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Retail Analytics

The current state of play in retail in 2018

retail space(2)

Written by Tony Loxton
Aug 13

Is the retail space dying?

Open a newspaper or a news site and you’ll no doubt be greeted by a headline on how a once-successful retailer is drastically cutting back on their physical retail presence, which is mostly blamed on the ever-growing popularity of online shopping.

Business Insider covered this decline in the US across 2017, highlighting how hard many retailers were hit. Radio Shack closed the most stores by far in 2017, coming in at 1430 store closures. This was almost double the number closed by the second retailer on the list, Payless, which closed the doors to 808 of its retail stores. We’re less than halfway through 2018, and US retailers have continued to feel the pinch. Toys R Us announced that it would be closing or selling all of its US stores, with 735 of them being reported as closed by Business Insider at the start of April. This was followed by Walgreens with 600 retail store closures. At first glance it would be easy to assume that, if the numbers in the US are anything to go by, retailers across the board are suffering.

Is this really the case? Is retail on a downward spiral in the US? Greg Maloney, a contributor for Forbes, highlights how 2017 was actually one of the better years for retail in the United States:

“Despite much ‘noise’ around the demise of brick-and-mortar, retail had one of its better years in 2017 and is coming off the best holiday shopping season since the Great Recession. The 5.5% increase in sales over the holiday, or $691.9 billion according to the NRF, exceeded many expectations, but not all.”

Kasey Lobaugh, the Chief Retail Innovation Officer at Deloitte Consulting LLP, also doesn’t think that retail as a whole is in decline:

"We hear things like retail is dying. Online is killing brick & mortar retail. Those are the kinds of things that we hear, but it just wasn't adding up. That's not what we saw with our clients. So what we decided to do: let's dig in. Let's tear it apart and look at the data and see what's really going on."

What Deloitte found in their video The great retail bifurcation wasn’t that retail as a whole was dying, but there a specific category of retailer that was experiencing massive losses. In their analysis, Deloitte highlights how there are three categories of retailers: Price based, Balanced, and Premier retailers. A Price based retailer focuses on providing a product at the lowest cost possible, while a Premier retailer is a retailer that focuses on selling fewer higher quality products at a higher premium. A Balanced retailer is a retailer that seeks to reach a compromise between these two markets in terms of their product quality and pricing.

It’s important to understand the difference between these three categories because of what Deloitte discovered in their analysis. The data indicated that it wasn’t retailers across all of these sectors that were in decline. The Price-based and Premier categories were actually experiencing growth (especially the Premier retail category), but the Balanced category was experiencing major losses. Which brings us to one simple question: why was this happening?

Preeti Pincha, a member of the Retail, Wholesale & Distribution Practice team at Deloitte, highlights how it was simple enough to connect this to the increasing levels of income inequality in the US:

“Between 2007 and 2016, there's a vastly disproportionate amount of income that went to the high income cohort. In 2017 alone, the top 1% was able to get 83% of the total wealth created in the United States.“

In layman’s terms: the poor are getting poorer, and the rich are getting richer, and this is drastically reshaping how the retail market exists in the US.

But is this the case in retail markets on a global level? Are they shrinking and do we even know why?

The state of retail markets across the globe - a look at three more retail markets

It would be impossible in the context of this article to take an in-depth look at every major retail market on a global scale, so we’ll instead be taking a look at three different retail markets across the world and the state of their retail industries in comparison to their overall GDPs.

China

China has the second largest economy in the world, with 2017 seeing the GDP grow by 6.9% – the largest growth they’ve seen in seven years. Keeping this in mind, has their retail industry experienced similar growth, or are they also experiencing a decline in the retail space?

China’s retail industry continued to experience growth (in the region of 10%) in 2017, but reports indicate that China also experienced the highest closure rate of luxury stores across the entire globe, which may indicate a different shift in demand when compared to the trend Deloitte noticed in the US.

McKinsey, in their podcast What’s driving the Chinese consumer looks at the question “Is retail dead?” in the context of the Chinese market. Daniel Zipser ask Fang Gong, a McKinsey partner who covers the consumer sector in China, for his view regarding this statement, but applied to the Chinese context. He had this to say about retail in China:

“A couple of years ago when Alibaba rolled out or sponsored a couple of online-only brands, a lot of consumer brands were scared, because they were afraid that with this pure online model the physical-model players would be driven out of the market.

Now we do see a trend of merging between online and offline. Those traditional offline players have been spending aggressively in the online space, rolling out what we call an omnichannel strategy. But for the pure online players, they are also spending on offline. They are opening stores so that consumers have a good experience with the product, which will in turn drive traffic or the purchase back to the online store. We do expect that e-commerce in China will continue to grow rapidly. On the other hand, the physical store will remain critical in terms of the consumer experience.”

UK

The UK has the fifth largest economy in the world by GDP, with growth of 1.8% in 2017. This marks a decline of 0.1% from 2016, and is the lowest level of growth the country has experienced since 2012. What impact has slow economic growth had on the UK’s retail sector?

Unfortunately, the UK’s retail sector has undoubtedly been struggling over the last couple of years. Retail sales peaked at approximately 7% during 2016, but took a massive dive to just over 2% at the start of 2017. This downward trend continued towards the end of 2017 where retail growth was close to 0%, before picking up near the start of 2018 and rising to just below 2%.

The Office for National statistics offers monthly updates on the retail industry, but has yet to compile an annual review that includes the performance of the retail industry for 2017 (their latest annual review is for 2016). A brief look at the first quarter for 2018 showed 0.1% growth for January, 0.8% growth for February, and a decline of 1.2% for March for Contributions to month-on-month growth for the quantity bought within retail stores.

The Guardian indicates that this decline in retail spending might be as a result of a shift in consumer spending habits:

“This rapid change in shopping habits is boosting sales at the likes of Amazon, Asos and Boohoo, but forcing radical change on British towns and cities as physical retail space becomes redundant.

The past few months have seen a stream of collapses – from fashion store East to shoe chain Shoon and bed specialists Warren Evans and Feather & Black. Toys R Us is teetering on the brink of bankruptcy, while House of Fraser, Debenhams and New Look are all struggling, with all three considering large-scale closures of stores or space.”

The UK, despite being a developed country, is struggling in regard to sustaining its retail industry as a whole. Deloitte, in their report A brave new world - The Retail Profitability Challenge, highlights how the UK is experiencing a "perfect storm" of pressures that are affecting its retail industry, including growth of online shopping, rising property costs, growing staff costs and rising fuel and commodity prices. Overcoming these issues will undoubtedly be a challenge, but they will not be insurmountable. Deloitte recommends that retailers ensure they:

  1. Have real customer engagement
  2. Differentiate themselves by specialising
  3. Innovate to increase financial growth

South Africa

South Africa has the 39th largest GDP in the world, but is the 3rd highest in Africa, coming in behind Nigeria and Egypt. South Africa entered a technical recession in 2017, but bounced back in late 2017/early 2018 to just over 3% of positive growth. But has this growth reflected in the retail industry in South Africa?

The stats indicate that, yes, the retail industry was able to recover from the recession, increasing to approximately 8% growth at the end of 2017, before ending up at approximately 5% in early 2018. The latest government findings place year-on-year growth officially at 4.8%.

Within retail as a whole, the clothing sector in South Africa stands out in the media as a hotly contested space due to increased competition from international brands (not to mention the tightening budgets). Once successful local brands such as Stuttafords and Edgars have either closed up shop entirely or are in the process of restructuring to deal with an increasingly saturated market.

Retail - The reports of my death are greatly exaggerated

While newspaper headlines may give the impression that retailers are going the way of the dodo, the state of the retail industry on a global scale is actually far more complex. As we’ve seen in the examples discussed here, some regions are struggling to handle the challenges, while others are implementing strategies that blur the line between physical retailers and online shopping to ensure their survival. Other regions are still growing and are experiencing a completely different set of challenges in the retail space.

To conclude, while the bold statement “Retail is dead” may make for great headlines, this is not a blanket statement that can be applied to every retail market across the world.

As a retailer, you need to equip yourself with as many tools as possible to ensure you can thrive in the retail space. If you’d like to know more about how our foot traffic products and services can help you achieve this, feel free to get in touch with us at Blix Traffic.   

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