KPMG: UK retail sector trends 2020 & forecast 2021

Last week, Paul Martin, Head of UK Retail at KPMG kindly joined myself for a video interview to talk about the trends of the retail sector in 2020, what’s to come in 2021 and where we should be focusing our attention/efforts in order to be successful. 

Trends of 2020:

It’s a fluid situation. We experienced the first instances from a health perspective from January, and of course, from a global perspective, things are changing country by country since. 

• Retail in the UK is a £395bn industry. The store shutdown during March and April had a large negative impact on retailers. 
• In April/May, we expected a 5-6% overall annual decline in annual sales.
• After a more buoyant Summer (June, July, and August) even though we still expect a decline, the performance was much better than expected, and we now believe the annual outlook is more likely to be 1% drop. 
• Heading into the final golden quarter, this is so important for performance. Especially with furlough unwinding, we have lived in a protected bubble for a certain amount of time, and we’ll expect to see a negative financial impact from the end of October. 
• Retail can’t just be looked at in its entirety. 
  • If you look at the food category or home, they have faired very well. 42% of all food pre-covid was consumed out of home, large parts of that economy have come to a significant standstill. More consumers are now eating at home, so the grocery sector in some cases have seen double-digit increases. 
  • Furniture, Home-wear, DIY (specifically over the summer) have also seen positive uplift. 
  • On the flip side, some categories have experienced a more challenging environment – specifically Menswear, womenswear, kids wear, accessories, beauty part of health and beauty category. April, May, July in some cases saw 80% declines, which has stabilised in recent months. 
  • Some will still feel the impact into 2021, with many non-essential categories not expected to fully recover until the end of 2021 to early 2022.
• Re:signal view: this reflects what we’ve been seeing in our ecommerce SEO report, with the biggest winners including Amazon, Argos, eBay, Wayfair, Etsy, ASOS, Next, Boots, Game, Wickes. Where an increase in demand will have positively impacted organic visibility. Whereas some non-essential categories and brands have dropped in performance. 

Consumer behaviours:

• Many people have more disposable income, certainly without commuting, spending money on food-to-items / eating out, travel. Therefore over the last 3 months would have spent more in the retail sector. But with unemployment rising, will that come to the end?
• Foundation of consumer commerce, in more developed markets like China the way forward is an integrated ecosystem, irrelevant of which channel you are interacting with (physical / online). 
• Covid pandemic has increased the need to think less in silos and multichannel vs an omnichannel / single customer view.
• E-commerce is often the number one biggest store, but it’s not a total replacement for the offline world. The Hybrid is key for many retailers, which although there will be stores closures, this is still likely to be the way forward.  
• Cultural mindset shift is needed to get from today to tomorrow. Many of the objectives are out of date. E.g. sales/profit per square foot, even channel per profitability. We need to start understanding metrics better, such as lifetime value of individual consumers. 
• Should online stores be viewed as a marketing expense? E.g. mattresses as an example of a sector that has been distributed to the point where you don’t need a store. Luxury is a good example, where physical locations have been seen as a marketing expense. Stores that don’t make a profitable return we’re likely to see less of. 

6 drivers of consumption:

1. Value – economic uncertainty, split 50/50 between the cheapest and best value in the past. Cheaper is now more important because people are more cautious right now. Although a certain percentage will be higher, it depends on the other drivers. 
2. Convenience – local and rural high streets have seen an increase, which is against the trends of previous years. With people now less likely to be in city centres. Local products are giving buyers more confidence, as there’s less concern over the source of origin or how many hands have touched the product during the supply chain. 
3. Experiences – is not the savour of the physical channel. Putting a coffee shop inside your store is unlikely to transform your business. It should be pivoted towards ease – e.g. contactless payment, interacting with other people, how are stores handling fitting rooms, etc. Through to social commerce, e.g. chefs cooking online feels like you’re bringing products to your kitchen. 
4. Choice – supermarkets pre-covid had 16 sizes of milk and 17 different pack sizes of toilet papers – these are now much more streamlined.
5. Purpose – a movement around sustainability has taken 5-7 years to get back on the agenda since 2008, but the point is here to stay. 
6. Privacy vs convenience – will I trust an organisation to hand over my personal details to get more convenience? Safety of data online, plus in-store, with the necessary COVID-19 precautions being made.

Leadership agenda: 

4 key themes: 

1. Business model and partnerships. Change in the retail sector has developed more in the last 10 years, than it had previously since Roman times! Retailers will not be good at all components of the value chain, so need to partner. 
2. Cost of doing business. Median profitability was 6% in 2010, and forecast at less than 1% in 2020. 20-50% of the cost will have to be taken out of non-essential business in the next 12-24 months. Even essential 10-20% of costs will have to be irradiated.
3. Understand your customer. Personalisation is key to unlock the value of customers you want to interact with. 
4. Purpose. If this isn’t a top 4 item on your board agenda, it’s very likely that customers will vote with their feet and not interact with you going forward. 

Summary: 

The transition from retail to consumer commerce shows a need to transform over the coming years. However, this is not a new trend, COVID-19 has accelerated the need to address this. Where you may have had 5 years in the past, you now likely have 24-36 months going forward. 

The key point is retailers need to understand who they want to be, what type of business model they are, and then begin the transformation.