Retail Matters - May 2020

Why adaptability is brick and mortar retail's most valuable asset right now

The retail world looks very different to the start of the year. Many stores across the UK sit closed as a result of the strict lockdown conditions for combating the devastating outbreak of coronavirus. Those with essential status, like supermarkets, often have large queues outside them. Ecommerce is both a lifeline and a challenge as delivery services work to keep up with demand. When the speed of change is this fast it can be overwhelming. Especially when so many factors are outside your control. It's because of this that adaptability has become the most valuable asset for brick and mortar retailers. As the actual act of buying becomes less visible with customers staying indoors and shopping virtually, it's important that those with physical stores adopt a flexible mindset.

Repurpose assets where you can

Most retailers have always thought of their store portfolio through a single purpose lens. But when customers can no longer come to you, it's important to assess if you can repurpose those assets to serve other parts of the business. One example is turning stores into mini logistics points for feeding online orders. Sainsbury's has started experimenting with turning shuttered convenience stores into 'dark' spaces that can be used to fulfil local online orders. The first of these spaces is in Blackfriars with deliveries being sent out by bike the same day. Meanwhile, UK pubs and bars could now become mini click-and-collect shops via the not-for-profit initiative MyPubShop. Backed by major brewery and drinks names like Budweiser Brewing Group, BritVic, Coca-Cola European Partners, Greene King and more, it operates a website that shoppers can use to order food and household staples for collection from their local pub. Both approaches are making use of physical locations that are close to customers' homes and focusing on key product areas that have high demand. The aim is to keep serving customers even if it's in a different way to normal. Before you make any big operational changes, make sure you get the go-ahead for what you have in mind. Changes of usage (especially if they are major) may well be subject to planning applications, so it's important to get advice on what your current agreement legally allows you to do and what steps need to be taken to make other changes. For example, a store that is at the edge of a town or out of the centre may be easier to convert from retail to a warehouse than one in a town centre. However, every individual space is different so it's worth exploring your options as the nature of your store and its location might work in your favour. It's also important to take a long-term view when exploring options for your individual stores. Reports suggest that we'll be living with coronavirus in some form for a long time even as restrictions are slowly lifted. The situation has also exposed gaps in many retailers' businesses, which may be alleviated by rethinking the way your stores are used going forward. Alternatively, you might have other assets that you can repurpose to provide aid at this difficult time. Luxury ecommerce platform Net-a-Porter operates its own fleet of luxury vehicles which it uses to get products to customers as quickly as possible. When the company decided to shutter its ecommerce operation temporarily though, it pivoted to offer these vehicles to local charities for delivering essential food and protective equipment supplies.

Monitor and adapt to shifts in consumer behaviour

A natural consequence of physical stores having to shutter their doors temporarily is that more customers are moving their buying online. Depending on the sector you're in you may be experiencing this in different ways. Demand for grocery deliveries, for example, is through the roof. Other growth sectors are DIY, garden, crafts and entertainment like board games and jigsaw puzzles, and books. These are all expected shifts as many people's focus turns to the essentials (such as food) and at-home activities and entertainment. But the data also suggests that there are some unexpected shifts in customer behaviour. According to data from customer engagement platform Emarsys, globally 57% more was spent on luxury goods online last week (year on year).  In the UK, the highest consistent growth categories were leather goods (like handbags) and high-end trainers. This is an interesting trend because by default luxury goods are a luxury. At a time when many people may be concerned about their livelihoods and therefore focusing on saving money, luxury can come across as being frivolous and unnecessary. It's a sentiment that even luxury brands are acutely aware of which is why so many have pivoted their manufacturing operations to make things that contribute to the COVID-19 challenge like protective equipment and hand sanitiser. However, the data says that there are consumers who think differently. It may be that these are the usual luxury shoppers who are now moving to buying online because they have no alternative. But there may also be shoppers who are saving money in other areas by not being able to go out and socialise who are channelling this into higher-end and long coveted purchases. The challenge now is for luxury brands to respond to this trend as many have a minimal ecommerce offering - if they have one at all. Necessity is the mother of invention they say, which means what's happening right now may spearhead a much wider cultural shift in the luxury industry towards ecommerce. In order to keep adapting your business, it's important to keep bringing in data and insights on what customers are doing. The better you understand their changing behaviour, the better you can equip your business to respond to it.

Adaptability is in brick and mortar retail's DNA

There is no doubt that these are extraordinary times. But it's important to remember that the world's most successful brick and mortar retailers have adaptability in their DNA. They have to in order to still be here. Afterall, the world they operate in has changed countless times over the years. From new technologies to changes in the way we move around to changes in the places we live and work to new customer behaviours, as the human experience changes so does the retail one. Coronavirus is a new challenge for retail, but one brick and mortar retailers can face by adapting yet again. The key thing is that this is no longer business as usual - it may never be again - so your approach can't be the same either.

Practical Tips

• As the marketplace changes, leases will also need to adapt to reflect those changes, as we may see a greater shift in rents to turnover only
• With online sales increasing and businesses adapting to meet those online sales it is important to consider the impact that those sales will have on turnover rent
• Consider more flexible user clauses in any new leases entered into, but the flexibility of user has to be weighed against any impact that a wider user clause would have on rent review
• Before repurposing your physical stores, it is important to consider the terms of the user clauses in leases and any planning requirements