In-store sales are dropping, so what does the future of retail look like?

How many of you ‘went to the shops’ over the Christmas period? Nowhere near as many as last year, but more than will visit a store next year. The downward footfall graph continued apace over December and January.

It’s not an Australian thing, it’s a global thing.

Like most Australians I try not to work in December and January — after all, the best beaches in the world are calling. However, this year I’ve been engaged in a number of meetings with very senior international retail executives and suppliers to international retail. Some have been visiting Australia, while others have been to the cold of New York for the NRF show. All now know the fall in the numbers of shoppers walking into stores has seen the UK high street and US main street change forever. And the change will continue for several more years to come.

The most confronting piece of research predicts by 2025 as much as 35% of any category’s sales will be online and only 65% will still be via a physical retailer. One in three dollars and one in three transactions will not take place in a store.

So what?

Well, the best of the retailers have already designed very different store formats from their current stores. They have already begun to sublet or exit unprofitable leases in their current stores, and planned to exit completely any store above a certain size. They’re transitioning into new smaller-footprint stores, with shorter leases, which have higher quality fit-outs and technology to support self-service for shopper and lower staff involvement in maintaining in-store communication, pricing and inventory management.

The focus is on shoppers experiencing products first-hand, staff with high-product knowledge and sales training, personalisation, buy online and pick up in-store options, and home delivery. Manufacturers will share investment with multi-brand retailers like never before, while also selling via pure online players to keep their brands available to shoppers in all channels.

For landlords, rents will fall gradually — 2% to 4% each year — as store tenants have to trade out existing leases they can’t exit. But space will shrink fast and considerably— like by 20% in many malls over three years. That is a huge number.

All of these changes will undermine many retail brands and the single-brand retail proposition specifically. That is, unless it is a stable or growing built-to-last, high-quality brand — think Rolex, Snap On, RM Williams or Harley Davidson. (I’ll cover this built-to-last trend in greater depth in my next blog.)

This is not a gloom and doom prediction.

It’s the same systemic pattern of change led by end-users that saw roads replace train tracks and planes replace ships.

New jobs will be created in outer suburbs and regional towns and old, high-quality brands will be rejuvenated. It’s just difficult to predict exactly where and when.

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