The reasons that physical retailers are struggling and what they must do to bounce back.
Gap’s UK stores. Closed. Mothercare shops. Gone. Debenhams outlets. Goodbye. Topshop Oxford Street – once arguably the most successful retail operation in the world. RIP. It’s no exaggeration to say physical retail, squeezed by a vicious pincer movement of growing online sales and COVID-19, has never had it tougher. Take a walk down your average British high street and the only thing to distract you from the smell of decay is the mournful sound of Amazon delivery vans revving towards residential addresses.
Yet physical retail still works. There are shining beacons amid the fog. Take a walk around Spitalfields Market in East London, for example, and you’ll see vibrant traders and enthusiastic shoppers loving the hands-on experience of buying and selling. Companies like Hotel Chocolat are also succeeding in physical retail by presenting their shops as experiential versions of their online offering. Certain independents, too, do brisk trade offline because they market themselves as compelling destinations. Even Amazon sees the benefits of real-world retail with its growing number of physical, checkout-free stores.
Another analogue business thriving while the web and COVID-19 take chunks out of our high streets is Boxpark. Founder Roger Wade is passionate about physical retail and believes its decline can – indeed, must – be halted. He asks: “What sort of future do we want? The Jeff Bezos future, where we sit at home tapping iPads in silence waiting for drones to deliver our meals, or one where we all talk face to face as a community surrounded by beautiful shops? I know what I want, but I’m so worried about the future of our town centres and high streets. Urgent action is needed.”
Roger offers hope, however. He argues: “I believe in physical retail, I really do. Why? You can boil all retail, physical or online, down to three things: content, traffic and conversion. Nothing touches physical retail for content. That’s why Apple has real stores – the world’s greatest tech company understands how powerful physical retail can be. Online retail, on the other hand, is like watching fireworks on TV – you don’t get the 360-degree sensory experience.
“Then there’s traffic,” he continues. “Unlike the internet, which is expensive, physical retail is a cost-effective way to build traffic. It allows you to show off products, attract Instagrammers and bloggers, and market your brand and products swiftly and efficiently.
“Finally, there’s conversion. When you sell online you might get one in 100 customers buying. In-store, it’s more like one in ten. So I’d argue that physical retail can do it better on every part of the journey.”
So why is physical retail struggling so much? There are three major reasons, according to Roger. Two are in the hands of retailers but the third is more problematic. Here’s what Roger believes physical retailers must do to fight back.
- Innovate harder and faster
Shopkeepers, restaurant owners and other physical retailers must get at least as good as digital businesses at innovating, rather than doing the same tired old things and expecting a different result. But the important point here that many of us miss, according to Roger, is that innovation doesn’t mean doing mind-bendingly whizzy things but simply learning from what does and doesn’t work, and quickly embracing change.
He explains: “Boxpark has evolved. My first idea was to build a high street from shipping containers and fill them with fashion and streetwear independents. But we found that street-food traders – an incidental part of the mix at first – did the best trade, so over time we became more of a street-food emporium.
“You’ve got to embrace problems because your greatest innovations come from your biggest headaches. For example, we lost footfall after the London Olympics, which made us get better at social media. It also made us offer flexible lease lengths that traders love – one week, one month, three months or 12 months. Also, we started doing wi-fi data capture (more on that below).
“If you don’t react to issues, you soon get swamped, but if you embrace problems and react positively, you grow.”
- Get better at data capture
This part of the innovation mix is needed most of all because digital retailers have become excellent at capturing customers’ data and using it to their advantage. Physical retailers, on the other hand (in the main), still don’t even record customers’ email addresses. Shopkeepers have to find ways to catch up and grab that all-important marketing info, believes Roger.
He says: “The reality is physical retailers have been really poor at data collection. We all need to learn from the likes of Amazon. Imagine if you said to Amazon: ‘Look, you’re going to set up Amazon Fresh. It’ll be like a supermarket but you’re not going to collect any customer data.’ They’d laugh at you. But that’s what 99% of physical retailers do, especially the independents. They collect zero customer data. Sadly, that’s a recipe for failure in this data-driven world.
“At Boxpark, we’ve developed a membership card, which means we know all about our customers: why they’ve come, when they’ve come, and what they’re buying. Knowing this means we can tailor our marketing messages.”
- Keep pushing for a level playing field
This third point is more complex because, ultimately, it’s out of physical retailers’ hands, although Roger argues that’s no excuse for doing nothing.
He says: “We’ve got to create a framework that allows physical retail to survive – this really worries me because currently, that framework doesn’t exist. For example, digital retailers can build warehouses in the middle of nowhere that service every UK household and yet pay a tiny proportion of the business rates that small village independent stores must fork out. Equally, online traders who’ve enjoyed massive growth during COVID-19 are seeing tiny increases in corporation tax. Yet Joe Smith in a small high-street store pays a much higher proportion of tax. These inequalities must change. We need a level playing field.”
Exasperated, Roger continues: “Entrepreneurs like Holly Tucker (founder of notonthehighstreet.com), Bill Grimsey (former Iceland CEO) and I have been talking about the threat to our high streets and town centres for the past five years. But it feels like no one’s listening. And guess what? Our high streets and town centres are being destroyed. But it doesn’t have to be this way – we’re not holding out a begging bowl; we’re just asking for a level playing field.”
Raising the sleeping giant
Roger has no doubt that physical retail can be revived – if conditions are altered to allow shopkeepers and restaurateurs to compete on an equal footing with online retailers, and as long as the sector gets better at innovating and building compelling destinations, not just shops.
That’s precisely what Roger has done at Boxpark, where he focuses virtually all his attention on creating “a special environment”. “I’m obsessive about content, not about balance sheets,” he says.
By taking a leaf out of Roger’s book, and channelling some of his fight, anger and positivity, downbeat physical retailers can start to revive their industry. We humans enjoy convenience, which is why online retail is growing so fast. But we need face-to-face interaction and tangible experiences, which is why physical retail will never die.*The views expressed are the author’s and not ICAEW’s.