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Written by: Susannah Streeter | Hargreaves Lansdown
- Busiest shopping day on Friday 23rd December, according to Sensormatic forecast.
- Retail footfall is set to stay below 2019 levels amid cost-of-living crisis.
- Recessionary winds set to make 2023 a challenging year.
- Online-only chains will struggle as high street hybrid trend emerges.
- Thrift and pre-loved sales set to outperform wider market.
- Department stores will continue to downsize.
- UK retail dominated by a smaller number of big players.
High streets and retail centres are hoping for a last burst of present buying this week with Friday 23rdDecember forecast to be the busiest shopping day of the year, but sales are still likely to disappoint. The latest wave of strikes is set to put a dent in online sales with warnings from retail bosses that Royal Mail walkouts mean they can’t guarantee deliveries, and other delivery firms like Evri struggling under the pressure. It’s unlikely bricks and mortar stores will offset the drop in online demand given strikes by rail workers are also disrupting travel into town and city centres. Despite the forecast from Sensormatic, there is a chance the peak shopping period may well have passed in the UK, as consumers heeded warning to buy early to avoid disappointment.
Overall, retail footfall remained flat in the week up to the 11th of December compared to the previous week and it’s still only 89% of the level compared to pre-pandemic times, according to the ONS. The latest forecasts from data company Springboard expect an overall rise of 4.5% in December compared to November, but that would still be a smaller increase than previous years.
Recessionary winds set to make 2023 a challenging year
The high street has shown some baskets of resilience particularly among retailers offering value, but as cost-of-living headwinds continue to whip up and a recession looms, 2023 looks set to be a challenging year for many companies.
We may be spending more as goods are more expensive but, in terms of volumes, retail sales are still below pre-pandemic times. With more money being taken out of the economy through tax increases, and higher energy bills, consumers are likely to continue to rein in expenditure. However, brighter spots should emerge for luxury goods companies, which are more insulated from cost-of-living headwinds, particularly once winter Covid waves have passed in China. China has powered the market for luxury goods over the past decade, so pandemic restrictions have hit hard. With an easing of the rules, it’s hoped consumer confidence will finally bounce back next year and the high spending Chinese tourists will go globe-trotting once more but much will depend on the speed of the recovery.
Online-only players will struggle as hybrid dominance emerges
E-commerce sales have dipped back from the highs of lockdown times but have settled significantly higher than pre-pandemic levels. Online shopping is now firmly ingrained as a habit for the long-term, but shoppers still clearly want the in-store experience.
Successful shops on the high street will offer a customer experience unrivalled online, sprinkled with special promotional events to draw in the crowds, often being the showcase for online sales. Even Primark has joined the click and collect party, its resistance to online batted away as e-commerce has become such a crucial revenue stream for its rivals.
ASOS and Boohoo were the e-commerce stars of the pandemic, but they’ve been frozen out of the limelight as shoppers have pinged back into shops. Checking out the latest styles in store before buying at tills, or later online, is now the trend of the moment, so those retailers who were already plugged into multi-channel offerings are showing much more resilience. M&S has done a valiant job in keeping the tills brisk and virtual baskets filled up with the right product mix - and its clothing sales have staged a remarkable turnaround. Just as many companies found it impossible to compete without an e-commerce arm during the pandemic, now bricks and mortar operations are proving equally essential. The key is choosing the best pick and mix approach to physical and virtual shopping environments.
Thrift and pre-loved sales set to outperform wider market
The proliferation of charity shops on the high street is a trend which looks set to stay. Retail sales figures for October came in higher than expected, buoyed by increases at second hand stores and auction houses. Although thrifty bargain hunting waned a little in November as Black Friday deals multiplied, its likely to surge again. Vintage purchases are becoming more fashionable as our more cautious habits collide with the desire to be kinder to the planet and re-use and re-cycle more.
The rise of a more environmentally friendly fashionista is a headwind whipping up around fast fashion, a noughties trend which is falling out of favour in the 2020s. Piling baskets high with disposable styles seen on the catwalks just weeks earlier, is falling out of favour and more pre-loved garments are now topping wish lists. The tie-up between hit ITV shows Love Island and eBay which saw stars wearing second hand styles shows the way fashion winds are blowing. Research by Thredup, the world's largest online thrift store, shows the second-hand apparel market is expected to grow by 127% by 2026, three times faster than the overall market.
Department stores downsize
The footprint of department stores is still shrinking rapidly on the high street. Although House of Frasers shops continue to be the lynchpin of shopping centres, Marks and Spencer is in rapid retreat from the high street. Its strategy of closing larger underperforming department stores and concentrating on outlets in more popular retail parks where food is prioritised with click and collect services alongside, seems to be paying off and its little surprise to see this restructure being accelerated. In response to the need to diversify its income streams, John Lewis has said it plans to build 1,000 rental properties on parts of its store estate. The group has some enviable plots in its repertoire, with their central locations likely to make them attractive to renters, but it’s evidence that the challenges facing John Lewis are huge. The group’s large physical estate means a structural decline in footfall is a real problem.
The move into rental by John Lewis is characteristic of the metamorphosis of the high street into centres for living and socialising and not just shopping. This ongoing trend has been highlighted in recent ordnance survey data showing a proliferation of bars, beauty salons and tattoo parlours in street which used to be filled with shops. It’s a trend the big London focused landlord British Land has already tapped into. Its "campus" portfolios were the standout performer over the first half of its financial year.Campus style developments combine topflight office facilities, with retail, leisure and hospitality facilities as well as carefully designed public spaces. This style of development is expected to be part of the blueprint for the high street’s future.
High street dominated by fewer big players
As far as the big brands are concerned, the high street is being concentrated into fewer and fewer hands. This trend is set to continue into 2023. Frasers Group has Sports Direct, Flannels, and Jack Wills under its umbrella and online brand Misguided and, most recently, I Saw It First. Next’s strategy in scooping up beleaguered brands out of the bargain bin, which have struggled as the retail environment has become more challenging, has continued with its purchase of the intellectual property and name of furniture maker Made.com and struggling fashion retailer Joules. Although this is a tried and tested strategy with Reiss, Gap and Victoria Secret also sold on its Total Platform, with Next scooping up commissions on sales there are niggles of worry that this retail powerhouse could soon be biting off more than it can chew. Next also has to devote attention to the effect of soaring inflation on its wider business which is looming large over the group's customer base and regardless of management's best efforts, it's likely to squeeze margins. Longer term though, being among the last big chains still standing on the high street should mean it will be able to capitalise from the ongoing desire to browse among real rather virtual shelves.
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