High street retailers must adapt to multi-channel world, says investment bank

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High street retailers must adapt to operating in a multi-channel environment in order to survive the current economic upheaval, according to Phil Duffy of global financial advisory and investment banking firm, Duff & Phelps.

UK retail sales values grew last month boosted by sales of clothing and footwear, which saw its best growth since last Christmas, according to the latest figures issued by the British Retail Consortium.

Like-for-like (LFL) retail sales values increased by 1.5% in September 2012 compared with the same period last year; while on a total basis, sales rose 3.4% against a 2.5% rise a year earlier.

Duffy said: “These figures actually hide two core facts – the bounce back from subdued sales this summer, as a result of the sporting events taking place, and the fact a year ago we were experiencing an Indian summer which again suppressed sales as winter product was on the shelves.

“There is a revolution taking place on British high streets today, one that is changing its face forever, impacting consumers, retailers and landlords alike. We need to recognise this change and both retailers and landlords need to adapt to survive. The driver for this, is the rise of online shopping and the continued growth of the out of town retail park,” he said.

According to figures from the IMRG Capgemini eRetail Sales Index, some £5.8bn was spent online in August 2012 alone, an 11% increase month on month, with some sectors such as health and beauty experiencing 25% growth.

“This trend is expected to continue and with the increase in the number of smart devices – phones, tablets and the like – we would expect this to grow still further,” said Duffy.

“Those retail businesses not in the so-called ‘bricks and clicks’ market need to adapt otherwise they will struggle to survive. It is our view this will lead to a transformation on the high street. Brands are already moving away from running huge retail estates and we expect those retailers that survive, will either be those that have a portfolio of around 100 stores and maintain a fantastic online presence.

“The Local Data Company has found 14.6% of retail premises in the UK are now vacant, indicating around 50,000 high street units are empty. The Javelin Group has predicted if current trends continue, a quarter of all non-food retail outlets in the UK could be vacant by 2020. The impact on jobs, landlords no longer receiving the yields they once did and suppliers to the sector such as shop fitters, could not be starker,” he said.

“The message is therefore clear: if the high street is to survive then the sector needs to address the changing habits of the market and adopt a ‘bricks and clicks’ business model. Today’s consumer wants the flexibility this affords and retailers need to address this head on.

“Another major trend is the rise of what we would term ‘destination shopping centres’ and again this is going to affect not only shopping habits but retailers as well. Over the past decade, the rise of the out-of-town shopping centre has been almost unstoppable and in many cases this has led to the rise of retail citadels such as The Trafford Centre in Manchester or Westfield in West, and now East London. Those retailers that focus their energies in these hot spots are going to survive and arguably survive well in the current economy.

“There is no doubt these destination shopping centres have affected historic high streets, but their growth is now being limited. In the interest of maintaining town centres there has been a marked increase in legislation to discourage out-of-town development and encourage investment in traditional shopping locations,” he said.

“Don’t take my comments the UK retail sector is dead and buried. It is in fact in a period of incredible change. Those retailers that keep their nerve, and focus on adapting to changing buying habits, will be the ones that survive the current economic challenges. Let the market change and put the consumer in the driving seat and the sector will rebound,” said Duffy.