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Is It Time To Be More Optimistic About Retail?

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If you only listen to the words of trends forecasters, it seems like it’s all doom and gloom for retail. But in some of Europe’s busiest shopping centres, the picture is entirely different. So, is there cause to be optimistic about retail and, if so, what should investors look out for?

The Retail Crisis: how bad is it?

Retail was hit badly by the 2008 financial crisis. Not only did the crash affect the value of major retail companies, it reduced the spending power of shoppers too. 

The ensuing recession did not help. Retail hit a decline, with people consuming less in the face of economic uncertainty. In countries like the United Kingdom and USA, the effects have been visible, with high street stores boarded up and shopping centres failing.  

And while the retail economy recovered, it had to face a new competitor: e-commerce. In the wake of the crisis, many brands focused their attention online. Some chose to launch e-commerce platforms from their own websites, while others relied on established platforms like Amazon. This led to an increase in the value of the logistics sector, thanks to both first-party suppliers like Amazon and third-party courier services such as Hermes and DHL extending delivery lines while cutting delivery times – in many instances, all the way down to one-day delivery.

Now, in 2019, it seems as if online shopping is set to dominate the future of retail, and that there is no way back for traditional retail. Trends in technology seem to support this assumption. Last mile shipping looks set to be bolstered by drone and autonomous vehicle deliveries, virtual reality will enhance the cyber-shopping experience to make it feel as life-like as being in the shops, and the Internet of Things (IoT) may remove the need for domestic shopping entirely, with the promise of fridges and pantries that can stock themselves.
 

But is retail actually experiencing a resurgence?

As the global economy recovers, so too does the retail sector. In 2018, Deloitte reported that compound annual growth in the sector from 2011–2016 was 4.8%; composite year-on-year revenue growth was 4.1%; and composite return on assets was 3.3%. 

While it is hard to give a single overall view of the sector, it seems as if the retail real estate asset class is also on the way back up. Patrick Delcol, Head of Pan-European Retail at BNP Paribas Real Estate points out that, of the five types of retail classes (retail parks, high streets, shopping centres, outlets and ‘big boxes’ – huge, single-purpose shopping units such as hypermarkets), some are declining while others are showing signs of growth. This suggests that, while some forms of shopping are becoming less popular, there is hope for other types.

Patrick Delcol points out two classes in particular experiencing positive levels of growth: retail parks, particularly in Western Europe; and high streets, which are benefitting from regeneration schemes. The only thing holding the sector back, Patrick Delcol says, is reluctance from investors, particularly those who were stung by the recession.
 

The future of the sector will be determined by millennials. This generation consumes more than their parents but are also more environmentally conscious. They want the chance to order in a physical space, and they are less bothered about receiving same-day deliveries

Patrick Delcol
Head of Pan-European Retail, BNP Paribas Real Estate
Europe

Diversifying retail for the modern age/needs of the consumer

Omnichannel retail, where customers can start and complete a purchase via online and offline channels, is helping change the nature of physical shops. Many retailers of all types now enable people to buy online and collect in store, and the showroom model – where people choose a product in store but have it delivered – is also being embraced. 


The showroom is a familiar way of browsing and ordering large items like furniture. But now customers at Bonobos, an American fashion retailer, can try clothes in store and pay for items at the till without having to carry bags away from the shop – instead, the item is shipped direct to their home.   Whether others choose to use their brick and mortar presence in this way remains to be seen.
 

Consumers still enjoy real-world retail experiences

Despite the popularity of online shopping, it seems unlikely that it will completely replace the physical experience of going into a store. Several studies show that people still enjoy shopping at brick and mortar stores, valuing the experience of touching items and trying things on – and many, in fact, prefer it to shopping online.    

Of course, there is still plenty left in store for e-commerce. With automation and robotics developing at an incredible pace, logistics warehouses may soon become much more efficient, while deliveries will be augmented by the use of drones.

But many companies, including US store Macey’s and the UK’s John Lewis are also investing in improving the physical shopping experience   too, making it more immersive and more convenient than ever before. Around two-thirds of shoppers now say they prefer to shop at self-checkouts according to Forbes[1], and many retailers are beginning to adapt to this trend. 

Meanwhile, other brands are exploring automation in innovative ways. In the US, Lowe’s has introduced LoweBot, a robotic assistant programmed to speak multiple languages; and UK-based start-up Snap Tech has created a range of technology to augment the shopping experience, including a magic mirror that allows shoppers to give instant feedback about the clothes they try on in-store[2].

Sources: 

[1]  https://www.forbes.com/sites/forbescommunicationscouncil/2017/06/20/the-future-of-retail-how-well-be-shopping-in-10-years/#64749b6e58a6
[2] https://www.wired.co.uk/article/future-of-shopping-predictions
 

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