Retail in 2018 – Shop numbers, Online and the High Street full report
A GUIDE TO RETAILING IN 2018 BY THE CENTRE FOR RETAIL RESEARCH
The Centre for Retail Research published its analysis of how UK retailing will have changed by 2018 on 28 May 2013, entitled Retail Futures 2018.
Retail Futures 2018 forecasts that by 2018:
Total store numbers will fall by 22%, from 281,930 today to 220,000 in 2018.
Job losses could be around 316,000 compared to today
The share of online retail sales will rise from 12.7% (2012) to 21.5% by 2018 or the end of the decade.
There will be a further 164 major or medium-sized companies going into administration, involving the loss of 22,600 stores and 140,000 employees. Many of these companies will survive but at the cost of closing more than half their stores.
In spite of the Portas Pilots, the High Street will continue to suffer: around 41% of town centres will lose 27,638 stores in the next five years.
UK retailing has the highest proportion of online retail sales, so what happens here is being closed watched by foreign observers as Britain becomes a test bed for retail innovation.
Key catalysts for the looming retail crisis:
Consumer spending has increase by 12% since 2006 outstripped by retail operating costs (including rates) which have risen by 20%. It will be several more years until the UK returns to previous levels of growth: in fact GDP/head has not yet returned to the level it was in 2008/.
Customers are shunning the high street: their share of consumer spending has declined from 50% in 2000 to a predicted 40.2% next year.
As fewer shop in stores, online retail is set to account for 21.5% of total retail sales by 2018 from 12.7% today, the highest online retail share in the world
With such a high number of transactions carried out online, retailers with a strong web offering now need just 70 high street stores to create a national presence compared to 250 in the mid 2000’s
UK is facing a crisis. Retailing and retailers will either make clear strategic decisions that permit online retail to coexist with other retail channels in a multichannel world allowing bricks and mortar retailers to transform themselves, or, by avoiding making these decisions, multiple retailers will disappear or be so mortally wounded that a large minority of business categories become dominated purely online retailers
Much comment about retailing either sees shops as doomed (most shops will close as online takes over the majority of retail sales) or believes that online will peak, making the crisis shakeout in the industry (business as usual). In fact neither view is accurate, radical changes need to be made by retailers, town centres and the government to preserve what is best in retailing.
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Store vacancy rates across the country have increased from 5.4% in December 2008 to 14.1% in March 2013 (according to the Local Data Company), a rise of 161%. Without intervention, the vacancy rate can rise yet further, perhaps above 20%.
Stores are always closing – and reopening – but this time the pace of change is considerable and the total number of shops by 2018 is expected to fall by 22% over the next five years to 222,000.
‘Thriving’ and ‘decaying’ retail towns and cities
Across the country the situation varies drastically as disadvantaged retail pockets become more prominent. More towns will need some reduction of retail space because of the fall in the demand for shops. However Retail Futures 2018 predicts that more than a third of town centres (41% or 153 stores) could experience a rapid decline by 2018 if no action is taken. Just over a fifth (78 or 21%) of towns are declining in retail terms and 75 are stable but under pressure. The retail centres most vulnerable are those near low-income populations located on secondary or tertiary shopping areas.
Of course the shops in some prosperous and tourist areas will continue to do well, but Wales, the North and the Midlands can expect a much higher proportion of stores to be shuttered.
The number of high street stores is expected to fall by 19.9%, but an even greater impact will be felt by neighbourhood stores. These will decline by 34,587 (-26.2%) as a result of the declining profitability of neighbourhood shopping in many areas, the unwillingness of multiple retailers to continue operating in small neighbourhoods and the move towards perceived lower prices and better availability of stores in town centres, retail parks and internet shopping.
But it is not only the high street that is affected. Major retailers like Tesco, Wickes, ASDA and B&Q have announced dramatic reductions in opening large new stores (though convenience is still massively important) and all have plans to subdivide giant stores, leasing space to other retailers.
The destinations that do well will be those: serving a mainly prosperous hinterland; areas of growth, new housing and young families; easy-to-reach tourist areas aimed at middle-income families; and areas where unemployment is low. The best performers will be areas like London, the South East, key shopping cities like London, Birmingham, Leicester, Manchester, and Glasgow, and tourist areas like Oxford, Harrogate, and Brighton. There will be retail problem areas within otherwise thriving decent retail zones (eg Oxford) and successes in areas where we expect large percentage falls in shop numbers. But in very general terms the changes in store numbers reflect the North-south divide.
Regional store closures and vacancy rates
Online retailing as a percentage of all retail sales is now 12.7%. Food online sales are very low (3.7% of all food sales) so that the share of non-food is now up to 19%. This will change quickly over the next five years, although we expect all four main grocers to develop massively their food online offers so that with Waitrose and Ocado the food online share should be up to 9.5% by 2018.
Growth of online retail
These figures are estimates. It may take a year or two longer before online retail gains 21.5% of the retail market but many commentators feel that the online share will get to 25% by somewhere around 2020-2023.
The Role of Shops
Retail stores will remain an important, although smaller, part of retailing in high streets, malls and retail parks as online continues to grow. The ‘normal’ retail model needs revisiting, under the combined pressures of high costs, consumer reluctance to spend, and rapid growth of online retailing.
The Shoppers of the Future
Customers now ‘shop’ in multiple ways, checking a store’s website, visiting one or more stores, looking at product reviews, viewing the prices of competitors on a smartphone whilst standing outside a store, and choosing finally whether to buy the goods in-store or online and collect it in-store or have it delivered to a nominated address. Retailers have to make clear strategic responses to the changing patterns of how consumers shop, including: deciding the proper number, type and location of stores (and the speed of any necessary disinvestment from stores); and how to integrate fully their physical stores, the online sites and other channels such as social media coherently.
The High Street of the Future
High streets are an essential part of town centres, creating employment and vitality; the best of them bring tourists and shoppers in – developing services, leisure and entertainment markets as well as retailing. Retail Futures 2018 argues that high streets are threatened by the current changes in retail structures and shows that the town centres of 153 UK towns (41% of the total) will experience a rapid decline as a result of changing retail patterns and need to shrink to survive. Some smaller and less successful secondary and tertiary sites may disappear almost completely. Retail Futures 2018 recommends that a pump-priming fund of £320 million is required to start redeveloping these problem town centres to turn failing and empty shops into good residential accommodation, create more service/entertainment/leisure outlets, and/or provide offices, doctor’s surgeries, classrooms/meeting rooms or other facilities for which there may be a local demand. As a result of this policy perhaps 15,000 – 20,000 new homes could be created over four years.
Don’t make a transformation into a crisis
Although retail change might seem to concern only retail employees and change-averse retail businesses, the transformation will have unintended consequences for the many hundreds of £billions tied up in retail property by pension funds, investment companies, shopping centre owners and retailers themselves. The current business model is intimately involved with real estate: a significant fall in property prices caused by major falls in the demand for stores (and store profitability) will affect all property assets for many years to come. One response will be to reduce rents (and therefore the profitability of developments). It is already having a significant negative effect on many UK high streets and a detrimental impact on town centres. Action now will prevent the transformation of retailing from becoming a long-term crisis for property markets and town centres.