Retailers have been redefining and reimagining how we shop since the beginning of the twenty-first century, and although all markets experience booms and busts the UK retail sector seems to be in a constant crisis.
It is however, a key sector, representing five percent of the economy and providing over 3 million jobs. This blog considers the disruptive impacts of Covid-19 for retailers and landlords and asks: what’s next for shoppers?
The pandemic has accelerated trends in a sector that was already actively restructuring in response to changing consumer preferences, e-commerce growth and the apparent ‘death’ of local high streets.
Since the onset of lockdown, footfall has decreased by almost 85%, retail sale volumes have dropped by over 5%, tenants have requested rent holidays and are actively withholding quarterly payments.
Such trends are worrying as the pre-Covid-19 retail market was struggling: 2019 saw the slowest rate of consumer spending growth since 2010, predominantly due to uncertainties around Brexit.
The first quarter of 2020 also saw vacancy rates for high street retail increase to 12.2%, which will only increase as the impact of the pandemic continues to tip the balance for struggling retailers. Sales in clothing stores dropped 34.8% between February and March 2020.
High street retailers such as Oasis and Warehouse, are closing all stores and concessions across the UK, resulting in 1,800 redundancies. Debenhams have called in administrators for the second time in a year while Laura Ashley was recently rescued from administration.
Both retailers intend to retain a number of stores and their operating brands but will some stores will inevitably close.
Ongoing problems in the retail market been exacerbated by the onset of Covid-19. The number of retailers pursuing mitigation against insolvency through Compulsory Voluntary Arrangements (CVAs) has significantly increased in the last decade, predominantly being pursued by large retailers.
CVAs allow companies the opportunity to restructure their operational and financial structures rather than face immediate liquidation.
In a CVA, retailers negotiate terms with landlords and creditors, typically resulting in reduced rents, the closure of several stores or retail owner-occupiers divesting assets. Food and beverage retailer Byron entered into a CVA in 2018, and Blacks outdoor stores had a CVA approved in 2009.
Other retailers, such as BHS (which was sold for £1 in 2015), could not be saved. Following on from the experience of Oasis and Warehouse, the short term impact of the pandemic will stimulate more insolvency procedures.
Although negotiations can be fraught, CVAs between creditors and tenants can result in transformative opportunities by dampening the impact on vacancy rates, preventing negative knock-on effects in the local retail market, and allowing for a more flexible approach to using space.
CVAs are a symptom of the ongoing crises in retailing, but also demonstrate how retailers can develop resilient and rebalanced business models moving forward. However, tensions are common – landlords may not feel like they’re getting the best deal financially in the longer term.
Rising vacancy rates also offer the opportunity for landlords to rethink their properties, potentially considering less traditional approaches if the retail market continues to become more streamlined.
Meanwhile spaces could provide pop-up shops in high streets, spaces could be used by the creative industry and local communities, or retail units could entirely change use into residential units or leisure space.
Reconsidering how retail space could be more actively used is especially problematic for corporate or institutional landlords with greater exposure to debt, such as shopping centre owner operators (with higher still vacancy rates at 14.1%) who have to effect change at a much larger scale – rethinking their retail strategies can take years.
Twenty-first century trends illustrate how retailers use space has been changing, partially driven by the growth of e-commerce and online retail.
Stores are shrinking in size, and retailers have adopted multi-channel approaches such as click and collect. Although shops and high street retail units may be suffering, the demand for retail warehousing has increased throughout the pandemic.
In March, online sales in the UK reached a record high of 22.3% of all sales. Consumption has shifted towards four key areas as we self-isolate: groceries, alcohol, entertainment and crafts, as our spending necessarily changes in lockdown.
Sales of suits have dwindled and leisurewear increased, as ‘comfort is king’. However, not all retailers have been able to continue trading online, and they have seen a build-up of stock. Ethical questions have also emerged around how some established retailers have failed to support their global supply networks during Covid-19.
Unsurprisingly, as we’re eating out less during lockdown ‘essential’ grocery sales have also increased by 10.4%, with supermarkets recruiting additional staff. Local independent retailers have also proved more resilient compared to high street retailers.
Such operators are more flexible in their operating models, able to change efficiently during lockdown and in the future. Lockdown has helped to build customer loyalty.
Online offering can be increased, delivery services can provide locally sourced goods, promoting sustainable retail ecosystems. This will reinforce the trend in the sector towards multi-channel offerings, consumer experience and sustainable shopping.
As we anticipate the reopening of stores, retailers and customers alike are preparing for a new ‘socially distant’ and unfamiliar retail world. M&S have dedicated £1 billion to counter impacts from Covid-19, amidst falling profits and store closures.
Shopping centres such as Westfield are ready to introduce clear social distancing measures, one-way systems for shoppers, manage footfall and extend cleaning regimes.
The long-term impacts of Covid-19 on the retail market remain to be seen. There is a good chance we will increase our online spending even more, with the experience of retailing becoming entirely redundant for some shoppers.
We’ll see more CVAs and established retailers disappearing, and as sustainable shopping continues to grow, we may see the continued renaissance of local independent retailers.
For less successful high streets this crisis could hasten their demise and landlords may need to consider alternative options for their retail units.
We should expect a post-Covid surge in retailing and a spike in spending once lockdown is lifted and shoppers can visit stores once more, but certain retailers may never reopen.
Retailers and landlords will reassess their occupation and investment strategies to ensure they are prepared for more disruption.
Resilience and robustness are key to effectively responding to future disruption in the market from a second wave of Covid-19 and beyond, combined with the longer term economic impacts of the pandemic and Brexit.
By Nicola Livingstone, associate professor, Bartlett School of Planning, UCL.
