers wanted greater personalisation only 45.3% believed targeted online adverts – the most prevalent current application of personalisation – provided appropriate content to them. Nevertheless, through advances in technology personalisation will continue to be a key
tool for retailers. The survey results show the essential mantra to follow is: ‘make sure it is effective and that shoppers’ trust is not lost’. We are reminded of the legendary example of a retailer who accidentally exposed the pregnancy of a high-school teenager to her parents by sending her coupons for baby clothes and cribs.

Product recommendations

One of the most recognised AI powered applications used today is the automated suggestion of products and services to shoppers. These AI-powered recommendation engines vary greatly in sophistication but advanced algorithms can correlate disparate data such as purchasing habits, images viewed, social media content, location or weather in real time. Retailers are already able to suggest holiday items for shoppers who recently booked an airline ticket. Adding biometric data into the mix will allow retailers to identify customers as they walk into a shop and then personalise their in-store experience. Retailers will be able to suggest garments that will fit a customer’s body shape. On page 20 we analyse how such use comes at a time when regulation, most notably GDPR, is protecting the individual’s rights around such data.

More sophisticated personalisation requires more personal data, however our survey of shoppers showed that more than half would not be comfortable sharing personal data, such as health, age, body shape and dietary habits, to enable companies to provide more targeted product recommendations. Although a key finding was that younger consumers are three times more likely to share highly sensitive data than older shoppers. Targeting younger shoppers with solutions that use sensitive data-is an obvious strategy for operators in the clothing & footwear, food & grocery, and health & beauty sectors.

 

Stage 1 of the Customer Journey (retailer perspective) - Influence

Hyper-personalised multichannel marketing strategies provide an opportunity to influence consumers in ways never seen before, such as using data to pull customers to a product that could genuinely enhance their wellbeing rather than pushing potentially unwanted items on them. Alternatively, future subscription services will provide products based on a customer’s behaviour rather than requiring an active purchase. Currently we are seeing AI technologies increasingly being used for multichannel marketing.

Multichannel marketing

According to a global survey conducted by Forrester Consulting and commissioned by Emarsys, 54% of retail marketers are using AI-driven personalisationacross channels to drive growth in their business. The technologies will deliver multichannel marketing campaigns that seamlessly target  onsumers with personalised content and experiences across websites, mobile platforms and within physical stores. In the future this may include the use of AI- ssisted facial recognition to register returning customers in a store, tracking data of a customer’s journey through a shop to optimise store layout, or optimising the  unctionality and design of a site based on a user’s unique profile. In contrast to the consumer findings our survey shows that businesses have a high degree  of confidence in AI’s ability to deliver accurate marketing content. But is this trust well placed? Nearly 60% of businesses trust fully automated AI-driven marketing  ampaigns to deliver content to their customers. In contrast, only 45% of customers believed personalised adverts displayed to them were relevant.

 

Download the full report now to see how AI is being used in the other customer journey stages...

 

How are retailers and brands adopting AI technologies?

Companies across Britain are overall positive about AI-powered technologies and their ability to improve their businesses and interactions with consumers.
This is likely because there are a host of areas which can benefit from AI, with our research indicating that 62.5% of retailers and consumer organisations believe that achieving ‘more efficiency in the supply chain’ presents the biggest opportunity for them. Just over 53% said that realising cost savings would provide the greatest benefit followed by 46.9% who feel that ‘creating more meaningful relationships with customers’ would have the greatest impact on their operations.

When asked which AI-related technologies would have the biggest impact on the industry, nearly 70% of the organisations polled said that virtual assistants would be one of the most positively disruptive forces in the industry, followed by 59.4% who said they believed that the ‘internet of things’ would have the greatest  impact. Chatbots, autonomous vehicles and dynamic pricing were the next most cited technologies. Perhaps most surprisingly were the technologies that scored the lowest. Despite the media interest, high profile technologies such as drones, virtual reality and 3D printing do not appear to be high on companies’ radars.

Identifying which area of a business to target for AI investment is a fundamental exercise for retailers to carry out. Customer engagement and enhancing the way in which goods reach consumers seem to be the top priorities. 65.6% of businesses in our survey felt that ‘sales, marketing and insight’ was the most essential area to focus on, in part because improved sophistication of AI-centric marketing strategies is resulting in a better return on investment. More than 53% of retailers said they would focus AI investment on their warehousing and distribution divisions, while 46.9% said they were keen to improve their buying and merchandising through the use of AI. Back office functions such as HR and finance do not appear to be prominent targets for investment.

 

Challenges of implementing AI

Shortage of AI expertise

Adopting any technology can be tricky for a business but AI technologies may additionally involve job losses and trust issues with customers. However nearly 60% of the retailers and consumer brands we spoke to said they felt that a ‘lack of specialised skills’ was the principle challenge they faced in rolling out AI within their organisations. This goes some way to explaining why 75% of organisations polled think they will use external technology partnerships to enhance their AI capabilities. The 38% that said they would develop capabilities in house will need to reflect on how to plug the apparent skills gap.

Legal and regulatory barriers

46.9% of the organisations we polled said that one of the main barriers to AI investment involved the legal
and regulatory issues related to its use. The complex patchwork of rules governing the use of AI within an organisation can be a minefield to navigate. There are
a host of laws around the use and storage of personal data while some AI-technologies, such as a dynamic pricing, may fall within the realm of competition law.

Trust and ethics

Perhaps in answer to our research around trust (see page 15), in order to properly handle the issue of data security, companies need to firstly not underestimate its importance and secondly think about hiring skilled people to help manage data ethics in an organisation. This was reflected in our survey where over 60% of companies think they will need to invest in roles managing data ethics. As AI technologies make more ‘decisions’ within organisations, there will be greater scrutiny from customers and regulators as to how these decisions are made. We believe a key component of any AI strategy will be the use of an AI Ethics Board.

AI-readiness amongst consumers is hugely variable

Businesses also need to reflect on whether AI is always called for in every instance. Just because something can be done, does that mean it should be? Our survey of consumers shows that perceptions can differ wildly by technology type and by age category. There is also significant divergence between how receptive consumers claim to be and how ready organisations perceive them to be. Consumers and retailers are not always on the same page. For example, while some businesses are investing in drone technology and autonomous in-house delivery in a bid to lower logistics costs, consumers were far more reticent about these
new technologies.

 

Download the full report to gain deeper insight into the topic...

 

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06 May 2020

The Future of Online Retail in the UK

A new age of retail has emerged over the last decade. This age is characterised by a richly textured digital landscape, buzzing with new technologies, devices and online communities which has gradually overshadowed analogue consumerism.

This report published by Retail Economics (partnered with Womble Bond Dickinson) unearths unique insights concerning the causative forces driving the digital customer journey and reveals stark differences across consumer segments. The digital retail revolution is only just getting started,  but ultimately – a tipping point will emerge.  It looks at the possibility of onlline retail sales accounting for the majority of retail sales in the next 10 years. The research framework identifies 10 overarching themes as to why this might be so:

1. Customer Journey evolution
2. The evolution of online
3. Importance of age for category penetration
4. Increased pace and spend of online
5. Increasing significance of Gen Z and millennials
6. Faster, cheaper in-home deliveries
7. Fewer stores drives consumers online
8. Better connectivity and more powerful devices
9. New retail business models
10. The rise of AI

Introduction

Seismic shifts have fundamentally changed the way in which consumers research, purchase and consume products from retailers of all sizes, types and  cross all channels. An array of varied touch-points influence, enhance and intelligently ‘nudge’ shoppers through an ever-expanding number of paths to  purchase, from increasingly personalised social media campaigns to stockless stores where merchandise is viewed through augmented reality apps.

Successful retailers have always had to reinvent themselves throughout history; the most successful listen to their customers, embrace change and invest  isely for the future. However, the race to digital transformation is occurring at such a pace, many retailers are struggling to keep up with disruptive  frontrunners.

Those retailers enjoying success appear to be those adopting new technologies at pace in order to leverage new opportunities. Nevertheless,  new risks are emerging too. Consumers are increasingly conscious, even defensive, over their data protection rights and seek an equitable exchange of value in favour of data relinquishment. With this backdrop, the impact of future technologies and consumer acceptance is highly uncertain.

Advancements in technology will power speedier and cheaper online fulfilment, which will increasingly be delivered in-home. Emerging subscription  models, autoreplenishment and the shift towards fewer (but more experiential) stores will facilitate aggressive online migration.

The burning question for  any retailers is whether they can pivot swiftly enough while swimming against unpredictable tides of digitisation. Retailers must embrace change, have a  unique proposition and continue to innovate in order to survive.

With digital natives expected to form the majority of the adult population in the next ten  years, we forecast that online will account for more than 50% of all retail sales by 2028.

The majority of retail spending to be online within 10 years

Today’s customer journey is truly unrecognisable from the analogue path observed just a decade ago. In the next 10 years, we expect to see the rate of change accelerate as innovative technology shifts the balance of power in favour of the consumer. Powered by technology, changes in the property  market, improvements in connectivity, new business models and generational shifts, the physical and online channels will meld together, but online will drive the majority of retail sales within the next 10 years. 

This will create significant challenges for the retail industry. The role of the store will evolve from mere product distribution hubs to meaningful customer  experience environments, offering discovery, entertainment and escapism. The consumer experience will be embroidered with digital touchpoints that  distort the boundaries between what’s physical and digital. Nevertheless, online will become the main driving force behind retail sales. We forecast that online sales will overtake store-based sales within 8-10 years, with online accounting for 53% of total retail sales by 2028.

The digital revolution: Past, present and future

As part of a necessary framework to explain the projected future impact of online; from our 10 key reasons, the first four touch upon past and present factors providing historical context. This is followed by six subsequent reasons which focus more on future impacts.

Reason 1: Customer journey evolution

The impact of digital technology has irreversibly changed the way we shop. The explosion of consumer choice is predicated on: the penetration of b roadband, improved connectivity, more powerful devices, the emergence of new services and the vast investment in digital platforms. It has clearly  affected how shoppers research, communicate, consume content, seek information and purchase products throughout the customer journey. Meanwhile,  both physical and digital experiences have become of utmost importance to consumers whose expectations are more demanding than ever. 

The growing impact of thesmartphone cannot be understated. Following the launch of the first iPhone in 2008, it took less than 10 years for the majority of  time consumers spent online to occur on mobile devices (62%1). In March 2019, 55%2 of visits to retailer websites were on smartphones, with categories such as Health and Beauty seeing this proportion exceed two in every three visits. Almost half of consumers suggested that smartphones are the most 
important device to connect to the internet, this figure rising to 72% for those aged between 16-34. These shifts have torn apart the analogue customer journey and replaced it with an almost endless array of digital and physical alternatives. 

Our digitally-integrated lives mean that competition for shoppers’ attentions has become much more fiercely contested; giving rise to the attention economy. Retailers compete with a digital kaleidoscope of other  distractions’, thus intensely focus on reducing friction throughout the customer journey. 

The emerging challenge is to connect with customers in the right  way. This means in the right manner, with the right content, on the right device, at the right time – in the ‘moments’ that matter most. Moments of inspiration, moments of desire and moments of action. New technologies have helped to enable smoother and speedier transactions, but consumer references have become much more fragmented as the range of available options have exploded. 

One reason for this fragmentation is that consumers  are now exposed to more influences for inspiration (e.g social media, celebrity endorsement, online communities, bloggers and influencers who spot new products and trends). For Gen Z and millennials, this occurs most frequently on smartphones.  

Our research revealed that the majority (53%) of younger shoppers (aged 16-24) think that smartphones are the most useful device when making them aware of new products and brands. This is in stark contrast to consumers aged 65 and over, of whom only 3% agreed with their younger counterparts. 
Such differences are partially driven by variance in smartphone ownership, but younger shoppers spend significantly more time on smartphones than any  other age group. On average, 18-24 year old females spent 3hrs 40 minutes per day on their smartphones, more than twice the duration of men aged over 55 (01:42mins).

This state of near constant connectivity has occurred at an exceptional pace, with significant consequences to physical destinations throughout the UK; arguably leading to lower levels of footfall across high streets, retail parks and particularly shopping centres. 

Primary locations in large city centres and key regions continue to deliver sustainable levels of footfall, but many secondary locations that are burdened with excess capacity and dwindling levels of footfall are expected to remain. 

Indeed, our research shows that online now accounts for around one in four shopping occasions and although high streets showed the greatest penetration across all age groups, their prominence as the main shopping channel is dwindling. 

Over one in ten consumers suggested that they will shop less frequently in physical shops in the next 12 months, outweighing those who suggested they will shop more frequently. Consumers pinpointed high streets as the main physical channel that they are intending to shy away from in the future, but the results were not clear-cut. Gen Zs (aged under 25) suggested that they are likely to do more shopping in physical locations in the coming 12 months, with the importance of physical retailing being a consistent theme throughout our research for this age group. 

 

Download the full report to gain deeper insights into the other nine overarching themes that are driving the online retail revolution towards the tipping point...

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20 March 2020

Impact of the Coronavirus on Retailers

This report explores the unfolding impact of the coronavirus (COVID-19) on the UK retail and leisure industry.  When released, this research is included in our 30 day free trial subscription as part of our COVID-19 Service. 

About out COVID-19 Service

Retail Economics conducts extensive research and analysis on the impact of coronavirus (COVID-19) on the UK retail and leisure industry. Our service consists of frequent, timely analysis and updates in a variety of formats so you can absorb the information quickly in a way that best suits you.

Retailers (and retail related industries) integrate key findings and insights from our proprietary research into their response strategies to the COVID-19 crisis which enables them to make more informed – and timely – decisions which helps them manage the associated risks and to plan ahead.

This service incorporates many dynamic components and explores relevant issues in an adaptive manner, responding to real events as they unfold and as consumer behaviour evolves.

Click here for more details

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21 November 2019

2020 UK RETAIL AND LEISURE OUTLOOK

** REPORT PUBLISHED BEFORE CORONAVIRUS (COVID-19) CRISIS **

We fully acknowledge that a significant quantity of content in this report does not reflect or account for the COVID-19 impact to the UK retail and leisure industry.  

Considerable political and economic uncertainty persists heading into 2020. The ongoing impact of Brexit dominates the political agenda and remains a key factor constraining business investment and dampening consumer confidence.

Against this backdrop, UK retailers face seismic structural challenges as the ongoing shift towards online shopping and the rising prominence of the experience economy collides with spiralling operating costs. The proportion of online shopping has now reached almost 20%, quadrupling in the last 10 years. We forecast that this figure could rise to 50% for internet shopping in the next 10 years.

Meanwhile, an abundance of physical possessions has caused consumers to re-evaluate the importance of material goods. Following two decades of falling prices, in real terms, for clothing, footwear, electricals and many other goods, UK households have arguably reached a period of ‘peak stuff’. The economic value they attach to material possessions has diminished, leaving them valuing ‘experiences’ more than ever before.

This perfect storm of behavioural shifts and rising operating costs (e.g. business rates, labour costs, logistics) has left many retailers with business models that are not fit-for-purpose. Exposed by too many stores, inflexible lease structures and legacy systems, business models are creaking under the pressure of spending shifts and the purpose of the in-store experience.

However, with great disruption comes opportunity. Those retailers who have ‘embraced, adapted and innovated’ have managed to thrive in this fast-paced environment where relevancy is vital.

The Retail Economics Outlook for the UK Retail Industry 2020 Report provides an in-depth analysis of the challenges facing both UK retailers and consumers as we enter a new decade of change.

Consumer Environment

  • Inflation
  • Labour Market
  • Wages and Disposable Incomes
  • Credit and Household Debt
  • Housing Market and Assets
  • Interest Rates
  • Brexit
  • Consumer Confidence

Retailer Environment

  • Operating Costs
  • National Living Wage/National Minimum Wage
  • Business Rates
  • Sourcing Costs
  • Brexit
  • Investment
  • Behavioural Change

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23 May 2018

Retail Economics/RBS Outlook for UK Retail 2018

A vast blanket of uncertainty engulfs the entire economic landscape at present. Attempting to accurately predict the immediate future for the retail industry appears to be a task beyond mortals.

I feel that 2018 will be a memorable year. Pervading structural change continues to rattle traditional business models and will undoubtedly intensify as we move forward.

A tough consumer environment will remain throughout the first half of 2018 as the debilitating squeeze on personal finances finally eases by Q4 2018. Nevertheless, confidence will remain a delicate issue with possible interest rate hikes, a tough labour market and political instability forming an unwelcoming backdrop.

Retailers will also face a continued pincer movement of rising operating and sourcing costs with soft consumer demand. Many retail business models will come under increasing strain as the unforgiving shift towards online and the experience economy collide with inflexible leases, high rents and excess properties.

Focussed work will continue behind the scenes to better understand the role of digital and social marketing in alignment with dazzling in-store experiences, while delivering a truly seamless omnichannel experience.

There’s no question - boardrooms across the UK will have to discuss the ‘embrace, adapt and innovate’ philosophy in order to thrive, or indeed, just to survive. 

The Retail Economics/RBS Outlook for UK Retail 2018 report contains:

Consumer Environment

  • Inflation
  • Labour Market
  • Wages and Disposable Incomes
  • Credit and Household Debt
  • Housing Market and Assets
  • Interest Rates
  • Brexit
  • Consumer Confidence

Retailer Environment

  • Operating Costs
  • National Living Wage/National Minimum Wage
  • Business Rates
  • Sourcing Costs
  • Brexit
  • Investment
  • Behavioural Change

To download your copy of the Retail Economics/RBS Outlook for UK Retail 2018, please complete and submit the form on this page.

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12 June 2017

Election result makes hard Brexit more likely not less

Some of the early analysis of last weeks election suggests that it will now be more difficult for the government to drive through a hard Brexit. We disagree. In fact the opposite is the case a hard Brexit becomes more likely now.

When the UK submitted its Article 50 letter it set in train a process to leave the EU which now has its own momentum. This means that unless the UK and EU explicitly agree otherwise at the end of the two-year process the UK will be out of the EU and will have a trading relationship based on so-called WTO rules. In trade terms this is what hard Brexit means. This outcome requires no further decision or action on the part of either party and is the default consequence of the UK's decision to leave. As Michel Barnier the EUs chief Brexit negotiator told the Commission "... in any event the UK would become a third country on 29 March 2019." So hard Brexit is the road that we are already on.

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01 June 2017

The Retail Experience Economy: The Behavioural Revolution

Retailers need to offer a more multifunctional, "experience-based" environment in order to inspire, win and retain the loyalty of customers.

At-A-Glance

  • The Retail Experience Economy identifies four key factors determining a customer’s shopping experience: (1) Environment, (2) Education, (3) Escapism and (4) Entertainment
  • 24% of 2,000 respondents said they would willingly pay more for the same product if it meant they would receive a meaningful experience when purchasing it
  • 43% of shoppers said that they are likely to spend more money in the future with a retailer who offered a meaningful shopping experience in-store
  • Entertainment ranked the highest for younger consumers: 35% of respondents aged between 18-24 years old, compared with just 13% for the 65+ age group
  • Environment was the most important element of a meaningful shopping experience, selected by almost half (46%) of 35-44 year olds
  • Almost two thirds of consumers are more inclined to shop at destinations that house cafes, restaurants and bars as they place a multipurpose environment with social meeting points as a high priority

UK retail is undergoing significant structural change. A behavioural revolution is taking place through a transformational shift in what people value most — experiences. Evolutionary processes have guided economic value from commodities, to goods, to services and in this new paradigm, experiences are taking prominence over products. The genesis of an emerging era of retail is rearing its head – The Retail Experience Economy.

Retailers must engineer seamless experiences that envelope the consumer in beautiful retail environments that entertain, provide escapism and relevant education.

Research conducted by Retail Economics and Squire Patton Boggs found that almost a quarter of consumers said they would willingly pay more for the same product if it meant they would receive a meaningful experience when purchasing it. Furthermore, 43% of shoppers said that they are likely to spend more money in the future with a retailer who offered a meaningful shopping experience in-store.

Retailers’ abilities to predict, analyse and adapt to forthcoming waves of these behavioural shifts will stand as the differentiating factor from their competitors.

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09 February 2017

Retail Economics/Revo Outlook for UK Retail 2017

We have entered 2017 in extraordinarily uncertain times. The political and economic environment has changed markedly over the last 12 months. It is difficult to remember a more challenging time to take a view on how these events will play out for the retail industry.

Despite the anxiety caused by the Brexit vote, consumer spending remained remarkably robust heading into the final quarter of 2016 and strong momentum delivered positive Christmas trading results for many retailers. Nevertheless, it strikes us that underlying conditions for households are more fragile than they appear. Disposable income growth is already slowing rapidly. As inflation surges towards our forecast of 3%, we expect real wages to start shrinking by the middle of 2017.

What’s more, consumer spending has become increasingly debt-fuelled with unsecured lending rising at the fastest rate since the financial crisis. As the impact of weaker business investment leads to an increasingly fragile labour market, rising unemployment is expected to bear down on consumer confidence in the months ahead.

Underlying the complex macro environment, retailers face a seismic shift in consumer behaviour with digital and online technologies forging an inevitable evolution in retailer business models. The speed at which retail spending has shifted online is putting strain on traditional business models — many of which are no longer fit for purpose. The winners will be those retailers who provide a seamless omnichannel proposition, who execute click-and-collect conveniently for their customers and embrace the continued shift towards online retailing. For others, 2017 is set to be a very challenging year.

The Retail Economics/Revo Outlook for UK Retail 2017 report contains:

Consumer Environment

  • Inflation
  • Labour Market
  • Wages and Disposable Incomes
  • Credit and Household Debt
  • Housing Market and Assets
  • Interest Rates
  • Brexit
  • Consumer Confidence

Retailer Environment

  • Operating Costs
  • National Living Wage/National Minimum Wage
  • Business Rates
  • Sourcing Costs
  • Brexit
  • Investment
  • Behavioural Change

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01 July 2016

What does Brexit mean for the economy and the UK retail industry?

The result of the EU Referendum is clear. The implications that this will have on consumer spending, households’ disposable incomes, savings, confidence and the wider retail industry are not. Uncertainty over speed, breadth and magnitude of these changes are likely to weigh on our economic prospects and those of UK households for some time.

The focus on economic data and analysis has never been more important. In a period of heightened uncertainty, it will be critical for businesses to understand how the rapidly changing macroeconomic environment affects the retail industry as the repercussions of Brexit unfold.

In the short-run, households’ disposable incomes are unlikely to change significantly. It will take time for the knock-on effects of the vote to work their way through to the real economy in terms of jobs, higher inflation and lower economic output. Nevertheless, we expect elevated levels of uncertainty to lead to a sharp fall in consumer confidence which will trigger higher levels of saving as consumers rein in their spending.

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11 May 2016

Brexit - A Retail Industry Perspective

It is argued that both the break with the EU and the uncertainty associated with it would be damaging for businesses and could undermine the UKs economic recovery.

In reality should Britain leave the EU the severity of the impact would depend on the new relationship that emerges between the UK and the EU after a vote to leave. Put simply no member state has ever left the EU so there is no precedent set for guidance. If the UK votes to leave the EU it is also unknown what arrangements will be agreed to replace the EU membership however there are likely scenarios which may develop.

Download our Brexit - A Retail Industry Perspective white paper to see the possible arrangements that may be negotiated and the possible macroeconomic effects and implications that Brexit could have for the retail industry.

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02 January 2016

Outlook for the UK retail sector in 2016

The last 12 months has seen the UK retail landscape in continuous flux with digital and online technologies forging an inevitable shift in retail business models adapting to today's consumers. Underlying these sectoral challenges lie a complex macroeconomic environment which underpins consumer sentiment and spending power.

UK households haven't had it better in over a decade. The perfect storm of record low interest rates deflation across non-discretionary items rising real wages all-time highs in employment and robust consumer confidence saw a sharp recovery in households spending power. It resulted in the strongest growth in consumer spending since 2007 during the credit-fuelled boom.

So after a landmark year in the consumer recovery what does 2016 hold for the UK retail industry

Download our latest report for an in-depth outlook of the UK retail industry in 2016.

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05 August 2015

Ten trends that are changing the landscape of the UK retail sector

Retail has gone through enormous structural change over the last few years with digital ecommerce and technology at the heart of transforming the retail landscape in the UK.

The growth and adoption of digital and mobile technologies has caused a fundamental shift in the way consumers shop and interact with retailers of all sizes and types in all locations. The power dynamic between retailers and consumers has shifted and todays consumers are more empowered than ever before.

Download our white paper for the top 10 trends that are transforming the UK retail sector.

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