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Brick-and-mortar vs online retail

1st June 2021

Brick-and-mortar retail seems to be gradually losing the fight with its online rival, but is this trend set to continue?

As the name suggests, brick-and-mortar retail refers to the physical space occupied by a store in a town, city or shopping centre. Conversely, online retail refers to e-commerce and the purchasing of products through websites or apps.

Importantly, it has become clear that brick-and-mortar stores generally require an online presence in order to stay relevant.

During the pandemic, any non-essential shops which could not fulfil online orders found that their closed premises halted their ability to sell products, whereas some of the biggest winners during this time were purely online retailers such as Amazon and ASOS.

Statistics

  • By the end of 2019, the rapid development of e-commerce accounted for 21.4% of total retail sales. This number rose even more during the pandemic whilst national lockdown restrictions prevented non-essential shops from opening, reaching a record high of 36.4% in January 2021.
  • Approximately £140 billion was spent on e-commerce in 2020 and, whilst this figure is expected to drop in 2021, it is then expected to rise to comparable levels and to keep growing from 2023 onwards.
  • Conversely, brick-and-mortar presence has been declining at a rapid rate. In Q4 2020, it was reported that Britain’s high street vacancy rate had climbed to 13.7% and its shopping centre vacancy rate had reached 17.3%.
  • Additionally, there was a 47% increase in the number of vacant units in the City of London specifically between 2019 and 2020.

 

This final statistic also highlights the dependency of brick-and-mortar stores on footfall. The street level of much of the City of London is comprised of non-essential retail and hospitality, all of which were forced to close for large portions of the pandemic. However, even the stores that were eligible to continue trading suffered from the drastic drop in footfall whilst people were dissuaded from travelling in to work in offices.

Some fear that, with the rise of WFH, there will never be the same level of footfall in these central areas ever again.

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Occupancy costs

The challenge for brick-and-mortar shops is exacerbated by high rents and business rates. Both of these are particularly great for shops and severely impact the overall occupancy costs associated with trading at a specific location.

By comparison, online retail is generally dependent on industrial premises to fulfil and distribute orders. These units tend to be logistically positioned in areas where both business rates and rent levels are drastically lower than those in the centre of towns and cities, thus making it more viable for certain businesses.

Importantly, high street chains are often linked with central distribution hubs to supply new stock to multiple stores. Physical retail is therefore dependent on a network of retail and industrial units to support the part of their business that is customer-facing.

Purely online retail relies solely upon industrial premises, whereas physical retail is dependent on having multiple strategically positioned locations, resulting in a far higher overall expenditure on commercial property.

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Omnichannel commerce

Physical stores will still remain an integral part of operations for many businesses and will remain a key experience for many customers.

However, following the pandemic, many businesses are opting for the quality over quantity of stores in order to make the physical experience of being in a shop one that keeps customers returning and, ultimately, spending money.

A recent report from Retail Gazette and K3 Technologies indicates that 61% of businesses plan to reduce the number of stores they have, though 61% also plan to invest in better links between stores and online, envisaging an omnichannel future for their business.

The notion of omnichannel commerce involves retailers using multiple complimentary channels through which to sell their goods.

In this sense, the future may not consist of purely brick-and-mortar or purely online retail. Instead, it is thought the majority of retailers will utilise both to seamlessly facilitate all customers with the access and information required to make a purchase online or to walk out from the store with the product that day.

 

Click here for more information surrounding the post-pandemic future for commercial tenants.

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