The future of physical retail post pandemic
With many of us hoping to sign off from work for a well earned rest in a few days (although not me!), it was reported today that Covid infections in the UK are now at the highest rate since the start of the pandemic.
With this now at the forefront of my mind I have been musing on the wider implications of the global pandemic for physical retail. Two key questions are now often asked of me: firstly can the pandemic be seen as the start of the end for brick and mortar retail? And secondly, when should we expect pedestrian traffic levels to return or even surpass pre-pandemic levels?
My aim here is to present my views, but supported by real data rather than hearsay and supposition. At Springboard we are fortunate in having a rich and broad data lake which has both the necessary immediacy that is so important in a landscape that can shift even overnight, whilst also delivering the granularity of data that is critical for even subtle changes to be identified at the earliest stage. So here I go!
Can the pandemic be seen as the start of the end for brick and mortar retail?
Since the Covid pandemic started in March 2020, the retail industry has undergone the greatest shock for decades with many stores having had to close for extended periods.
However, the pandemic certainly does not mean the end of brick and mortar retail, and if anything demonstrates the importance of physical stores to consumers. In the depths of the mandated lockdown in the UK during 2020, when the only stores trading were those classed as essential, online spending on non-food in the UK doubled, but peaked at 43% of total non-food retail spend, with 56% remaining in store
In large part, the increased migration of retail spending online has been an exacerbation of behavior that was clearly evident even before Covid. The key aspect to remember is that despite the increased amount of retail spending online, the majority of retail spending continues to remain in store. Indeed, since the reopening of all stores and the resumption of normal trading conditions, this has since reduced significantly and in the UK the % of non-food spending that is online has reduced by half to 22% of total non-food spending, with 78% remaining in physical stores.
The fact that even a global pandemic has not significantly dented the extent to which consumers shop in stores demonstrates the continuing importance of in-store retailing, and reinforces its long term future. Indeed, whilst shopper traffic in high streets/downtowns is lower than before the pandemic, it has strengthened noticeably; from -88% below the 2019 level in April 2020 to -30% below 2019 in November 2021 in the US, and in the UK from -83% below 2019 in April 2020 to -16% in November 2021.
The importance of brick and mortar retailing to shoppers is reinforced by the fact that over half of those consumers who are now working from home have not changed their shopping habits from before Covid (Springboard US and UK Retail Consumer Surveys), which demonstrates why a number of pure online retailers are currently investing in brick and mortar stores that will trade alongside their digital offering.
Where the challenge for brick and mortar lies, however, is in successfully integrating physical with digital; the two formats need to offer consumers a fully integrated shopping experience with stores offering the sensory and in-person experience that is lacking online whilst their online offer has the full product range, smooths out any supply difficulties and delivers time and cost efficiencies to consumers. If retailers can ensure their businesses achieve both of these aspects successfully then the future of brick and mortar post pandemic is secure.
When should we expect pedestrian traffic levels to return or even surpass pre-pandemic levels?
The impact of Covid is likely to be felt for an extended period of time, and it has speeded up the transition of some spend online, that was already occurring before Covid. Indeed, over the past decade in the UK high street/downtown foot traffic has declined every year by an average of -2%. Whilst a proportion of online spend has returned to physical stores since they reopened after the first wave of Covid, moving forward there will inevitably remain a greater proportion of spend that is online.
Part of this is down to the fact that working from home for at least part of the working week is becoming a key characteristic of office working, resulting in far fewer employees travelling into downtowns and high streets each day of the five day working week. This of course dampens day time foot traffic and so reduces the available spend for physical stores. At the same time, tourism remains at far lower levels than pre Covid which adds to the loss of foot traffic, particularly in major city centres that account for a far greater volume of overall shopper traffic than smaller destinations or malls.
In the light of this I don’t anticipate that footfall/foot traffic will return to pre pandemic levels, and is likely to settle at between -5% and -10% below the 2019 level for at least the next year. However, the reduction of online spending that has occurred since the reopening of physical stores has demonstrated that even a global pandemic has not dampened the basic human desire for person to person interaction and sensory stimulus that sit at the heart of in-store shopping. It is these aspects of the shopping experience that will ensure the longevity of physical stores, and ensure that brick and mortar retailing will outlast this global pandemic.