2024 JULY ISSUE
RETAILING
IN
UNITED KINGDOM
Written by Andrew Sia
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From the Desk of the Publisher
At this post-COVID period, people are coming out for shopping and their social life has been restored. We are no longer restricted to stay home to avoid the catching of the pandemic. But we have noticed that things have changed at this time as the strip malls are better received than the enclosure ones. Over the time of COVID, many of them have been converted into warehouses for the e-commerce as their pick-and-pack centers. Some of them have even been evolved into multi-purpose malls with indoor amusement parks, gyms, spas, training centers and even offices.
A typical example is America Dream in East Rutherford, New Jersey, although it was designed originally with the indoor amusement park and the skating ring. We can see that they are gaining popularity with shoppers.
We have also observed the changes of the retailers, such as Zara and H&M, who are turning their stores into the lifestyle stores with more vacant space for seating. They have also provided cafe for their customers. Their strategy is to let the shoppers spent more time inside their stores to generate more business. It is a very good strategy.
In the UK, in their major cities they have the high street, and in the smaller towns they have the main street and all these are for providing commercial activities for their nationals. We find them same in the U.S. but we call them differently.
Shops are here to stay and will always remain, and online business will continue and will have the potential for further developments. Both of them will survive and will operate in a more harmonizing way and play compliment to each other.
Introduction
In the beginning before the COVID-pandemic, to the retailers the online was something relatively new, it was not really essential, it was good to have, it was innovation and it was considered as having the foresight and even considered as avant-garde. During the COVID-pandemic, it took over the retail by storm as it was the only way to conduct any sales to the market. At this time, during the post COVID-pandemic, it is good to have and it is also at the disposal of the market. But make sure that the return policy is user-friendly, and preferable at no charge, in according to how the market reacted.
How is Online Doing Now?
Online is a digital marketing campaign combined with the social media influencers. Despite there is a boom in internet shopping, and it is also a well-developed online business, most clothing are still sold in shops. This renewal shopping behavior is a remarkable reversal from 2020 and 2021 when those non-essential stores were closed to stop the spread of the pandemic. At that time this boosted those exclusive online fashion retailers—Asos, Boohoo, Sosandar and Zalando to become the highfliers.
Since the pandemic ebbed, shoppers are flocked back to the bricks-and-mortar shops while online operators are facing logistical challenges and severe competition from ultra-cheap China rivals, Shein and Temu in particular, and soaring operating costs. All of a sudden the online fashion retailers have found themselves at the mercy of the customers.
The change in this shopping sentiment also caused the stock prices of those shares like Asos dropped from its all-time high in £57 in 2021 to a fraction of its £3.80 as of today. Even luxury players like Farfetch which went public in 2018 who has narrowly escaped insolvency in December 2023 and was sold to South Korea’s Coupang. Private equity group Apax Partners sold London-based Matchesfashion for £52 million, having bought it for £1 billion valuation in 2017. As savvy as the Swiss luxury group, Richemont, who also owned Yoox Net-a-Porter, posted a loss of €700 million, although it has already stopped its operation.
British retailers that are predominantly store based have bounced back. Marks & Spencer, who struggled for years have rejoined the FTSE 100 index last year as sales and profits returned. Now there is the rebalancing of online and bricks-and-mortar. The physical stores are more settled down after those volatile pandemic years. It expects those online sales to remain flat in 2024.
Post-COVID Situation
We have seen the office-based work have resumed and this has brought back the social interaction and events that would mean more demands for looking better and up-to-date with our attires. Return to the shopping in the stores is also leading the people to return to their normal life.
Generation Z and the Millennials have become more eloquent in between the different selling channels, be it the online, or the in-store shopping, they compare the prices through the using of smartphone to know the price differences and the stock availability.
At this time we have found the squeeze on the incomes of those 25- to 40-year-old as inflation has been a big threat to this population segment. They look for bargain and to stretch their spending power. They are not as savvy as the youngster but they are picking up from them.
Challenges for the Online
The success of online retailers during the pandemic is gone. Those days of strong growth and their profitability have been replaced by high cost from freight to marketing. Online retailers have to cut their cost by reducing headcounts and overhead cost. To process the returns is the significant cost in processing and there is no way to avoid this practice in both logistic and financial burden from customers.
Evolution of Business
We have started to see the first fast-fashion retailers gaining their track in 1990, Zara and H&M, cannibalizing the retailers in the high street. In 2000s we saw Asos, Boohoo, Zalando, Primark, who claimed themselves as valued-retailers and began fierce competition with almost everyone in the market.
For the three years during the COVID-pandemic, we may say that the online retailers were enjoying their most during the time. But now we have found that Asos and Boohoo are facing new challenge from Chinese operators, Shein and Temu, are shipping their products directly from those low-cost manufacturers from China to the shoppers in the western countries taking advantage of import duty exemptions on low-value parcels in the U.S. There is another competition from Turkey-based Trendyol, an apparel e-commerce platform who has a backing by Chinese internet giant Alibaba, has joined the market.
Performances of Temu and Shein are very impressive. Temu has overtook Amazon as the most-downloaded shopping app in the U.S. and Shein reached $22.7 billion in annual sales and overtook H&M. It is going for public listing in the New York Stock Exchange, or otherwise it is going to be listed in the London Stock Exchange (LSE). They are spending heavily on marketing and use low-price as their lethal marketing weapon. Through the social media, TikTok, they have gained the younger market’s attention.
For those sustainability-minded customers, buying those clothing can be done through Depop and Vinted.
Going Forward for Retailing
We found that Zalando from Germany has perhaps performed better than the peers in the UK. They have slightly older customers and a broader range of products, but they have lower their growth prospects for 2024.
Analysts forecast the combine online sales in Europe for countries like the UK, Germany France, Italy and Spain will increase from €372 billion in 2023 to €579 billion in 2028. This is equivalent to a 9.2% increment every year.
Large store-based retailers that went through the pandemic in these three years have poured investment to build their online capability are going to continue their two-prong-operation. M&S generated more than 30% of its non-food sales online for the past six months and want to increase to 50% in 2028. Frasers has acquired stakes in online retail businesses in Asos and Boohoo.
Primark who at one time scoffed at online, changed their attitude and used their so called click-and-collect services in their UK stores. And Poundland, owned by Pepco Group has already its online business. Poundland is already operating 3,500 clothing-focused Pepco discount stores across Europe.