Deloitte Breaks Down Retail 2019


Store closures, business failures, job losses and the worst Christmas for 10 years. 2018 was a tough year for UK retail but is it really all doom and gloom on the high street? Look beyond the dramatic headlines and it is clear to see an industry in transformation, with new channels driving growth as the old channels decline and retail is re-invented.

Squeezed between weakening demand and rising costs

Retail is an industry under pressure. Many retailers find themselves in an uncomfortable position as margins are squeezed between weakening demand and rising costs.

Consumer confidence crumbles

Consumer confidence fell in the second half of 2018 and, with uncertainty around ongoing Brexit negotiations, a Global economic slowdown and a China/US trade war, consumers remain cautious.

Costs are rising

Wages hit a ten year high in November 2018 and business rates, commodity prices and pensions also remain high.

Channel shift

At the end of 2018, e-commerce was 20% of all retail sales. Although the majority of sales still take place in-store, the bulk of growth is coming from online. For some, online is fast becoming the channel and, with this shift, there is a need to balance investment growth with store profitability.

For some it is already a fight for survival

Last year saw retailers shift from a store-based past to a digital future. While some businesses are thriving, the slow adopters are fighting to survive.

Record levels of discounting

Discounts in the run-up to and immediately after Christmas 2018 were broader and deeper than we have seen in recent years, with more than half of all clothing on sale in the run-up to the festive period.

Increase in store closures

In the last year, we have seen an acceleration in the number of store closures as under-pressure retailers have tried to restructure their businesses (7,500 net store closures in 2018, a 36% increase on 2017).

Increase in retail CVAs and administrations

For those unable to reduce their cost base, we have seen an increase in both the number of CVAs and the number of administrations.

So how was Christmas 2018?

Following a record-breaking Black Friday and Cyber Monday, December trading got off to a slow start. Yet, anecdotal evidence suggests that, for many, trading improved in the immediate run-up to Christmas resulting in a mix of winners and losers.

Looking ahead to 2019

2019 looks like being an uncertain year for the UK consumer. The macro economic outlook looks positive with all the ingredients for increased consumer spending, however, is difficult to say with any certainty what will happen given that so much depends on the nature of the UK’s exit from the EU.

1.

In-store revolution

In the future, we believe there will be fewer better stores. With smaller portfolios of stores, retailers will be able to invest more to ensure those stores meet the needs of their consumers. During this period of disruption in retail, innovation has continued with many retailers taking the opportunity to reconsider the role their physical stores play in delivering the overall customer experience.

New store experiences

As traditional retailers are closing stores and reducing the size of their store portfolios, a new wave of stores are opening bringing new brands, new services and new experiences to the beleaguered high street.

Innovating at scale

Traditionally concept stores have been small outlets in carefully chosen locations to test new concepts and new technology with limited risk, however, increasingly we are seeing retailers innovating at scale; opening large concept stores – and who said that large format retail was dead?

Re-defining convenience

In the grocery sector innovation has focused on small urban store formats where there is arguably more margin to play with and is redefining the nature of convenience around the customer experience and sustainability.

2.

Re-inventing retail

It’s not just stores that are changing; as the way that consumers shop evolves the model of retail is adapting to meet consumer needs and behaviour.

Re-commerce and the rise of thrifting

A focus on more sustainable models of consumption is creating opportunities for new brands, services and platforms to emerge focused on re-commerce and thrifting as consumers look to recycle and reuse the products they buy.

The personal edit

Not only do consumers want to buy products and follow fashion trends, they also want the freedom to express their individuality and personality through establishing their own personal edit.

Social discovery

Social is the new shop window: the place that consumers browse to find ideas and inspiration. With the rise of social discovery comes the rise of the social influencer in retail.

3.

East beats West

From the self-service supermarket, through the modern department store to the development of e-commerce, many of the major innovations in retail have been developed in the West before being exported around the World. While the pace of development in the US and Europe is arguably as fast as it has ever been, the rate of change in the East and particularly China is happening even faster.

China leads the e-commerce revolution

China has overtaken the US as the largest e-commerce market in the world and still has plenty of room to grow.

The Chinese consumer market goes global

New ideas and innovations created in China are now having a more significant impact around the world, from the growth of new sales events like Singles Day to new brands and concepts.

Technologies of tomorrow… today

China is arguably leading the world when it comes to retail technology and the ability to develop and roll out innovations at scale, from best-in-class visual search capability, to fully automated warehouses and stores.

 

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