High street or online, retail needs the perfect pitch
Retailing has been making the headlines here with concerns over sales growth and possible rent increases at some shopping centres. However, retail sales growth has been steady, and prime rents are stable, so what is the big issue that is behind the unease? The answer is, of course, the accelerating shift into online retailing, and the question for retailers and the property market is whether that is a threat or an opportunity?
The recovery in retail spending has been steady since 2013 but one would have expected it to be better, given increased employment, incomes, population and tourism. I suspect that the scars of the recession are only beginning to heal for many people and there remains a nervousness about spending, and taking on debt. But the proportion of spending going online is increasing exponentially, and some retailers are capitalising on it better than others.
For example, last week saw Ralph Lauren announce that it is to close its flagship Fifth Avenue Polo store in New York. The retailer has been hit by online retailing and said that it going to improve its e-commerce platform and explore “new retail concepts”. Locally, Retail Excellence Ireland report that many e-commerce sites saw a doubling in turnover for the weekend following Black Friday, compared with the previous year.
I’m of an age and disposition that was slow to adapt to this new way of buying, but if I think about the proportion of spending my family has started doing online over the last year, and if we are in any way typical, then I suspect that we are only at the start of this new era in Ireland.
Retailers will have to continue to shift into multi-channel distribution, where they find the right blend of physical shops that are no longer just retail outlets, but also serve as showrooms for later online purchase, delivery depots and click-and-collect locations.
In the long term, this has to see a reduced demand for shops, although I think this will be felt most in secondary locations, as flagship retail outlets in prime locations will become even more important to the retailer. The change is already benefiting the industrial market, with increased demand for logistics centres to serve this new demand.
The logistics of how to deliver goods to customers is a challenge and retailers are grappling with combinations of deliveries from shops and warehouses. Last week we bought two household items online from a Dublin department store and the parcels were delivered on two different days by An Post. One had come from the shop, and the other from a centralised warehouse.
We bought three household items from a store in London earlier this year, for a fledgling’s flat there. It was interesting to hear that the items were individually delivered by a logistics contractor on three separate days, which must undermine the viability of the transaction. Incidentally, it occurs to me that An Post have a huge opportunity to capitalise on this growing business as they are already passing every door in Ireland, every day, and should be able to undercut competitors.
Developers and institutional investors are reacting differently to this structural change and while some developers and funds are quietly expressing concern, several European funds see the increasing importance of prime retail locations as a growth opportunity and have redoubled their acquisition of the best high street locations. In Ireland, prime retail investments continue to be snapped up by institutional purchasers.
Conversely, there is also a transition by pure online retailers into taking physical space.
The challenge for retailers is to maximise the quality of their high street presence and their customers’ experience there, the ease of use of their website and the efficiency of their distribution channels-whilst embracing the changes in technology that are altering how we shop.
