Santander’s regular coronavirus industry webinars continued this week with a focus on the retail sector, with contributions from a number of leading sector commentators and retail groups. The session is available in full via this link, but some of the key highlights are detailed below.
Structural change was underway well before coronavirus hit
In a sector that generates £90bn of gross value to the UK economy, with annual revenues of £400bn and a 3.1 million-strong workforce, transformation has been a key theme for several years. Faced with the impact of new digital technologies, changing consumer behaviours and demands, and the rising cost of rents, wages and investment programmes in areas such as sustainability, structural change is imperative and ongoing. Traditional retail models have faced significant disruption.
Coronavirus impacts on the industry have been highly polarised
For some businesses, sales have soared as consumers have stocked up on essentials; others have been forced to close by the Government’s social distancing and workplace safety rules. Retail Economics’ review of retail sales in March underlines just how varied the impact of the pandemic has been:
- In food and drink, food sales were up 4.9% on a like-for-like basis and 5.1% overall. Convenience stores outperformed larger supermarkets as consumers shopped more locally. Encouragingly, food inflation was stable. In the wholesale sector, agility is key. The Federation of Wholesale Distributors is working with the Cabinet Office to create a new online platform for care homes to source vital food supplies.
- In clothing and fashion, the polarisation between the high street and online is remarkable. While the high street has been shut, online operators have performed very strongly; Boohoo, for example, announced record trading and is now intent on using surplus cash for mergers and acquisitions (M&A). This may prove valuable to fashion manufacturers: the UK industry was already growing, but online brands are now seeking quicker deliveries and lower stock keeping units (SKUs) per range.
Retailers were already concerned that seasonal collections are going out of style quickly – another reason to boost online sales, which McKinsey expects to account for 40% of all fashion – but those unable to cancel stocks as the crisis developed now have significant inventory. Many will look to deep discount stocks, which could hit brand value. Santander’s Retailer Offers initiative (see below) could help here, avoiding discounted sales and brand damage.
- In home essentials, the rise of homeworking has boosted sales, though businesses still have an over-reliance on supply chains from low cost economies. The industry is showing willingness to collaborate, forming strategic partnerships to manage coronavirus impacts that may develop into longer-term relationships. For example, a large global retailer in books and convenience, and a supermarket have teamed up to manage food retailing in hospitals. Increased sales of health products, driven by demand for anti-bacterial goods, helped offset slightly reduced sales in some beauty categories.
- E-commerce has been a clear winner during the pandemic, with the non-food online penetration rate increasing to 43.5% in March. Many businesses in the segment are now looking to invest in building further e-commerce capacity. While those without online functionality have been hit hard; Primark’s sales, for example, have fallen from £685m a month to zero. The shift to e-commerce may prove enduring, argues a recent Economist article, with the author concluding that more consumers will become comfortable shopping online, for both food and clothing.
Support is welcome, but an exit strategy brings new challenges
Support from government has helped many businesses manage liquidity, but as the UK begins to contemplate an end to lockdown, the industry will need to adapt quickly to the new realities of a changed marketplace.
Ongoing structural change has already seen efforts to accelerate critical success factors, including brand stand-out and authenticity, e-commerce and omni-channel capabilities and increased domestic sourcing. These efforts will continue, including more onshoring to strengthen supply chain resilience for both online and offline sales. Trends such as click & collect will accelerate, with distribution and logistics becoming even more crucial to the industry’s success. A more collaborative approach to managing consumer spending patterns will improve the long-term retailing environment.
How Santander can help
- We can help retailers sell excess stock through digital channels by taking advantage of the Santander Retailer Offers initiative. This programme enables 2.7 million Santander banking customers to earn cashback and redeem rewards when shopping at selected stores; we’re working with Cardlytics, which will help us understand retailers’ objectives, oversee the campaign, and provide reporting. For more details, click here and for further information, email Sukh Nat at email@example.com
- To help retailers focus on internationalisation in the US and UAE, Santander is running virtual programmes with Bonfire Group that focus on expansion through e-commerce channels. The sessions cover the technologies available to help UK companies streamline their digital businesses to drive sales and growth, as well as how to develop logistics. This includes an opportunity for one-to-one meetings with Bonfire Group and technology providers. We’ll share further details of this programme.
- Our collaboration with Elavon can help Santander customers perform more strongly online. For example, it includes diagnostic tools to identify areas of rising demand, offers advice on payment types and provides guidance on how to consolidate data across multiple markets. For more details, click here.