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The true value of the store

Bullring, Birmingham

Alice Breheny, Global Head of Research, shares her thoughts on the UK retail market and whether value can still be found from having a store presence.

The UK online retail market has continued to grow at a rapid pace, despite its maturity, rising by over 8% last year. Store-based retailers and their landlords are naturally fearful that the increase in online penetration will make their physical retail locations less viable. The real estate industry would benefit from moving to a model where we can capture the true value of a physical store, rather than one that simply attributes sales to either the store or online. For shoppers, the journey is less straightforward – many online purchases are researched in-store or collected in-store. So the store, and the people working in that store, are critical to helping that retailer grow its online business. Shop workers need to be incentivised to promote sales, even when their efforts will not be directly recognised. Landlords need to create the environment that helps retailers grow their wider business if they ever want a slice of that 'lost' turnover. Smart tenants will recognise the contribution a good store makes to their broader business, even if pure store sales are shrinking, and pay keenly for a brand presence in high profile locations.

The true value of a store goes beyond sales through the tills: it includes both click & collect sales and online sales from store operators where consumers first browsed in store. We have been looking at data that capture sales data to demonstrate this. This varies significantly by sector, and shopper behaviour is still evolving. This is UK based data, though some, if not many, of the trends will be evident in other parts of the world.

Electricals is one of the most mature online markets with penetration now over 50% and expected to continue to rise as more stores migrate to a showcase model and take a channel agnostic view. The increased use of click & collect will ensure that the true value of the store will continue to rise over the coming years, reaching an estimated upside to pure store sales of +46% by 2021.

Sports and toys
Sports equipment and toys are two markets with high online penetration, as the products are often homogenised and branded, so shoppers can compare prices easily online. Toys especially lends itself to store-browsed online purchasing as parents take children to browse, before making gift purchases on their website in secret. Click & collect is relatively low for these categories, as most retailers in the space do not have large store networks, but this is forecast to grow rapidly, in part down to Argos, 'fast track' which encourages shoppers to move from reserve & collect to click & collect in return for a speedier collection in store.

Department stores
Physical department stores play a role in two-thirds of their online sales, as players such as John Lewis and House of Fraser continue to invest in their online platforms and delivery options. The interplay between channels is continuous, highlighting greater ranges available online to store visitors, and luring online shoppers in-store with promotions of click & collect and other in-store services.

Clothing and footwear
Clothing and footwear is set to see a significant increase in online sales from 22% to 32% over the next five years. However, the true value of the store is expected to increase markedly too, with a very high degree of browsing in store for online purchases. Click & collect is expected to become increasingly popular in this sector. In 2016, online shopping is believed to have boost true store value by 14.5% over and above pure store sales, rising to 23.4% in 2021.

Entertainment (music, video and books)
In terms of music and video, consumers have moved rapidly from owning the physical object through to owning the digital file and now to a non-ownership access model via online streaming. The sector, as a whole, is expected to decline with the move to a subscription-based model being a service rather than retail sales. This is not the case in books, where e-books and digital subscription services do not appear to be as great a threat to the physical market as once appeared; indeed physical book sales appear to have stabilised. Online sales in this sector are dominated by pureplay retailers and the value of the store is therefore modest.

Home (homewares, furniture and floorcoverings, DIY and gardening)
Online penetration is low across the home sectors, and retailers have struggled to encourage online shopping due to the heavy desire to see and feel the product. There are signs of changes though, with many retailers opting for smaller format stores to encourage either collection (Screwfix) or browsing of a limited range to encourage post-shop online engagement (IKEA and DFS). The true value of the store is boosted by online sales but is low, and while increasing, is not expected to reach double digits over the next five years (sofas do not lend themselves to click & collect). Online sales will grow rapidly compared to other sectors but from a low base. DIY and gardening is expected to see strong growth in online penetration but this will be driven by pureplay operators.

FMCG (Food & grocery, health and beauty)
These sectors are dominated by impulse purchases in-store, where the immediate need makes consumers unlikely to go online to buy items seen in-store. Click & collect will remain low in food and grocery, and it is assumed that supermarket browsing of online purchases is non-existent. Store sales dominate, so the true value of the store boost from online will continue to be negligible.

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Alice Breheny

Alice Breheny

Global Head of Research

Alice's biography