Monday, February 6, 2023

Everyone knows the UK consumer is on their knees, the high street is dead and the country is awash with defunct shopping space thanks to the unstoppable digital juggernauts.

Not so fast. Retailers from supermarkets to old high street dames like Marks and Spencer have lined up to shout about their better than expected Christmases. Double-digit inflation, in fairness, helps the top line look healthy even if customers’ baskets are shrinking. But even big box shopping, that throwback to a bygone consumer era, has fared well while everyone’s favourite retail villain Amazon is retrenching its line-up of warehouses.

Next kicked off the sense of a revival for bricks and mortar. In the last nine trading weeks of the year, sales in physical stores were up 12.5 per cent while online sales were flat. Fashion brands such as Seasalt and White Stuff told a similar tale, notes Kien Tan at PwC.

M&S, whose stores once defined the prime shopping districts of towns and cities around the country and then in closing typified their decline, sealed the deal: online clothing and home sales in the Christmas quarter were up less than 1 per cent, while store sales rose nearly 13 per cent. After years of closures, Marks plans to open eight new full-line stores as well as 12 more food halls, although will continue to prune its old format high street shops. Some of the new stores will even go into old Debenhams sites, breathing new life into the sickest part of the retail world.

Hailing the triumph of square footage over pixels would be wishful thinking. For a start, most retailers gave a gloomy outlook and this festive season was idiosyncratic at best. UK online sales growth has been negative for the past 18 months on the back of the surge during lockdowns, according to IMRG: the ecommerce trade body put the UK market overall down 12 per cent in December, compared with last year’s Omicron-boosted figures. Strong Black Friday sales had pulled spending forward. The postal strikes were a clear deterrent to shopping online. Meanwhile, there are signs that the cost of living crunch may have pushed gift-givers to seek out bargains in person, avoiding the need for slow or costly returns.

This also isn’t really a shift back to pre-pandemic behaviour. Internet purchases accounted for 19 per cent of UK retail sales as the first cases of Covid-19 were found in China: they are now about 30 per cent. Footfall on high streets, shopping centres and retail parks may have been up this December on last year, but there is a persistent 10 per cent gap compared with pre-Covid levels, according to Springboard’s Diane Wehrle, over and above the expected annual migration of shopping trips on to the internet.

But if some pandemic behaviour has stuck, the pace of change hasn’t. Online sales growth had already started to slow in 2019, as a degree of maturity set in. The forecast growth rates now are about half what they would have been a few years ago, according to KPMG, off a base supercharged by Covid.

That offers some sense of stability after a turbulent few years for landlords and traditional retailers. Occupancy costs relative to sales, once stratospherically high, are in line with other European countries after the carnage of recent years, according to Green Street Advisers, which expects growth especially as business rates fall.

Many retailers, still struggling to provide a seamless service between online and stores, should take the chance to catch up with the post-smartphone, post-pandemic world. True, online-only rivals are struggling given rising costs and the evaporation of the ready supply of cheap money. But KPMG’s Paul Martin argues that consumer behaviour in China, always 10 years ahead, suggests more fragmentation of spending, with growth in areas such as social retail, shoppable livestreaming or even (heaven help us) the metaverse.

“Omnichannel” remains the favourite retail buzzword but it will become ever-harder to live up to the billing.

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