Behind the headline figures: Four reasons for optimism for retailers

The latest retail figures are showing signs of real encouragement for retailers. Retail sales volumes rose a better-than-expected 3.6% in July and are now above pre-pandemic levels. Data from the Office for National Statistics showed that sales rose 2% ahead of a 0.2% prediction by economists, and this was on the back of a 13.9% bounce in sales in June.

With offices now re-opening giving a further boost to City Centres, there remains a lot of uncertainty surrounding the virus and its impact on the economy. This makes forecasting and budgeting a difficult task. However as we come out of this phase, there are some positive signs that a fast recovery is now taking place. While we have fallen a long way, smart retailers can follow the signals to rebound quickly. Here are four reasons for cautious optimism.

1) Strongest rebound in history recorded

It has of course been a time of unforeseen challenge for retailers. Consumers have been confined to homes, staying away from shuttered up shops. However, the latest figures showed how much pent up demand is now being met. In July 2020, retail sales volumes are 3% above pre-pandemic levels in February 2020. This is a remarkable turnaround, especially given the restrictions that exist.

With uncertainty about the future, we may have expected more caution from consumers. In fact the British public have been happy to open their wallets and retailers are reacting to this pent up demand. Q4 is set to show a really strong quarter-on quarter increase in economic growth at 4.8% with retail having the potential to lead the charge. If we can avoid a second spike Christmas could save the year for many retailers as it did during the last recession in 2008.

2) E-commerce not replacing all revenue lost from the High Street

 E-commerce has of course been a big winner during this time. The strong growth experienced over the pandemic has meant that online sales are still 50.4% higher than February’s pre-pandemic levels. However online retail sales fell by 7.0% in July when compared with June with online sales falling short in offsetting the much larger volume of traditional retail.

The reality is customer experience in considered purchases remains important as online can’t offer a true brand experience. Customers still long for the human interaction, advice and ability to browse that comes as part of the bricks and mortar shopping experience. Retailers that continue to focus on expert human advice and experience can succeed in the post-lockdown phase.  

3) Strong growth in categories catering to changing behavioural patterns

With more customers spending more time at home, there is an increasing demand for high-ticket items like TVs and laptops for working from home and freezers for all the extra food. The Electricals 2020 sales growth will be less impacted than most categories, with 0.7% growth still predicted for the year. Device ownership is also likely to deepen in 2020 as UK consumers spend more time at home and use devices to adapt to the pandemic.

With more people working from home, notebooks have been at the centre of a demand surge. In fact according to TechRadar, 73% of retailers have seen notebook sales growth in 2020 compared to 2019.  Education is another key sector that could sustain the demand for these products. A recent survey showed a third of parents were uncertain about sending their children back to school – the upshot is consumer electronics will remain needed for home schooling.

Meanwhile domestic appliance sales surged to 3.9% growth vs 2019 in February, driven by anticipation of lockdown. Despite falling sharply due to lockdown restrictions, the signs are there that there is a pent up demand for these products, a sector where consumers will often want to see before they buy.

 4) Development of innovative technology to improve customer experience

The pandemic has speeded up the use of innovative technology to improve the overall customer experience. For example, Ikea has acquired AR startup Geomagical Labs to drive shoppers to purchase more big-ticket items without needing to visit a store.

Geomagical Labs’ key product allows users to scan a room using a smartphone, render that into a panoramic 3D picture, remove all the furniture currently in it and then change the layout of items around the room by adding new items to scale. This type of innovation will create more engaging digital experiences to help customers accurately visualise their home with new furniture. The same could apply to a whole range of product categories. Smart retailers will be able to gain an advantage through differentiation of this kind, while still offering expert human advice.

 During any economic downturn there are always opportunities for businesses to adapt to survive in the short term and then thrive when business returns to some normality. As we approach the crucial peak period of this strange year, retailers should be looking to the trends driving behaviour and reacting accordingly. Their future depends on it.

Daniel Todaro, managing director of Gekko, a field and retail marketing agency

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