How is the Retail Sector Evolving?

Retail is the largest private industry sector in the UK, with a total sales value of more than 436 billion in 2020. However, 27.9% of the total sales within the retail sector in the last year came from online orders. It’s not all doom and gloom though, the top 5 retailers are still dominated by the “Big 4” supermarkets with Tesco remaining as the UK’s number 1, reporting 52.9 billion in sales for 2020.

The Threat of Online Retail

While the majority of the UK’s retail is still undertaken in-store, the threat of online retailers is steadily increasing. Over the last 10 years, sales accounted for by online purchases has risen by more than 20%; rising from 7.3% in 2010 to 27.9% in 2020.

However, the COVID-19 pandemic has had a huge impact on the retail sector by forcing a large proportion of sales to be placed through online retailers. The effect of the pandemic on retail can be seen by the sales figures collected and published by ONS (Office for National Statistics) which show that from 2019 to 2020 the percentage of the sales value for online sales increased by more than 8%.

The pandemic may have also resulted in an acceleration of the online takeover of the retail sector in the UK as the population has become more accustomed to placing their grocery and shopping orders over the internet.

At the forefront of the online takeover is Amazon. Many large retailers have been struggling to compete with Amazon as the offering of free delivery is simply not financially viable for most. Some new brands are also having trouble with Amazon’s category restrictions and would have to learn about getting approved with the help of service providers.

Tesco has been taking steps to combat Amazon by increasing the number of delivery slots that they offer from 600,000 to over 1.4 million over the course of the pandemic.

As well as this increase in delivery availability, it is speculated that the retail giant plans to add free delivery to the list of benefits included with their Clubcard Plus scheme.

Future of Stores

Although the future of physical stores may seem bleak, it’s not all bad. Over the coming years their will likely be a shift in the purpose of physical stores, shifting from “Bricks and Mortar” to a “Bricks and Clicks” model.

This shift will see many physical locations take on a more show room-like purpose, rather than a place to purchase products. Large companies, like Apple, have seen great success with this model as customers are still able to have the retail experience and interact with their products before they purchase but must place their orders through the Apple website.

While this may seem counter-intuitive at first glance, this model actually saves on shipping and storage costs of stock.

Companies who choose to keep their physical stores are likely to start selling their experience over their products. This can already be seen to some extent with businesses starting to implement in-store AI assistants to tailor the experience to each customer.

So, what’s next?

The British Retail Consortium predicts that a third of the UK’s retail jobs may not exist by 2025. Even though this figure may be daunting physical retail isn’t dying, its changing.

There will always be a place for a physical store but they won’t be the same. Businesses must adapt their business models to meet the needs of their customers as well as stay in touch with the route that the market seems be taking. USP’s are going to have to be stronger and customers are going to need more reasons to visit your store.