The pandemic has super-charged the move to online shopping

Even before the COVID-19 pandemic struck, many traditional retailers on Scotland’s high streets were struggling due to the structural shift online. The three-month lockdown has served to super-charge this trend towards internet shopping, highlighted last week by online clothing retailer Boohoo reporting a 45% increase in sales for the three months to 31st May compared with the same period last year. Contrast this with the fortunes of some well-known chains including Debenhams, Cath Kidston, Oasis and Warehouse, which were forced to close their doors to shoppers in March and have since fallen into administration. With lockdown restrictions gradually being lifted in Scotland, will shoppers return to high streets and retail parks or continue to shop from the comfort of their own homes?

On Thursday last week, the First Minister announced the partial move to Phase 2 of reopening. Partial because although non-essential shops with an outside entrance and exit, together with outdoor markets, can reopen from 29th June, this does not apply to retail outlets within shopping centres, which must remain closed for the time being except for those shops classed as essential (including food retailers and pharmacies). Retailers that are reopening must comply with social distancing rules, so customer numbers will be limited and shoppers can expect to be counted in and out of stores and to follow one-way systems, similar to those we’ve become accustomed to within supermarkets. The challenge for non-essential retailers will be to ensure sufficient footfall after the expected initial enthusiasm inevitably subsides: standing in long queues for clothes, books or sofas won’t appeal to everyone, particularly where there is no shelter provided from the Scottish weather.

Future winners in the retail space will therefore need a stronger unique selling point to foster and retain brand loyalty; we believe companies with the following attributes and characteristics are better positioned to survive, not just in the coming months, but in the years ahead:

  • Agility – shorter supply chains of 4-6 weeks for apparel vs 6-9 months are required. We prefer the test and repeat model where retailers buy small amounts of stock from closer supply chains and if the product sells, brilliant, buy more, if not, its hopefully not too much of a big deal, as they’ve only invested in a small amount of stock. If, on the other hand, you have bought a large number of items 6-9 months in advance, and they don’t sell, then you will come up against issues.
  • Customer data – typically acquired through online platforms, this data enables companies to directly market to customers and, through greater analytics, provide a more personalised service through a better understanding of each individual customer’s needs and appetite for new products. Some of the most successful brands incorporate customers into their new product lifecycles and feedback loops. 
  • Product differentiation – products need to be different and have some newness, scarcity value, or a ‘wow factor’ to it. We prefer certain luxury brands that fit this criterion; the strength of brands should enable the company to be a price leader – for example, Louis Vuitton and Chanel are both increasing the price of their bags to ensure prestige.
  • Value – if you have a commodity product, such as a white t-shirt, ensure you offer the best value for the level of quality provided. Customers are much savvier and are comparing and contrasting prices against a range of factors.

Retailers with fragile financial structures that find themselves without a strong brand, loyal customer following or unique selling point will come under pressure and may be driven out of business by the disruption caused by COVID-19. We are likely to see more companies go into administration over the coming months and this disruption, whilst causing uncertainty and distress particularly for staff, can also create opportunities for market consolidation: as part of their trading update released last week, Boohoo highlighted this opportunity set, using part of its significant cash pile to acquire Oasis and Warehouse from administration. 

The retail sector in Scotland is going to look considerably different post lockdown, driven by our evolving attitudes to shopping and overlaid by the impact of this pandemic on our personal willingness to venture back to the high street.       

Written by

Paul Embleton
Investment Director

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