The past two years have been extremely challenging for businesses across all sectors and localities ‘ however, successive lockdowns and social distancing restrictions have hit the retail industry particularly hard.
Despite this relentless turmoil, the sector has shown great strength and resilience. In fact, retail sales volumes rose by 1.9 percent in January 2022 ‘ the largest monthly increase since April 2021 when non-essential retailing reopened ‘ and sales volumes have hit 3.6 percent above their pre-coronavirus February 2020 levels.
Whilst these statistics act as important indicators of the extent to which the market has recovered from the pandemic, at the same time, the proportion of retail sales online fell to 25.3 percent in January 2022, its lowest level since March 2020 and a continuing downward trend since its peak in February 2021.
So, what do these conflicting statistics really mean for retailers and what’s in store for the market for the rest of 2022?
A return to the high street
One thing is clear, with the last remaining coronavirus restrictions being lifted, consumers are returning to the high street in their droves. However, whilst increased foot fall is brilliant for the retail sector, what consumer want from their physical shopping experience has changed and brands need to accept and adapt to this if they want to remain market contenders.
Last year, we saw retail giants including Debenhams and House of Fraser shut the doors on their flagship stores for the final time. To add to this, Oxford Street longstanding resident John Lewis has announced plans to convert part of its site into housing and offices in an attempt to make the best use out of unwanted retail space.
At the same time, we are seeing Amazon turning plans to open a chain of large brick and mortar stores into a reality and online phenomenon’s such as Gymshark gearing up to launch their first ever stores in some of London’s most sought-after shopping areas.
The reality is that established retailers have failed to adapt to consumer demands for both an in-store and online consumer experience and are subsequently paying the price. However, retailers that appreciate the need for ease, convenience and speed, and are evolving their in-store experience in line with the latest technologies and consumer trends, have the opportunity to capitalise on a new wave of optimism for the high street.
The rising cost of living
Whilst retailers enjoyed a strong start to the year, rising inflation, the ongoing energy crisis and other looming price spikes are set to have a detrimental effect.
Last month, inflation soared to the highest level in nearly three decades, reaching 5.5 percent. The Bank of England quickly followed suit by raising interest rates for the second time in three months to 0.5 percent, marking the first back-to-back increase in nearly 18 years and leaving the UK facing a national crisis.
Amid this soaring cost of living, retailers will face challenges in the months ahead as household budgets are squeezed and consumers tighten their purse strings. Ultimately, only time will tell how these wider macroeconomic conditions impact the sector, however, with many retailers still trying to recover from the economic turmoil of the pandemic and relentless Brexit red tape, it is likely shockwaves will be felt far and wide.
New revenue streams
Many retailers have been operating in crisis mode since the pandemic began, focused solely on the steps they can take to stay afloat in the short term. Now with the cost-of-living crisis ramping up, retailers will need to shift their priorities and explore innovative solutions to come out on top.
Identifying new revenue streams by taking advantage of technological developments will form a crucial part of this strategy by enabling brands to reach new customers that would have otherwise been difficult to service. In addition to this, the UK subscription market ‘ already worth £323 million annually, and growing exponentially, is seeing more retailers take advantage of the model. Subscriptions not only guarantee predictable revenue and access to huge amounts of marketing data, but they can also convert one-time shoppers into lifelong customers. It’s a win-win for brands.
A renewed focus on customer retention
New customers are hard (and expensive) to find, and competition is tough, especially in today’s economic market. Therefore, it will be crucial for retailers take any opportunity to capitalise on growing their customer base.
Securing the best deal isn’t the be all and end all. As a result, retailers will need to place a stronger focus on customer service in 2022. Offering a seamless experience and providing high-quality products will go much further in securing repeat business. Pre and post-sale communication will also become vital. Customers are aware and understanding of supply chain issues, inflation and staff shortages, but it is crucial to set realistic expectations and communicate any unexpected changes rather than leaving customers in the lurch.
Looking ahead
Whilst the rising cost of living and ongoing geopolitical tensions are creating severe market uncertainty, the retail sector has shown great growth potential so far this year. With footfall on the high street up and retailers looking seriously at future expansion plans, there is an optimistic outlook for the retail industry. However, as with any sector, it will be the brands that continue to adapt and innovate that will come out on top.
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