When half our money is spent online

In May 2020, online retail sales in the UK peaked at 32.8% of all transactions. The number has since dropped off to 26.6%, as shoppers returned to stores. But the direction of travel is clear. The percentage of retail sales happening online has tripled in a decade. A year ago, The Guardian covered a report by Retail Economics that suggested that 53% of sales could be online by 2029. With the trend-accelerating effect of the COVID-19 pandemic and lockdown, this seems more likely than ever. So what happens when half of all sales are online?

Jobs

According to the Centre for Retail Research, 125,000 retail jobs were lost in the first eight months of 2020. It seems unlikely to me that this number will stay under 200,000 for the full year - and the CRR concurs. Lots of retailers were already weak going into the crisis (47% at significant risk of failure according to the 2020 Grimsey Review). With GDP dropping 20%, it's clear we are in a financial crisis of 2008 levels or beyond. Any serious weakness is likely to be terminal, with major names like Oasis, TM Lewin, and Victoria's Secret falling into administration.Of course, the growth in online retail creates jobs as well. But the type of jobs it creates are rather different and very polarised. At one end, there are warehouse and logistics jobs for deliveries. These tend to be jobs with little security, either short term or long term. Warehouse automation, drones, and self-driving delivery vehicles will likely eliminate most of these jobs in the next 30-40 years. At the other end there are office-based design, technology, buying and marketing jobs, that tend to be highly skilled and well paid. These jobs are much more secure, but there are many fewer of them. One central team can serve a whole nation, if not the whole world, rather than requiring representatives in each store.Today, roughly 3m people are employed in the retail industry in the UK. Back in 2016, the British Retail Consortium predicted that would be down to 2m by 2025. That certainly seems likely, with perhaps another 500,000 going in the following five years as the transition to online continues.

Shops

Vacancy rates are at their highest for 6 years, with 11 of stores vacant in July 2020. In April, not long before it collapsed into insolvency, shopping centre operator Intu said that it received just 29% of rent due in the previous quarter. The new operators of Intu's locations are full of optimism about the prospect of bringing in smaller, local retailers. But rents will undoubtedly have to fall to attract them in. The same is true on the high street, where small retailers who have historically felt priced out by the combination of rent and rates are now seeing opportunities. But long term rates reform is clearly needed, with many calling for changes to the way rates and calculated and reviewed, and some suggesting more radical changes such as a local sales tax.No level of rent or rates cuts is going to conjure up new product categories though, or change buyer behaviour. The simple reality is that many of the product categories that used to fill the high street no longer exist. Media is now mostly digital. Rent and rate cuts might bring independent book and record stores into the main strip, but that only leaves vacancies elsewhere. The convergence of electronics into the phone has undermined gadget retailers. Gaming's future looks to be streamed or at least downloaded.Fashion remains the category with the greatest apparent potential, with the social factor of clothes shopping and the practical reality of trying things on. But online is still taking a big bite (around a fifth pre-lockdown). And at some point consumer trends are likely to turn against fast fashion, whether over its water consumption, climate impact, labour ethics, or just raw consumerism. Big brands may find themselves sharing space and wallets with charity and vintage stores.Most of all though, they will find themselves sharing high streets and shopping centres with other classes of tenant: schools, housing, health centres, and much, much more.

Cities

Apart from pure geography, what makes a city centre? What differentiates it from other districts or suburbs? In megacities (more than 10 million inhabitants) and those approaching this scale (like London), there are already multiple centres with different characters and specialisms. As retail becomes less of a feature of the city core, will the differentiation between centre and suburb start to decline? It seems likely to me that as more space in centres currently devoted to offices and retail gets turned over to housing and amenities, the unique character of the city centre is diminished. While its assets in terms of transport access and location will continue to differentiate it from the suburbs, we might see cities become more of an ensemble cast rather than having a single star.This could start to change the flows of people around the city, reducing peak volumes, and changing routes. It might have an impact on property prices, and planning.

Creative destruction

Lots of people are clearly aware that the crisis in retail is ongoing. But it also feels like much of the conversation about restoring town and city centres was based on an idea that the damage has already been done. That the one third vacancy rates in some places after the 2008 crash was as bad as it would get. In fact, it looks like it might get much worse. There are years of disruption still to come for the offline retail sector.  And the effects will require continued intervention from government both local and national. They will need to deal with the (structural) job losses, the property vacancies, and the resulting losses in business rates. It will take time to bring new visions for town and city centres to fruition.There is a glimmer of light here. The vision presented by the potential to reshape cities away from a single core presents some potential benefits. But for retail there is a long dark tunnel ahead. 

#AskAFuturist: What is the future of the high street?

What is the future of the high street? This question was asked on my #askafuturist thread on Twitter but also raised by an optometrist at the Stockport Business Summit at which I spoke yesterday. So, I figured now would be a good time to tackle it.The original question from Jasper Hegarty-Ditton was this: “With the recent news around retail decline in 2019 and everyone predicting its continuation, what are more innovative ways we could use our city centres? (Rather than just filling with bars/restaurants/coffee shops).”

Real, structural decline

The first point to make is that the decline of retail on the high street is both a) real and b) structural rather than cyclical.To put the decline in numbers, we lost almost 2500 shops in 2018. Twice as many shops closed as opened. This left us with a vacancy rate of over 10% by the middle of 2019. On top of this, it is estimated that the top 150 retailers have on average around 20% too much space – more than they can afford.This translates directly into job losses. Over 140,000 jobs in retail disappeared in 2019 and that is an ongoing trend, not a one-off.So, why the decline?

Shops are not coming back

When I say the decline is ‘structural’, I mean that bricks and mortar retail is not going to make a comeback any time soon. When you understand why retail has declined, and how disconnected it is to the overall state of the economy, you can see why. That’s not to say that there won’t be a bounce when the economy booms, but it will never reach the same levels as before.Almost 20% of our spend has shifted online. This combined with the smaller number of shops means there is less reason to head to the town centre, compounding the effect and reducing the chance of serendipitous discoveries and knock-on expenditure. Footfall is falling year on year.More of our expenditure will shift online as we outsource more of it to automation. I genuinely believe that within a decade or maximum two, we won’t shop manually for more than half our weekly goods. A smart digital assistant will know what we want, order it, and ensure it is delivered. For some people that will be food and sundries. For people like me, that might even include clothes (I buy the same items over and over again as they wear out).

Future of the high street: less stuff to sell and buy

Note that online retailers are struggling as well. But this is mostly about competition, the economy, and some fundamental issues with the costs of logistics and particularly returns. These things can be resolved.What can’t be resolved is the simple reduction in the volume of things we might shop for. Digitisation is destroying, or has destroyed, the market for many of the staples of the high street. Physical media is largely over, apart from the boutiques and back streets and high value luxury items. It is not coming back outside of those niches. That means we can support a fraction of the number of shops selling books, music, film, stationery, photo processing etc.Technological convergence means we also don’t need as many devices on which to consume all this media. Digitisation of media doesn’t just disrupt the distribution businesses; it disrupts the device manufacturers. One device can now act as your radio, TV, music player, camera, remote control, games console and much more.There will undoubtedly be new classes of device in the future. But it’s hard to see how these devices break out of this digital media paradigm in a way that requires anything more than a showcase presence on the high street.

Distributed manufacturing

As we look to the future, the situation gets even more stark. It is taking a lot longer than expected, but you can foresee a time when many other products succumb to the same digitalisation. Clothes for example: why ship volumes across the world when you can manufacture on demand close to the customer? Lower cost, lower carbon footprint, less waste. Are those clothes likely to be fabricated at home? Not any time soon. But one smart fabrication unit could replicate many different designs shared digitally. With the ability to try on clothes in full photo-realistic fashion in mixed reality, there is even less need for physical products in a high street store.So, in smaller towns and cities, the loss of the high street is pretty much assured – at least as a venue for retail. As I said on Jon Richardson’s show, Ultimate Worrier: the question is not whether the high street is dying. It’s “What do we do with the corpse?”

The high street is dead. Long live the high street

So, is there hope for the future high street? Absolutely. But if it’s not in shopping, what is it? It is in living, working, learning, and socialising. Well, and a bit of shopping.As I said, larger city centres will remain destinations for shoppers with large, experience-focused brand stores continuing to draw crowds. The shops that survive on smaller high streets will be ones that offer high levels of service and craft, as well as products or services that are more spontaneous purchases.The more that our world is driven by mass market, low friction services, the more I believe we will crave the unique, the original, and the personal. Having a human-fronted service, whether that is an optometrist, or a butcher, will be an everyday luxury that I think will many will crave and choose as a badge of their personal brand. And a statement about their wealth and status.

Reassuringly expensive

For these businesses to survive, they will have to be relatively highly priced, when compared to their highly digitised low-friction alternatives, because what they offer will by definition be low volume. That can be a scary prospect for the business owner. But the evidence is that the people who can afford to will patronise such businesses if the service they offer matches the pricing.There is a ceiling to the prices they can charge though, and if these business are to become a viable part of a diverse high street mix then we will need to see reform on business rates and rents.

Spontaneous shopping

Even when we get much of our groceries online and delivered automatically, there will still be those occasions where we just need to grab an extra pint of milk, a bottle of wine, or a bunch of flowers at short notice. Metro grocery stores that cater for these needs are probably here to stay.Both the more craft based businesses, and the metro grocery stores will rely on footfall to survive. Almost no retail business can survive if it is surrounded by empty units without traffic. If other shops won’t drive that, what will?The critical strength of the future high street is in diversity. It is not just a place to shop but a place to live and work, learn and play, eat and drink. It needs to be a place for everyone, particularly all ages.

A future high street for everyone

As I’ve written about before, some towns and companies are already making interesting moves in this direction, with Legal and General investing in bringing retirement living into city centres to replace failing retail space. They are not only building homes but amenities such as doctors’ surgeries, creating a gravitic pull for a wider range of potential city-centre tenants. This is likely to increase the appeal of city centre living to, for example, families with young children. That might in turn drive the construction of more schools and nurseries in city centres.With the shift to electric and ultimately self-driving cars, and even better, drives towards walking, cycling and public transport, town centres can become cleaner, safer places. Many councils, such as Stockport, are now building new, green spaces in the middle of cities.I picture a future high street that is a rich blend of places to live, work, play, eat and drink, study and shop, alongside services for health and beauty. Clearly some of those components are there today but it is the others we need to bring in, and fast if we are to halt the decline of many high streets and save the businesses that still populate them. That will require intervention by both central and local government, and great innovation and flexibility on behalf of landlords, many of whom may not be financially incentivised to do so. Accepting lower rents on their properties to keep streets vibrant may well lead to a devaluation of their asset, something that could be much more difficult for them than having empty units. Changing that situation may too require government intervention.

Five trends for the future high street

Yesterday, I joined a retail round table discussion hosted by my client Freeths solicitors. Senior executives from a range of big retail brands joined us for two hours of conversation and cracking food.I kicked the discussion off with a little provocation. Here’s the five bullets I used to get people talking.In the future…

…augmented reality personalises every space

The first thing you need to know is that our physical and digital experiences will continue to collide. In ten years I believe we will spend 10–12 hours each day experiencing the physical world through a digital lens. That is to say, in ‘augmented reality’ (AR) or ‘mixed reality’ (MR).Initially this will mean that everyone starts to wear smart glasses containing a smart-phone-scale computer, a pair of digital lenses, and a front-facing camera, as well as a variety of user interfaces: eye-tracking, bone-conducting microphone and speaker.There’s much scepticism about this idea, in the wake of Google Glass. But I think a lot has changed in the nearly five years since Glass launched. For a start, the amount of hours we spend glued to screen continues to rise, with the latest Deloitte figures showing many of us walk right across roads while staring at our phones. Secondly, our acceptance of cameras everywhere has grown. They’re now on many car dashboards, on cycle helmets, on drones, and in kids hands as little action cameras — every beach is peppered with people shooting in high definition. And no-one bats an eyelid.This technology changes everything — particularly the front-facing camera. Now our machines can see what we see, and combined with all the other sensor data, including location, develop a hugely rich picture of our physical world interactions, as well as our digital interactions.

…more and more shopping is done for us

I’ve argued before that many of our low-engagement purchases will be handed over to a personal digital assistant. Toilet roll, tinned tomatoes, that sort of thing. No-one enjoys shopping for them, but no-one wants to run out. So why not let an AI-driven assistant ensure that you are kept supplied and never think about them again?Increasingly I’m convinced that more of our high-engagement shopping might be taken over as well, or at the very least, assisted.Right now, clothes shopping online remains a lottery. Inconsistent sizing, even within single brands, means that neither men nor women can shop confidently without trying goods on. And reverse logistics — the returning of goods — is an expensive nightmare for brands, especially when dealing with low-cost ‘fast fashion’.Both of these issues can be solved. Manufacturing data could be applied to give the most detailed fit data, and supplemented with shared data from people who have tried goods on. With a digital personal assistant holding your measurements — updated daily every time your head-mounted camera catches a mirror — you could buy with extreme confidence something will fit.Or your personal digital assistant could buy for you. Everyone loves surprise post. And we’re increasingly signing up for subscription-based purchases for everything from pants to organic vegetables. Why not give your AI some discretionary spend to surprise you with a new item of clothing every month — or even week.With the rise of autonomous vehicle — including the rolling drones trialled in Greenwich last year — automated warehouses, and better integration of offline and on, the costs of reverse logistics start to fall. Brands can be more confident sending out goods that will fit and suit their clients. And know that if things do need to come back, it won’t cost the earth.

…but the tactile experience grows in value

All this suggests that there will be more damage to an already-challenged high street. But speak to 16–35 year-olds and it becomes clear that they have an enormous attachment to the high street and the physical experience it offers.According to research I was involved with for the Salesforce Future Ready Retail programme, the high street is an important social venue for many (29%). 28% say they go for ‘something to do’ and 43% say they go just to get ‘out and about’. This trend is likely to increase: we have growing multiple occupancy in shrinking homes. People need a third space to escape to, so footfall shouldn’t be a problem.But will they buy? Most of this cohort say they go to the high street to research or make purchases. 58% want to try items on or test them out. 54% want to touch or feel items before they buy. 51% value the high street for the instant access it provides them to goods. 38% are seeking ideas.Altogether, 96% say they still like to visit actual shops on the high street and in shopping centres. The challenge though, is connecting this physical activity to digital commerce.

…necessity connects physical and digital

The reality is that many people try offline and buy online. Not only are the prices potentially better, but the convenience is increasingly greater. With rapid fulfilment, why lug your shopping back when it could be delivered to you, neatly packaged, by the time you arrive home?As the figures above show, the offline experience is crucial to the buying process. The challenge is demonstrating that with enough confidence to continue investing in it. The widespread acceptance of augmented reality devices could solve this problem. The data will be there to track someone through a physical interaction with a product right through to their digital purchase. However, two problems remain.First, we will not be able to make a causal connection, only a correlation. This shouldn’t be too much of an issue though: there is rarely a causal connection between physical advertising and the purchase, but nonetheless we continue to invest billions in it.Second, there is no obvious mechanism for paying the provider of the physical world experience for the digital purchase. Should one retailer pay another because an online purchase was spurred by an offline experience in their store? Not likely.More likely is that brands will start to have to foot the bill for physical exposure, and find ways to map the investment in one back to the returns in the other. In this scenario, department stores have an enormous opportunity, aggregating the costs of physical exposure and charging brands for the privilege. We may yet see the renaissance of the department store as a venue for people to touch and feel goods, even if their purchases are ultimately offline. Some may feel this is already what they have become, but in the future it may be a sustainable business model.

…in-store the focus is on product and service, not transaction

For those investing in stores, they will want to ensure that they can maximise the value of that investment. This means focusing on product exposure and service quality and not on the space currently devoted to transactions. Tills will largely disappear, replaced perhaps by RFID systems, but more likely in the long term by computer vision systems tracking goods around (and out of) the store — as seen with Amazon Go.Human staff will be augmented by virtual assistants, powered by the full range of data captured about each shopper and what that shopper chooses to share from their own digital assistant.

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Five trends for the future high street was originally published in Book of the Future on Medium, where people are continuing the conversation by highlighting and responding to this story.

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