The carnage on the British High street - and its Main Street, USA equivalent - is no blip. The cycle of decline, which has seen a run of recent closures of UK household name retailers and a total of more than 200 medium or large retail businesses going bust over the past five years, is here to stay. Cash-strapped consumers, retailers squeezed by unaffordable rents and business rates, and, most of all, unprecedented technological disruption - led by rocketing adoption of smart-phones and tablets - are combining to bring retail as we know it to an end.
Amongst the biggest changes I predict, is the demise of the supermarket. With excessive and unwieldy property portfolios - including many aircraft hangar-size outlets - the supermarket giants have long since reached the limits of useful expansion and no longer really know what to do with all their space. For many of the biggest players it simply isn’t going to make business sense to stock aisles groaning with 20 or 30 different brands of toilet paper or detergent. Instead they are likely to have just a few generic brands in-store, and ship all the rest of their customers’ household products directly to their homes.
As that shift happens, it will render miles of supermarket shelf space redundant and lead to them having drastically reduced footprints. Yes, people will still go to a version of ‘the supermarket’ for essentials. But in our view, it will mostly be for fresh produce and prepared foods. Think Whole Foods or Marks & Spencer ready meals.
And supermarkets aren’t the only stores that will go away. The explosion in online shopping shows no signs of slowing down. On the contrary, the UK’s Internet economy is predicted to grow by about 10% a year for the next five years, according to research by Forrester, to reach a total of £54.7bn in 2017 - from £41.8bn in 2012 (1). Nowhere is this more in evidence than in fashion. With vastly improved delivery networks and free shipping and returns services, it has become commonplace for people shopping at e-tailers, such as Net a Porter or Zappos, to order four or five items they like, in three different sizes, to be dispatched to their homes simultaneously. From those, they’ll select a couple and send back the rest.
It’s my belief that this system will be adopted by most fashion retailers, who will eventually do as much 90% of their business online. After all, who wants to be jostled in a checkout queue, when you can browse and shop at will, on a tablet which now offers the highest quality product photography, rich information, peer reviews and social media integration. This will result in dramatically fewer bricks and mortar Zaras, H&Ms, Topshops and Miss Selfridges. It will also mean that gigantic sprawling shopping malls will shrink too, becoming show rooms, in effect - hubs for in-store displays, drop off and collection points and face-to-face customer services.
Malls and shopping-centres will also host growing numbers of pop-up stores. For example, one of our investments, Etsy - the online marketplace for handmade, vintage and arts and crafts products - has been running pop-ups in outlets belonging to West Elm, the prestigious American home-ware and furniture retailer. We expect to do something similar shortly with another of our investments - the wildly popular fast fashion brand, Nasty Gal.
With malls and department stores looking for ways to drive foot-traffic, inviting hip new brands into their buildings will prove irresistible.
So, as the Internet lays waste to the traditional shopping landscape, what sorts of stores will remain? For one thing, we expect fashion boutiques to thrive - not least because the people who run them are so often brilliant curators who spot and cultivate the brightest new talent. Customers will visit, get personalised help with their shopping - and will probably sip coffee while doing so. They might even pick up an order they’ve placed online with another boutique, while they’re there. Similarly, we think there’s a bright future for retailers offering immersive experiences and fun activities. These might include grocery stores offering cooking lessons. You might then buy the ingredients in-store and cook for friends at home.
But in the end Retail 3.0 is really all about omni-channel: the seamless transition from in-store to online and everywhere in between - particularly on tablets. This doesn’t mean that bricks and mortar retail will disappear altogether, rather they will become just one channel among many that will allow us to shop however we want, wherever we are.
Source (1) Forrester European Online Retail Forecast 2012-17.