Reforming the UK’s high street will prevent £14.5bn loss in clothing sales by 2025, Eversheds Sutherland reports

A dramatic shift in UK consumer spending over the pandemic will leave high street apparel stores with a £14.5bn (€17bn) hole in sales by 2025 if changes are not made, according to research by Retail Economics commissioned by Eversheds Sutherland.
 
The research for ‘The future of the European Apparel Industry Report’, has found that the pandemic has accelerated UK retail’s shift to an online sales ‘tipping point’ – where online sales overtake in-store sales – by three years. This will now happen in 2022 instead of a pre-pandemic prediction of 2025.
 
UK retailers will be the first across some of Europe’s biggest retail markets (UK, Germany, France and Netherlands) to make the majority of sales via online, with 52% of all transactions set to occur online in 2022. Netherlands is predicted to follow next, moving to 52% of sales going online in 2025, with others analysed not hitting the tipping point until beyond 2025.
 
Concerningly, while UK online sales during the pandemic increased by £2.7bn (€3.1bn) or 19% in 2020 versus 2019, this wasn’t enough to prevent an overall drop in apparel sales for 2020 of £9.6bn (€11.2bn, 24% year-on-year).
 
The pressure is on apparel retailers to pivot their business models and adapt to this new reality. If retailers are to be successful in capturing consumer attentions and driving growth online, the purpose of stores will need to evolve.
 
James Batham, partner at Eversheds Sutherland, says:  “Over the pandemic we saw the switch to consumers buying online accelerate. As lockdowns lasted for longer, and companies invested in the digital and logistics infrastructure to service demand, buying online stopped becoming forced and started becoming many people’s preferred method. Now that consumers can return to the high street we can see that buying online has become a habit. And, in my view, habit is one of the three most powerful things in the world, alongside compound interest and true love.
 
“This change of habit means the way we think about high street retail has to evolve. The industry needs a transformation in planning, policy and skills to avoid billions of pounds of sales and thousands of jobs being lost. Retailers will have to alter the way they use commercial real estate and the customer experiences they deliver. They have to bring people back to the high street, and not just from across the UK, but from across the globe.
 
“Whereas reforming business rates is well debated, removing the friction of shopping in the UK for overseas consumers is not. Exemptions for international shopping areas have been discussed for London, but what about in tourist hotspots across the UK? Reform on shopping visas, Sunday trading and tax-free shopping are highly likely to generate more revenue through sales for the government than they will through tax. These no-cost options should be considered as the UK looks to establish itself as an international retail market outside of the EU.
 
“The evolution of retail is happening, the only questions are, how fast it can be done, which businesses will be the first to take clear strides to improve digital and in-store appeal and can the government help?”
 
Changes here to stay
 
As lockdowns came into force across Europe store visits plummeted. However, the research found that more than a third of consumers in the UK (35%) will not return to stores with the same frequency as they did before Covid-19.
 
This was the largest percentage across the countries surveyed followed closely by France (27%), then Germany (25%) and the Netherlands (24%).
 
The millennial generation is at the forefront of this change with 34% across Europe and 44% in the UK saying they have changed their shopping habits permanently.
 
In the UK, the report estimates that the shift to online will result in apparel store-based sales losing an average of £3bn (€3.5bn) a year compared to pre-pandemic projections. Across the four European countries combined, average losses of £6.8bn (€8bn) in sales per year from 2021-2025 are expected. This is compared with a scenario where Covid-19 does not impact consumer behaviour.
 
Aggregated across the five-year forecast period, this amounts to c.£34bn (€40bn) in reduced store-based sales at apparel retailers across the key European markets.

Source: Retail Economics, Eversheds Sutherlands

Richard Lim, chief executive Retail Economics, says: “The pandemic-induced shift to online and subsequent impact on store-based sales has magnified the urgency for retailers to adapt. Physical stores must be reimagined and repurposed to meet the needs of an increasingly digital-centric customer journey, becoming a powerful driver of online sales rather than competing against them.

“Stores will play multiple roles to become much more than a point of transaction. Some stores will function as immersive showrooms or ‘brand-bonding’ centres where customers can discover and interact with products, while others will operate as convenient fulfilment hubs geared towards click-and-collect and returns. Either way, the continued fusion of physical and digital realms will be key.

“Retailers will need to evolve their business models to stay ahead of the curve. This may involve integrating digital technology to provide a next-generation store experience, investing in supply chains to scale up delivery capabilities or forming strategic brand partnerships to reach new audiences.

“Fewer stores are inevitable, but those that are left will be a much better fit for the future. When executed correctly, physical stores can become powerful customer acquisition tools, complementing online channels whilst simultaneously offering unique and meaningful customer experiences that strengthen brand loyalty.”

Consumer demands for the future of retail

In addition to future policy change to attract international shoppers, The Future of the European Apparel Industry report also indicates that retailers can attract consumers back to shops through sensory show rooms, adding digital aspects to stores, in-store click-and-collect, personalisation and creating meaningful experiences.

The ability to touch, feel and try on products are the most important aspects of shopping in-store for 68% of consumers, suggesting sensory shopping experiences are needed. This is most important for Gen X (70%) and baby boomers (75%) and 30% of all UK consumers say they have bought clothing online following a visit to a store.

Greater digitalisation is encouraged with two thirds (66%) of UK consumers saying they are likely to use in-store tablets or other interactive digital screens to be able to browse and order online with a retailer while in-store.

Stores as distribution hubs is found to be effective with almost a quarter 39% of UK consumers say they are more likely to visit an apparel store if it offers free click-and-collect and returns. This percentage increases in UK millennials with 49% saying they would be more likely to visit an apparel store if it offered free click-and-collect.

In fact, most online spend involves a physical store touchpoint during the customer journey (e.g. click and collect or ‘try before you buy’).

And finally, creating a personalised shopping experience is vital with 35% saying personalised shopping experiences, such as personal styling or bespoke product recommendations, are more likely to make them visit a store.

Attracting Generation Z

The report also explored the next generation of consumers. It found that generation Z (16-24) in the UK is much more influenced by experiences, personalisation and ethics than other age groups.

More than a quarter (31% of UK generation Z consumers say personalised shopping experiences, such as personal styling or bespoke product recommendations, are more likely to make them visit a store. This is compared to 15% of millennials and generation X, and 16% of baby boomers.

When choosing an apparel brand, 15% of generation Z consumers are most influenced by ethical credentials, compared to 12% of millennials and 11% of generation X and baby boomers.