High Street continues to lose online battle

New report predicts that the UK retail landscape will continue to change as online sales grow at the expense of High Street stores and jobs across large and midsized retailers

The Centre for Retail Research (CRR) has today warned that the UK High Street could see 22% of its shops close within five years in the wake of e-commerce growth.

The CRR prediction formed part of it published analysis of how UK retailing will change by 2018, entitled Retail In 2018: Shop Numbers, Online and The High Street.

It forecast that total store numbers will fall by 22%, from 281,930 today to 220,000 in 2018 and that job losses could be around 316,000 compared to today. In addition, there will be a further 164 major or medium-sized companies going into administration, involving the loss of 22,600 stores and 140,000 employees. Many of these companies will survive, but at the cost of closing more than half their stores.

Online mirrors offline trends

Meanwhile, the share of online retail sales will rise from 12.7% (in 2012) to 21.5% by 2018 or the end of the decade. And as consumer appetite for online grows, customers will shun the High Street, where its share of consumer spending has declined from 50% in 2000 to a predicted 40.2% next year.

With such a high number of transactions carried out online, retailers with a strong web offering now need just 70 High Street stores to create a national presence, compared to 250 in the middle of the last decade.

The report said that, because UK retailing has the highest proportion of online retail sales, what happens here is being closed watched by overseas, as Britain becomes a test bed for retail innovation.

Key catalysts for the looming retail crisis were also identified. Among these, consumer spending has increased by 12% since 2006, but has been outstripped by retail operating costs (including rates), which have risen by 20%.

Battening down the hatches

With such stark predictions, the report stated that UK is facing a crisis. “Retailing and retailers will either make clear strategic decisions that permit online retail to coexist with other retail channels in a multichannel world, allowing bricks-and-mortar retailers to transform themselves, or, by avoiding making these decisions, multiple retailers will disappear or be so mortally wounded that a large minority of business categories become dominated purely online retailers,” it stated.

And in spite of the Portas Pilots, it warned the High Street will continue to suffer with around 41% of town centres losing an estimated 27,638 stores in the next five years.

The report also suggests that, while much comment about retailing either sees shops as doomed (where most shops will close as online takes over the majority of retail sales) or believes that online will peak, making the crisis shakeout in the industry (returning to business as usual), in fact “neither view is accurate”.

“Radical changes need to be made by retailers, town centres and the government to preserve what is best in retailing,” it said.

Make or break strategic decisions

It also urged that retailers have to make clear strategic responses to the changing patterns of how consumers shop, including: deciding the proper number, type and location of stores (and the speed of any necessary disinvestment from stores); and how to integrate fully their physical stores, the online sites and other channels such as social media coherently.

Jon Copestake, retail analyst for the Economist Intelligence Unit and author of another report looking at the future of the industry, entitled Retail 2022, commented that High Street closures over the next five years are an inevitable side effect of the continued growth in online shopping and the more recent trend towards mobile commerce.

“These have been exacerbated by ongoing austerity and weak consumer confidence,” stated Copestake. He agreed that, while structural changes of this kind were unlikely to kill the High Street outright, the format will need to undergo a painful evolution to adapt to new shopping habits. “Convenience channels, such as supermarkets and pop up shops on short leases may help to plug the gap,” he said.

“Meanwhile ‘pureplay’ online-only retailers, such as Amazon, may begin to invest in bricks-and-mortar showrooms or click-and-collect outlets,” Copestake suggested. “Over the next five years there is no doubt that the high street will become leaner and the strategy very different. Businesses will have to choose a strategy that either embraces online though multichannel options – such as showrooming or click and collect – or they will need to set themselves apart from online channels through product differentiation, high service levels or experience-based shopping."