Survive and thrive: How the UK’s retailers are adapting to the ‘new normal’
Faced with unprecedented challenges and extensive disruption to their business models, retailers are responding with confidence – and innovating to seize the opportunities offered by new revenue streams.
Karen Johnson, Head of Retail and Wholesale, Barclays Corporate Banking, shares retail insights and tactics to thrive and Debbie Robinson, Chief Executive, Central England Co-operative shares how Central England Co-operative has cemented its community credentials and embraced new technology in the ‘new normal’.
Flying in the face of adversity
Last year witnessed one of the toughest periods of trading in recent memory for the UK’s retail sector. Beset by the uncertainty surrounding Brexit, 2019 saw the slowest rate of growth since 20101. The knock-on impacts for many retailers were job cuts and store closures, while we also saw a handful of high-profile firms tip into administration. And yet, 2020 has uncovered challenges that far outweigh those of 2019; challenges that few people would have thought possible.
The lockdown enforced, to contain the spread of Covid-19, forced all ‘nonessential’ physical stores to close, with only the likes of supermarkets and chemists permitted to remain open. These developments put the industry under unprecedented pressure.
The Expert View
Buoyed by greater ‘intent to purchase’ on the high street and a rise in online activity, Karen Johnson, Head of Retail and Wholesale, Barclays Corporate Banking, says retailers remain optimistic with good reason.
I don’t remember a time in retail quite like this. I’m not sure anyone does. It was inconceivable at the start of the year that nearly every high street store would close for three months, but it happened.
Head of Retail and Wholesale, Barclays Corporate Banking
And as retailers adjust to a post-lockdown period, one in which many people are still concerned about contracting Covid-19 and have less disposable income, there is a general acceptance that the landscape has changed inexorably. Businesses are past the preservation phase and are now thinking about longer-term trends and how they can compete in the ‘new normal’.
One advantageous factor for retailers is that when consumers are going out to shop, they are increasingly doing so with the intent to purchase rather than to browse. Retailers are seeing average basket sizes increase as a result. However, it’s a tough job to keep conversions high when financial belts are tightening, and retailers need to make their customer experiences and journeys as smooth as possible. That’s where technology comes in – an area through which businesses can gain a competitive edge.
Open for business – and open to change
Our research reveals that UK retailers are not just ‘sitting tight’ in the current climate, but are adapting their models. Growth is being fuelled by greater adoption of technology and more localised operations.
Despite unforeseen and unparalleled challenges, retail leaders remain broadly upbeat about their businesses’ prospects. Meanwhile, companies are also reinventing their business models – both through the technology they use and the relationships they have with local communities and suppliers – to survive and thrive in the ‘new normal’.
We asked respondents how confident they were about their businesses’ growth across different timeframes. When asked about growth in the next three months, an encouraging 60% said they were confident (this is the combined total of respondents who answered either ‘very confident’ or ‘somewhat confident’). The category of retailer demonstrating the strongest air of confidence in the short-term is home improvement/DIY, with 80% of the respondents in this vertical believing their business will grow in the next three months.
Health and beauty retailers (72%) – a category in which the ‘health’ component has been more in demand than the ‘beauty’ component during lockdown – were the next most confident about their prospects across the next three months, followed by food and drink retailers (68%).
As time progresses, retailer confidence grows:
- When asked about four to six months’ time, 80% of our respondents were confident
- When asked about seven to nine months’ time, the combined confidence score rises to 93%
- When asked about ten to 12 months’ time, confidence rises to 94%.
Of particular note when looking at confidence across the different timeframes, are the views of senior managers in large (500+ employee) retail businesses. While this group has below-average confidence at three months (46%) and six months (50%), they then exceed the average at nine months (94%) and 12 months (98%). To emphasise this point, it is supermarkets – at 97% –that have the highest combined confidence score of any retail category for 12 months’ time.
An accelerated technological revolution
One of the key developments for consumers during the pandemic has been the shift to online shopping. In turn, this is impacting retailers’ use of technology both online and in-store – so much so, in fact, that one in four senior managers (26%) believes the coronavirus has accelerated a ‘technological revolution’ in the sector.
Retailers are upping their online capacity:
The UK is the world’s third-largest market for e-commerce, and our research shows that a substantial number of retail businesses have invested even further in technology to maximise their offering. For example, a third of respondents (33%) told us their business had made upgrades to its website – with larger firms of 500+ staff (38%), department stores (40%) and fashion retailers (39%) most likely to have done this.
Meanwhile, around one in three retailers, 32% of those we surveyed, said they have also started to accept a broader range of payment methods to maximise income. Against this metric, it’s entertainment retailers (38%) that are most likely to have made changes. Upgrades here could include everything from accepting mobile wallets – such as Apple Pay and Google Pay – for the first time, to accommodating new consumer finance options and rolling out biometric payment technology.
New tech opportunities
Harnessing the power of data analytics is an increasingly effective approach for retailers to understand their customers, and one in four retailers (26%) has embraced this technology for the first time since lockdown began.
Other technological developments in retail include:
- 26% of businesses selling more through social media channels, with fashion retailers (37%) in first place for this development
- 26% rolling out more personalised customer offers, with home improvement / DIY retailers (33%) the category of retailer most likely to have implemented this change
- 24% offering ‘click and collect’ for the first time; again, it’s home improvement/DIY retailers (40%) that are in top spot for making this adjustment. These figures represent a notable shift within an industry that was already using sophisticated technology and approaches to secure digital sales. With homeworking set to continue for many people – in parallel with concern about public transport and busy shopping areas – our research with senior retail executives shows a move towards more localised business operations.
Retailers expect a shift towards 'localised' retail:
Supply chain shift
Beyond store locations, supply chains also look set to become more localised as a result of the pandemic. Just under two-fifths (39%) of our research respondents told us that they’d experienced supply chain disruption during lockdown, and more than a quarter (27%) are looking to move to suppliers based closer by as a result, with the number rising to 38% for larger, 500+ employee businesses.
Across the different categories of retailer, it’s home improvement/DIY (53%), sports (33%) and entertainment (28%) businesses that are looking to localise their supply chains.
The environmental benefits that come with having suppliers in closer proximity are appealing to retailers that are looking to cut their carbon footprint. Of the senior managers we spoke to, 23% said carbon reductions are a key reason for moving to local suppliers, and the same amount agreed that they will now only work with suppliers that have strong ‘green’ credentials.
Central England Co-operative is one of the largest independent retailers in the UK, encompassing around 400 trading outlets across 16 counties, 8,600 colleagues and 330,000 members and customers.
More than 250 of its outlets are local stores that specialise in food, drink and other essentials, a category that has been in high demand among consumers seeking to avoid large crowds.
The return of the weekly shop?
“In the days just before lockdown when people were panic buying, footfall in our stores was up massively,” says Debbie Robinson, Chief Executive, Central England Co-operative.
In the months since, footfall has reduced but average basket spend has increased. People are finding that they can avoid visiting shops too frequently, and that their local Co-op is safe and well-stocked with a broad range of quality produce.
Debbie and her colleagues at Central England Co-operative have had to be resourceful to continue that customer offering during the pandemic.
Local supply solutions “Like many other retail businesses we experienced disruption to our supply chain, particularly early on,” she explains. “But local food and drink suppliers had the opposite problem – lots of their customers were in the hospitality and leisure sector and could no longer buy from them. We were able to solve our supply challenges and their demand challenges in one go.”
“We worked closely with farmers from Shropshire and Staffordshire to procure additional eggs, while a local, quality butcher, which had previously been selling its meat to food service operators, was able to cater to our increased requirements. Another nearby supplier, TransLink Express Logistics in Leicester, was brought in to create and manage emergency warehouse space when demand was at its highest.”
“Working with local suppliers will be a bigger part of retail’s future,” Debbie explains. “Not only does it help cut our carbon footprint, but it also shows commitment to communities, which is a huge part of who we are as a business.”
At a time of national emergency, support for communities, key workers and vulnerable people has been highly valued by consumers. Putting colleague, member and customer safety first is always at the forefront of Central England Co-operative’s thinking. During lockdown, this involved offering priority access to NHS staff all day, every day, and working closely with charity partner, FareShare, to reach even more communities in need.
The most significant development has been the introduction of a new initiative named Call & Collect, primarily for those with limited access to and knowledge of technology. Members were able to phone Central England Co-operative and give them their shopping list over the phone, and collection or delivery was then arranged at their convenience. Central England Co-operative colleagues have been going the extra mile and many have been delivering groceries to local, vulnerable people in their spare time, free of charge.
The company’s innovative approach to life during the pandemic has not stopped there, with Central England Co-operative keen to keep refreshing its offering.
Local retail has undoubtedly provided a lifeline to communities during the Covid-19 pandemic,” says Debbie Robinson. “Many people have discovered the quality and great choice that local shops have to offer, in convenient, safe surroundings. However, we must continue to work with local suppliers and big brands alike to bring product innovation and interest to customers and members who are shopping locally.
One of the ways that Central England Co-operative aims to do this is through the application of new technology.
Trials are underway to launch a more formalised home delivery service and ‘click and collect’ capabilities via the website. The group is also currently working with Ubamarket on implementing a new solution that will give customers the ability to scan and pay for their purchases in store.
Central England Co-operative has also found new ways to harness the power of data analytics, expanding its data team by three people since lockdown began. “We’ve always understood the benefits that data can have for our business,” explains Debbie Robinson. “But we’ve taken our capabilities to a whole new level recently.
In doing so, we are now able to combine our local knowledge of members and customers, and cross correlate that with data analytics. In practical terms, this means we’ll be ensuring that we’ve got the right products, in the right place, at the right time, and we will be able to communicate this via social media.
“We’ve made great progress as a team, especially our colleagues on the frontline. They’ve played a vital role in the national effort to support communities throughout a global pandemic, and it has been an honour to work alongside them.”