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Our Thought Provoking Insights

Physical shopping – second class citizen?

We all know online retailing is the key growth channel and this is where there is increasing focus in planning and investment. However, physical stores still deliver the lion’s share of revenue and margin. Balancing the two channels and avoiding robbing the still profitable Peter to finance the development of the less profitable Paul is a critical challenge. I think increasingly retailers are getting this balance wrong.

Online currently has a 30% share of total UK non-food retail sales. With the dramatic shifts in store closures and openings, the relationship between the two channels is in a state of flux. But the underlying position is that online is growing and physical is gradually losing ground. It is losing ground faster than retailers are able to edit down their store estates. However, with total non-food physical sales of £300 billion, they still contribute most of the profit too.

Looking at profitability, the 30/70% sales split is even more skewed. It is impossible to generate an exact figure but my estimate would be around 85%. Against this background to trading economics, most retailers have shifted much of their focus online. This is entirely understandable, given the Pandemic and store closures. However, now that stores are open again and needing to trade normally, that shift in focus means fewer staff, diminishing store disciplines and poor availability.

The remainder of this year and, I suspect, most of next, are going to see weak demand and rising costs. Maximising sales is essential. Better forecasting and planning is critical in order to optimise the balance between online and physical. Starving your stores of investment will simply worsen their trading economics, and your overall performance. Telling your customers who have made the effort to visit your stores to then go online risks losing them altogether. Is this a risk you can afford?



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