By Joanna Perry | Global Head of Marketing

Declining store sales are a fact of life for many UK non-food retailers.

In the raft of earnings updates that has been issued post-Christmas several retailers have acknowledged that their like-for-like sales are falling faster than anticipated. Even industry bellweather fashion retailer Next saw store sales drop 9.2% year on year, while online revenue rose 15.2%, in its post Christmas trading update.

The pace of cannibalisation of offline sales by online shows no signs of slowing, and while Next's Chief Executive Simon Wolfson says he can't predict at what point ecommerce sales will gain parity with store sales, he told Retail Week: "People have to wake up to the new reality that the days of high streets being filled with clothes stores are over."

So what does this mean for retailers and brands, and how can both groups ensure that that their total revenues and profits don't also slide?

Less stores, but better stores

Structural changes, such as reductions in store portfolios, can take time to play out. We have seen retailers such as Marks & Spencer slowly chipping away at its square footage. Argos and Sainsbury's have joined forces to make better use of the space in the grocer's large stores.

Meanwhile Next's plan to remain profitable at a store level involves subletting space in some of its larger units to complementary businesses.

Five years ago, retailers were being told that the profitability of stores in the best shopping centres and malls would be safe from the growth of online. This is no longer a given.

Online fashion retailer Missguided is pulling out of its flagship store at Westfield Stratford City, having decided that it's not required to serve its young, female customer base; despite the plethora of food and leisure facilities at the centre which are designed to encourage footfall.

Stores must offer something different and better to shopping online to remain relevant.

Essential omnichannel services

Our Omnichannel CX research conducted on behalf of Google highlighted how retailers across Europe are developing services and experiences to make shopping across channels more seamless.

Easy click-and-collect options are a no-brainer for any brand trying to drive traffic to store. However, retailers with large store portfolios have questioned whether they should offer this service for free.

The changed omnichannel proposition at department store House of Fraser under its new owner Mike Ashley should provide insight into the answer to this question in 2019. Previously House of Fraser was held up as an example of a retailer with a very strong omnichannel proposition, encouraging click and collect; offering free next-day delivery, and free online returns, to stores.

Since it was acquired from administration, the department store now charges £4.99 for delivery to store within five days, but gives customers who do this a £5 voucher to spend in store. Customers who want to return online orders in store can also only get a refund onto a House of Fraser giftcard.

It will be tremendously interesting to see whether this new profit protection regime dents House of Fraser's online sales or has the desired effect on profitability.  

Omnichannel excellence is required not just to directly satisfy consumers, but to keep brands happy too. We are increasingly being asked to audit the online selling experience provided by brands' retail partners, to help the brand benchmark its partners and often tier them too.

Those that don't meet the standards that the brand sets, or aren't working to get there quickly, may find that the brand no longer wants to be stocked by them. This is particularly true when the brand is also pursuing a direct to consumer (D2C) online strategy and selling via marketplaces such as Amazon, eBay and Wayfair etc.

D2C to derisk declining store sales

There is risk in declining store sales for brands themselves too. Work with the wrong retail partners, who are closing many stores or even facing business failure, and your routes to market can suddenly shrink.

For this reason, and because the brands can also retain more margin by selling online themselves, we see an increasing number creating their own ecommerce sites.

Controlling your own destiny with a direct-to-consumer strategy (which may include a small number of flagship or experiential stores) has proved a growth driver for some. In 2017, 70% of Nike's growth came from direct-to-consumer, though the channel accounted for only 28% of its total sales. 

Other brands are launching with a direct-to-consumer online strategy from day one. Gymshark is the perfect example of this, with estimated sales of circa £100 million, a website that sells globally and no permanent stores. Instead, it relies on its influential Instagram-posting "athletes" to spread the word. It also invests in pop-up stores and events in key cities around the world, which are as much brand marketing campaigns as they are a transactional sales channel.

Even if a D2C website isn't suitable for a brand or its product range, the brand owner may want to investigate whether it can raise consumer awareness and online sales through marketplaces such as Amazon, Tmall and Mercado Libre, which are dominent in their respective online markets around the world.

Consumers increasingly turning to the web for their purchases is a tide which can't be turned back. Whether you are a retailer, brand or an investor in one of these businesses, we can support you through the challenge of creating a strategy to counter declining store sales.

Please get in touch with us at hello@practicology.com if you would like to discuss how we could assist.

 

Related Blog Posts

11.11 2018 results: What global brands can learn
11.11 2018 results: What global brands can learn

What does Alibaba's latest record-breaking shopping event results mean…

Benchmarking basics: Understanding the experience your digital sales channels deliver
Benchmarking basics: Understanding the experience your digital sales channels deliver

Why retailers and brands invest in ecommerce benchmarking to answer th…

Three key questions private equity investors should ask their retail portfolio companies
Three key questions private equity investors should ask their retail portfolio companies

Private equity businesses wanting to drive EBITDA should ask their ret…