3The store

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New consumer shopping habits will impact store’s share of retail

While physical stores remain the dominant channel for retail purchases, their share of total retail spend is declining as consumers increasingly use other channels to realise the transactional part of the shopping process.

Since the late 90s, physical stores’ share of total retail expenditure has been slowly on the wane. We estimate that stores’ share of total retail spend will have fallen to 87.7% by 2014. The demise of store purchasing is even more pronounced when food is removed from the equation. We expect non food spend through non physical channels to be approaching one fifth of all non food expenditure by 2014.

Online is the main channel ‘stealing’ share from physical stores, with internet sales accounting for 7.9% of total retail spend in 2010 (up from around 1.0% at the start of the decade). The rapid growth of shopping online has been facilitated by greater broadband penetration and more retailers launching transactional websites over the last decade.

Non store retail expenditure has grown at a rapid pace over the last decade far outstripping sales through traditional stores. We estimate that non store retail will continue to grow at a faster rate than physical stores as more consumers become accustomed to shopping online and through otherchannels such as mobile phones. As more spend migrates online we predict that sales through non store retail will grow by 41.5% between 2010-2014 versus 7.3% for sales through stores.

However despite the significant growth of sales online and through other non store channels over the last decade and their projected growth in the years ahead, it is important to put all this into context, as physical shops, which have been the mainstay of retail for centuries, will continue to take the majority of retail spend for the foreseeable future.

Stores remain at the forefront but their share of overall retail spend is declining as other channels gain ground with more consumers shopping online and on their mobiles

Percentage share of retail spend through stores and non stores for all retail expenditure and non food retail expenditure

Total growth rates of the different channels for retail spend from 2000-2010Non store retail includes all spend through non physical stores such as online, catalogue, mail order, mobile, television and telephone.

Non store retail sales growth over last 10 years

Store retail sales growth over last 10 years

4.9 (£8.0bn)

95.1 (£154.1bn)

1994

87.7 (£280.3bn)

12.3 (£39.3bn)

2014

Store Non store

All retail spend Non food retail spend

8.5 (£7.9bn)

91.5 (£85.1bn)82.1 (£145.3bn)

17.9 (£31.7bn)

1994 2014

Store Non store

+24.8% (+£126.2bn)

+149.5% (+£31.3bn)

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Stores are losing ground

The number of stores in the UK has fallen by around 40,000 over the last decade. The recession highlighted overcapacity in a number of retail sectors, especially in clothing & footwear and furniture & floor coverings, which saw weaker players drop out of the market during the downturn.

We estimate that total retail space declined by 1.8% in 2010, a downward trend that has lasted for the past three years as retailers attempted to control costs during the downturn by closing underperforming stores and scaling back significantly on expansion plans. We predict space growth to return to the market in 2012 as some mothballed pre-recession projects are reinitiated. However overall space expansion is likely to be anaemic at best and the long run average will see a gradual reduction in space as retailers continue to close outlets to consolidate bloated store estates.

The demise of the store is not universal across all retail sectors. In recent years and going forward there is likely to be significantly more store fallout for retailers that sell products that are becoming increasingly digitised such as music, video and games. The growth of digital downloading and media-on-demand will make the traditional music and video store (in its current state) redundant. Meanwhile clothing stores are likely to be more resilient as ‘try before you buy’ remains important for many customers. However the growth of pureplay clothing retailers such as Asos and Net-a-Porter, which have no physical store presence means that even retailers in this sector are not exempt from the growth of online retail.

One of the benefits to retailers of opening less new stores in the future is that their existing space will become more efficient. We expect sales densities to increase 8.7% to £514 per sq ft between 2010 and 2014.

Retailers aren’t opening as many stores as they were in the past as the focus turns to development of new channels and their integration

-0.8

-1.3

-1.0-0.8

-1.7

-2.7

-3.3

-2.0

-0.3-0.2

0.1

210,000

220,000

230,000

240,000

250,000

260,000

270,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

Stores Y-on-y growth %

0.9

0.4

0.7

1.2

-1.5

-2.1

-1.8

-0.9

0.10.3

0.2

520

530

540

550

560

570

580

590

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

Space (millions sq ft) Y-on-y growth %

Store numbers 2004 to 2014 and growth rates

Retail space 2004 to 2014 and growth rates

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Strengthening the cross channel platform

While sales through stores continue to account for the majority of physical retailers’ revenues, the growth of their online sales is significantly outpacing store sales. We forecast physical retailers’ online sales will grow 69.8% from 2010 to 2014 compared to just 7.3% for sales from their stores.

Unsurprisingly, with such rapid growth coming from online, this channel has been a major focus of investment for many bricks and mortar retailers in recent years, often at the expense of new store openings. Furthermore with the onset of a slow recovery from recession, retailers have significantly scaled back on physical expansion plans, and many are instead focusing on their websites to drive sales growth.

Online retail sales are growing at such a rapid pace across most sectors it makes more sense for retailers to focus on developing and integrating this channel rather than opening expensive new stores.

If retailers haven’t already released an app they are increasingly launching mobile optimised versions of their websites in response to the growth of smart phone usage. These developments have significantly improved the functionability of browsing and purchasing from devices with small screens such as smart phones.

Now the focus has turned to creating a seamless cross-channel shopping experience – a model that Apple has excelled at so far. While stores remain critical for many retailers as they are still the primary channel for purchases, increasingly other channels will have greater roles in the purchasing process. Rather than stores disappearing from the purchasing process altogether, the focus will turn to their integration into a multichannel world.

Focusing on developing other platforms at stores’ expense

Physical Retailers' Online Sales

69.8%

Physical Retailers' Store Sales

7.3%

Total growth rates for physical retailers’ sales through stores and online from 2010-2014.

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A store’s role in a multichannel world

Convenient

In a multichannel world it is essential that retailers offer flexible fulfilment options. The store will continue to be accessible to many consumers as they go about their daily lives. With the growth of online shopping, physical stores could increasingly act more as a collection point for online purchases to be picked up at a customer’s convenience.

Currently around 32% of consumers use Click and Collect type services, making it the second most popular way of receiving physical goods purchased over the internet. Its usage continues to grow as more retailers offer the service and consumers become more comfortable at using the system. As Click and Collect penetration grows we expect pick up points to become more prominent in stores and have a greater presence. Currently they are often sidelined or hidden at the back of a store. In the future collection points could become a key area in stores.

Leveraging technological developments and new channels to drive customers to stores

Informational

Service and support are vital ingredients for all retailers. In store sales staff and assistants offer a much more personal level of service than is currently provided online and through other non store channels. Promoting this in store expertise can give retailers a competitive advantage, especially against pureplay competitors.

The rapid pace of smart phone uptake also gives retailers the opportunity to leverage increased mobile internet access amongst its customers as a promotional and informational channel for their stores. US retailers such as Best Buy and Macy’s have tied up with Shopkick, which sends coupons direct to customers that have the app installed on their mobile phones when they enter a store. Meanwhile other retailers have teamed up with location-based social media platforms such as Foursquare and Facebook Places to offer similar discounts to entice customers into stores via their smart phones. Retailers can use this technology to promote store events and exclusive store discounts to help drive footfall to their physical outlets.

Experiential

Stores will always offer aspects that the non physical channels find difficult to emulate, such as the ability to see, touch and try products before purchasing. Retailers are increasingly beginning to capitalise on this by providing more experiences as part of their in store retail offer. There are a number of retailers that are already excelling in the experiential area of retail such as Apple which offers product training workshops in its stores, Nike which organises group running sessions from its flagship stores, while Disney hosts in-store play days for children and its new flagship store in Times Square New York, has been designed to offer a highly immersive and interactive shopping experience through digital displays such as a talking ‘Magic Mirror’.

Interactive shopping experiences give customers the opportunity to engage with a brand in a whole new way. Stores could become more like interactive showrooms, allowing a hands on experience that can’t be replicated through non physical channels.

New channels and technologies are increasingly complementing traditional stores rather than threatening their survival as retailers can use them to attract people to their physical stores and engage customers with the brand. Stores remain critical for many retailers as they are still the primary channel for most purchases and an integral part of the brand. Despite the growth of ecommerce, stores are unlikely to disappear completely from the purchasing process or the retail scene for the foreseeable future. Instead the focus will be on integrating traditional physical stores into the new multichannel world through initiatives that make visiting them more convenient, informational and experiential.

Stores of the futureWhat will be the key attributes of stores in the future?

Multiple smaller footprint stores – Retailers will keep a voluminous store estate but downsize the overall amount of retail space as stores focus on providing a stripped down offer of core products. The full offer will be available online and can be browsed in store through computer terminals, where customers can order to pick up from the store or for home delivery –key for the convenience role of future stores.

The layoutStores will be designed as brand hubs to offer a highly immersive and interactive shopping experience

The staffSpecialist sales staff with expertise and trained in excellent customer service will be free to roam the store and not stuck behind a till.

The storeRetailers will open fewer stores as more retail spend migrates online and the focus turns to consolidating existing store estates.

Larger stores – retailers will extend existing stores or open new larger outlets, which are more profitable and give retailers more space to provide improved shopping environments to customers – key for the experiential and interactive role of future stores.

Mobile POS increases interaction with customers –Eases congestion in store, customer can realise transaction with a sales assistant anywhere in store and avoid lines. Receipts can be sent electronically to customers’email accounts.

Specialist knowledge – Staff are trained to know the product better than anyone else. They are on hand to give demonstrations and answer customer queries – key for the informational role of future stores.

Retail technology integrated to improve store experience – In store technology will improve the way customers interact with the store. Upon entering customers can ‘check in’ with their smart phones to receive discount coupons. Customers can use mobiles or computer terminals to look up product information.

Retail theatre – Stores of the future will include a vast array of retail theatre to make the shopping environment more interesting and visually compelling including interactive displays, product demonstrations and virtual showrooms –key for the experiential element of future stores.

Collection hub for online purchases – pick up points will have a much more prominent positioning as the store becomes a convenient means of collecting online orders.

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