After the sales

The warehouses are full, shops are desperate to get rid of surplus stock, and customers are eager to make the most of the inevitable sales to refresh wardrobes and indulge in some much missed retail therapy. The sales starting now will be the best and longest and deepest sales ever. Shops will all have to offer deep discounts because everyone else will too, and there is only so much space in wardrobes. Inevitably, much of the stock will not be sold, however deep the discounts. Many people will still be hiding in their homes long after lockdown is lifted, only venturing out when they have to. Social distancing in shops will make them less appealing, scarier, and deter some potential customers. More importantly, although most people have kept their incomes and some have even managed to save and pay off debts, many others have lost their jobs, lost their savings, lost their spending power.

The result is all to obvious. Even if lockdown were lifted tomorrow, greatly reduced revenue and deep discounting will barely cover basic costs for many shops, and won’t for others, so there will be a long list of retail deaths to follow those we’ve already seen. A few healthy retailers will be able to buy weaker competitors and move into better stores, making the most of greatly reduced rents. With fewer retailers occupying more of the market, choice will soon dry up. They will have to cut costs too, and even after companies have been bought and merged, vast numbers of staff will be laid off, many shops will close, and with few ready to snap them up, high streets will soon look very sparse indeed. Fewer shops mean less temptation into town, less foot traffic, fewer people buying coffees and already frail high streets will shorten. Boarded-up shops at the end of high streets may soon be converted to accommodation.

It will be a very long and slow recovery from there to get back to anything like we saw before lockdown. It is not at all obvious why there would be a ‘V shaped recovery’. A very slow, weak recovery is more likely.

Online will do better. Many people will still be afraid or unwilling to go into town and put up with bleak social distancing, and no changing rooms. So lots of customers will carry on shopping online, and the retailers who have survived and upgraded their online presence will keep more of the market. But how healthy will that market be? People will still want new things, but social lives will not return to normal right away, with clubbing and eating out reduced, and lots of people will continue to work from home, so won’t need the same quantity of office outfits, especially since there is nobody to show off to. So although shopping online will keep much of the market gains it has made, the size of the pie will remain smaller. Retail will have shrunk, many retailers will have vanished, and there will be less choice. Warehouse-based automation will require far fewer staff, and many of the jobs lost will never return. With less competition, and costs of investments in infrastructure and tools to do online needing to be recouped, prices will soon start to rise.

The future of retail seems likely to be short term sales to dump old stock and get some cash flow, followed by rapid shrinkage, frantic retailer M&A activity, high street shrinkage, and many end-of-street properties switching from retail to accommodation. In the years following, as people gradually return to normal life, new retailers will gradually spring up, and a very slow recovery of the high street might occur, or it may well be that new business in the high street will only be enough to offset ongoing transfer to online.

It’s worth noting that in parallel to these changes, technology will continue to develop. Automated delivery will accelerate. Rapid custom manufacturing will reduce in cost, and if prices are increasing elsewhere, will become more competitive. As customers start expecting clothes to be made the their precise measurements and customisation, the relationship between customer and manufacturer may well be simplified, with retailers falling in importance. If so, the long term for retail looks even bleaker.

Retail, is just one industry. We should expect major changes in every industry as a consequence of lockdown. The world will not return to how it was before. Recovery will be slow, and the final destination will be quite different.