Preparing for recovery

6 min read

Retail & Wholesale

This is the latest update from Santander’s Retail & Wholesale team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Retail & wholesale

With stores now reopening as the coronavirus lockdown is eased, many retailers and wholesalers are now thinking strategically about how to prepare for the months and years ahead.

Data from the Office of National Statistics covering the first two weeks of June reveals 85% of retailers began trading again more than two weeks ago.  8% have begun trading again in the past two weeks, and 3.5% have still to start trading and do not expect to do so in the next two weeks.

Clearly, this has been an unprecedented period, but the retail and wholesale sector has played a vital role during the crisis. Only 13.2% of the sector’s workforce was furloughed through the Government’s Job Retention Scheme during the crisis (compared to 23.4% across all sectors), with 45.3% working at their normal place of work (33.6% across all sectors).

The data underlines the extent to which the sector has stepped up to meet the needs of the public, even though working remotely is less of an option for most retail and wholesale businesses. ONS data shows only 34.9% of the sector’s workforce have been working remotely, compared to 38.6% of all workers.

Customers’ spending patterns continue to shift. Detailed data for June is due within the coming days, but early insights from BDO (the international network of public accounting, tax, consulting and business advisory firms) suggest retail sales improved during the month. This could be down to increasing consumer confidence recorded by GfK, whose latest index reveals an improvement from minus 38 in May to minus 27 last month. BDO have made the following insights. 

  • Consumers continue to do a relatively high proportion of their shopping online despite the reopening of many non-essential stores. Non-store sales rose 102.6% year-on-year on a like-for-like basis during June, helping to offset a 71.9% fall in in-store sales.
  • There have been improvements in footfall, albeit limited. Retail parks proved more resilient, with footfall down 41% in the first week of June compared to the same week a year previously, but only 27% down in the final week. By contrast, high street footfall was down 76% and 59% in the same weeks, with shopping centres down 75% and 52%.
  • BDO’s major purchases index rose seven points to minus 25 over the course of June, its best reading since February. Like-for-like sales of homewares rose 25.5% year-on-year in June, a second successive month of growth and a marked improvement that was boosted by the reopening of stores.

 

Exploiting new trends

Some changing consumer behaviours are unlikely to revert following the pandemic. In online retail, which now accounts for more than 30% of total sales compared to 18% before the pandemic, the sector has had to invest in infrastructure and logistics to meet the demand. This will prove important. New research, from Retail Economics and Alvarez & Marshal, suggests many customers will continue to shop this way, with an additional £4.5bn of online sales expected in the UK.

This could prompt many retailers to repurpose stores. In fact, multi-channel retailers have reported the largest uptick in online sales of all during the pandemic. They’ve seen a 71% year-on-year increase during the week beginning 15 June, according to the IMRG Capgemini Online Retail Sales Index. With excess space in their physical stores, many of these retailers may now need to think about how to adapt their space to complement online sales, for example, by driving customer awareness and supporting fulfilment.

Naturally, some categories have been affected in different ways to others by the pandemic. For example, demand for online household goods is up by 119% and by 109% for ‘other non-food’ (including DIY and gardening, health and beauty, and some electricals).  Meanwhile in food and drink retail, consumers have tended to shop more in their local communities, in convenience stores. They’ve also moved from eating out to dining in, where May’s figures showed 8.7% growth. The ‘athleisure and loungewear’ sub-sector has also recorded strong demand. Research and markets data suggests the global market will grow at a compound annual rate of 6.7% between 2019 and 2026 (from $155bn to $257bn).

Sustainability is another important trend, with the crisis underlining the imperative for brands to be authentic and customer focused. Ethical consumerism continues to gather pace. In this environment, brands need sustainable and transparent supply chains and high labour standards. And increasingly, brands will need to show they support social issues, with customers connecting with those brands whose values they share.

Supply chain risk has also moved up the agenda. Frictionless and resilient supply chains will be crucial to retailers’ and wholesalers’ ability to continue trading. In food and drink wholesale, for example, the UK imports two-thirds of its fresh produce. The pandemic and Brexit provide strong catalysts for moving to mitigate supply chain risks. For example, with direct sourcing from other markets.

Finally, the pandemic may also prompt some in the sector to pivot their activities. For example, some wholesalers responded to falling demand for their core products at the height of the crisis by shifting to importing and supplying personal protective equipment (PPE). Demand for PPE may yet continue to increase.

 

Santander support in the UK

This is a crisis in which brands will be remembered for how they act. For our part, we’re continuing to look at how to serve clients better. We have initiatives to support retail and wholesale clients (in addition to our Trade Club & Wholesale & Retail International connectivity proposition). 

  • Supply chain diversification and finance solutions – in recent webinars we’ve addressed this topic for homewares and fashion brands, as well as for food and drink retailers and wholesalers. In the case of the latter, we recently held a webinar showcasing what South Africa may be able to offer in this regard. It’s a country that exports 90% of its fresh fruit and offers counter-cyclical harvesting seasons to Europe. Santander has an ecosystem of partners in South Africa that can support UK businesses. We also have a supplier finance solution that can strengthen supplier relationships. For detailed insights and webinar recording please click here.   
  • Santander Retailer Offers – we’re working on a project to make it possible for brands to sell their excess stock online through our Retailer Offers programme, which enables around 2.7 million Santander personal customers to earn cashback when shopping at selected merchants. More details here.
  • Liquidity management – for businesses selling essential goods and experienced increased demand, we’re offering targeted support for short- and medium-term liquidity management to make sure they can optimise returns on surplus funds. More details here.

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