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Outlook for the UK Retail Industry 2021

The world of retail is moving at a break-neck pace in 2021 as a myriad of disruptive forces coalesce at this time. The industry is traversing through huge structural changes as the customer journey evolves rapidly with the seismic shift to the online channel.

Here are the themes for our 10 Retail Trends for 2021:

  1. The changing face of consumers
  2. Long term impact of Covid-19
  3. Channel shift to online
  4. Prioritising digital in the customer journey
  5. The changing role of stores
  6. Brands connecting directly with consumers
  7. Raising Environmental Social & Governance (ESG) credentials
  8. Developing resilient supply chains
  9. Manging Brexit policies
  10. Updating business models

The accelerated shift towards the online channel since social distancing took hold in March has not been surprising. Nevertheless, the shift has led retailers having to transform operations in a matter of weeks – not years – to cope with online practically doubling in some categories such as Homewares.

This is seeing retailers fast track digital integration, using innovation to come up with cunning ways to leverage existing stores to support online sales. For example, Dunelm quickly introduced a contact-free ‘deliver-to-car’ click and collect alternative, while partnerships with third parties such as Deliveroo and Aldi continue to provide a lifeline to those dabbling in e-commerce.

A greater focus indoors has seen home categories outperform in recent months. But continued elevated levels of demand for home furnishings is unsustainable, given that the housing market continues to be dogged by low supply going into the new year.

When shoppers do venture out, they appear to be avoiding historically crowded places, with consumers re-discovering local and out-of-town shopping. In 2020, footfall in city centres was at around half the level of 2019 throughout the summer months as consumers avoided public transport.

With such unsustainable levels of footfall, retailers are reducing their reliance on costly stores. H&M is set to close 250 stores worldwide in 2021, while luxury label Aspinal of London is looking to shutter all its UK stores to move the brand online.

Retailers that are keeping the lights on in shops will be looking at rent reductions, as physical stores fundamentally generate less revenue. As stores move to turnover-based rents, the rebalance of power between retailers and landlords shifts in favour of the former.

Such cost cutting underlines a strong focus on balance sheets to ensure retailers do not burn through cash over the coming months. Unfortunately, fallout in the form of redundancies and administrations is inevitable. Also, the pressure on working capital remains severe. But it also provides an opportunity for M&A activity and retail partnerships.

With the UK’s departure of the European Union (EU), supply chain disruption is also likely to occur with elevated costs (especially for the food and drink sector) and new administration procedures.

Throughout 2021 as industry restructuring unfolds, there will be many opportunities for retailers to watch out for:

  1. Gaps forming in the market as administrations occur
  2. Points along the customer journey where relationships can be strengthened
  3. Engagement of new customer segments online
  4. Streamlining processes for greater efficiency
  5. New partnerships to enhance propositions and capabilities
  6. Innovation between in-store and online for new consumer experiences
  7. Fostering genuine consumer relationships in challenging times

Harnessing these opportunities effectively requires a deep understanding of all the key factors.

Consumer Environment

  • Covid-19 Impact
  • Consumer behaviour
  • Consumer Confidence
  • Labour market & job losses
  • Wages & disposable incomes
  • Credit and Household Incomes
  • Inflation
  • Housing Market & Assets
  • Interest Rates
  • Brexit

Retailer Environment

  • Covid-19 Impact
  • Brexit
  • Supply chain disruption
  • Shift to online
  • Operating Costs
  • Cash flow
  • National living wage
  • National minimum wage
  • Business Rates
  • Sourcing Costs
  • Investment
  • Behavioural Changes

10 Retail Trends for 2021 Report - Retail Economics

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10 Retail trends for 2021: report excerpts

Trend 1: The changing face of consumers

The outlook for consumer spending will be shaped by two underling factors:
1. How the impact of the pandemic continues to influence buying behaviour.
2. How the economic shock impacts personal finances and households’ propensity to spend.
The research segments and quantifies households into ‘Behavioural Change Quadrants’. The first analysis looks at buying behaviour; the second at propensity to spend; and finally, a combination of the two to provide an overall assessment to help identify four general consumer archetypes to better understand the direction and expected shifts of spending patterns throughout 2021.

Trend 2: Long term impact of Covid-19

Our research reveals a strong correlation between the perceived duration of the pandemic, and confidence in spending in 2021. Indeed, almost two in five consumers (38%) think that their lives will return to normal by June 2021, rising to 55% by September 2021 and 65% by December 2021. However, this leaves 35% who believe it will take more than a year for their lives to return to normal, with 16% of those believing things will never return to normal.

Trend 3: Channel shift to online

The closure of hospitality and non-essential retail during periods of national lockdown necessitated a shift towards online. Consumers were faced with an entirely new customer journey, ordering products online that they normally purchase at a physical store. Our research shows that almost half (46%) of consumers completed a new online purchase that they previously only ever purchased in store. This new wave of online shoppers have overcome the typical barriers of setting up online accounts, entering payment details and gaining trust in retailers

Trend 4: Prioritising digital in the customer journey

The impact of the pandemic has completely rewired the customer journey for many parts of retail and hospitality. The research shows that 61% of employed people agree that Covid 19 has impacted the way they work and this has influenced how and where they shop . While there does not appear to be a strong correlation with age corollary, there is a firmer relationship with income group. Indeed, the proportion of consumers who agree that there has been an influence in where they shop rises to 82% for the most affluent households.

Trend 5: The changing role of physical stores

The continued fusion of physical and digital realms will be a key feature throughout 2021, with a renewed focus on repurposing physical stores in the context of evolving customer journeys. The impact of the pandemic has intensified across each journey stage and the urgency to reflect this across retailers’ store estates will become increasingly important.

Trend 6: Brands connecting directly with consumer

In 2021, the urgency for consumer brands to establish a more direct relationships with end customers will rise and the impact of the pandemic will accelerate this transition. Brands such as Nike, Adidas, Samsung, Dyson and others have made significant strides in recent years, boosting their online customer proposition while increasing their physical presence, usually with flagship experiential stores. The seismic shift towards online presents a significant opportunity for brands to embrace customer-facing online channels.

Trend 7: Raising ESG (Environmental Social & Governance) credentials

Early in the pandemic, apparent concerns around the Environmental, Social and Governance (ESG) were at risk of being relegated as firms focused on survival. However, as the initial shock subsided, businesses and governments are considering how to build back better, with sustainability playing a key role. Three major themes that will see ESG play a more central role throughout 2021 include:
1. Supply chains
2. ESG-focused investors
3. Consumer pressure

Trend 8: Developing resilient supply chains

Evidently, the Covid-19 pandemic caused a sudden and severe impact on international trade. As countries grappled with the impact of the virus, factory closures around the world caused a ripple effect throughout an expansive supply chain network, quickly leading to global disruption. We found that 70% of retailers surveyed had conducted a review of their supply chains as a direct result of Covid-19. From detailed conversations with retailers, many were at pains to report the significant work that had already been conducted around Brexit planning, so they were better positioned to deal with the impact of the pandemic.

Trend 9: Managing Brexit policies

The new United Kingdom/European Union trade agreement provides a much-awaited resolution to the future trading relationship for both parties. Here are a selection of key trends to watch out for:
1. No new tariff costs on imports from the EU
2. Tariffs on imports may still emerge
3. New ‘red tape’ will emerge at the border
4. Provisions on cross-border e-commerce

Trend 10: Updating business models

As businesses continue to adapt to new challenges, their business models will also need to adapt. Here are five key themes within this trend to watch out for:
1. Identifying new customer cohorts
2. Leveraging permanent shifts in behaviour
3. Retailer voids
4. Using physical stores more effectively
5. Post-Brexit and international trade

Our ‘Outlook for UK Retail 2021 Report’ explores these opportunities and many other issues, delving into the necessary detail to help retailers (and retail-related industries) successfully navigate through these unprecedented times.

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