Focus on the High Street: Part 4
Updated: Aug 2, 2019
Evolution of the High Street
Part 4 of a series analysing the Scottish High Street.
At a glance
- In the UK in 2017, for every £1 that was spent at an online retailer, £5 pounds was spent in a physical store.
- Online-only retailers are facing similar challenges to high street retailers. 246 online-only retailers folded in 2018, 40 more than the previous year’s total of 206 and more than double the 120 online-only retailers that went bust in 2010. (Retail Gazette, 2019)
In Part 1, of the Focus on the High Street series, we examined the underlying cause of high street decline in Scotland and the UK. In Part 2, we examined the types of companies that cities should attract to their city centres. Part 3 looked at the opportunities for businesses to capitalise on the highly educated workforces located in the UK. So, what should businesses make of the view that e-commerce will bring about the end of the high street?
Companies like Amazon have been made the enemy of the high street, drawing much criticism and blame for the demise of many high street brands. In fact, not all high streets are struggling; some high street retailers, like Inditex (Zara’s parent company) declared profit growth of 3%, which is a huge success story given the state of the retail industry (Independent ie, 2019). Even more impressive is JD Sports, who reported a 33% (£782.7 million) increase in revenue and 19% (£56.1 million) increase in profit from 2017-2018. So do consumers prefer clicks or bricks?
Clicks vs. Bricks
Over £300 billion was spent in UK retail stores in 2017 while only £59 billion was spent with online retailers, as seen in Figure 1 below.
Although, online sales are seeing much higher year-on-year growth than bricks-and-mortar, (in percentage terms), the revenue growth, (in monetary terms), of online and bricks-and-mortar are similar. In fact, with the exception of 2008-2009 and 2014-2015, there has been a year-on-year increase in bricks-and-mortar spending.
Figure 2 highlights the dominance that bricks-and-mortar retailers have compared to online retailers. Online sales are considerably less than their traditional counterparts, for example, high street retailers specialising in textile clothing and shoes will make roughly four sales to every one sale online. The exception to this is non-store retailers, which are businesses that do not have a permanent bricks-and-mortar presence. Surprisingly, these non-store retailers are facing similar pressures to high street retailers. In 2018, 246 online-only retailers folded, 40 more than the previous year’s total of 206, and more than double the 120 online-only retailers that went bust in 2010.
The underlying cause attributed to the increase in failed non-store retailers is a result of an oversaturated market. Similarly, as mentioned in Part 1 of the Focus on the High Street series, over saturation (sub-optimal business mix) of the high street can have a detrimental effect for bricks-and-mortar retailers, leading to increased vacancy rates. This phenomenon goes back to the basics of economics; the more supply there is, the less demand there will be.
Is Online Shopping the Future?
Possibly, but not anytime soon. Consumers still want an in-store shopping experience when they purchase goods, a sentiment that online retailers have realised, prompting them to open their own physical stores. Amazon, who purchased Whole Foods grocery stores in 2017, have opened their own branded “checkout-free” grocery stores in the US. Online clothing retailer Missguided has joined the bricks-and-mortar trend by opening two stores in London, marking their first foray outside of online retail. Other retailers including, Boden, Joe Browns, Blaiz and Zalando have all opened bricks-and-mortar stores in recent years.
Simon Brown, the owner of Joe Browns, defended his company’s choice to open a physical store stating “Customers have told us they love to step into a space where they feel fully immersed in Joe Browns’ uniquely captivating and colourful world”. If retailers and high street businesses can offer a great experience to consumers, then the future of retail will include bricks-and-mortar stores for some time to come.
Opportunities for the High Street
For city centres that have proportionally more office space than retail space, there are more people, shoppers and footfall throughout the entire week.
Create a healthy business mix to ensure that the high street has a diverse range of enterprises that complement one another and encourage healthy growth.
KIBS contribution towards GVA highlights the benefit they provide for Scotland, in terms of overall revenue and tax generated.
Create high quality office space to attract KIBS to the city centre and retain them long term.
Highly-skilled workers, students, and recent university graduates are attracted towards places where there are professional opportunities and career prospects.
Developing a rapport with local Universities and organisations like Skills Development Scotland, businesses can encourage potential employees to remain locally in smaller towns and cities, benefitting the high streets, other local businesses and the wider community.
Over £300 billion was spent in UK retail stores in 2017 while only £59 billion was spent with online retailers, however, the rate of growth of online retailers is outpacing bricks-and-mortar.
Most high street retailers already have an online presence. Many are now attempting to move more shoppers towards their e-commerce platform. The key to their success will be whether or not the customer feels that their online shopping experience complements or heightens their in-store experience.
If you are looking to explore the opportunities on the high street, then contact Strathearn Strategic Consulting; we’re here to help your business grow.
Strathearn Strategic Consulting
+44 (0) 7913 413 699