Ten retail and leisure trends for 2021 - Has the UK landscape changed forever? - NatWest Business Hub
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Ten retail and leisure trends for 2021 Has the UK landscape changed forever?
Foreword For several years the retail and leisure
sector has faced on-going pressure from
Ten key trends
This year’s report identifies ten key trends
Foreword
Introduction
fragile confidence, shifting business models, that should drive debate and challenge within
rising costs and excessive levels of debt. organisations, with funding partners, with your The macroeconomic fallout
from COVID-19
The pandemic has introduced a host of new consumers. Some changes are permanent and
challenges, with many businesses focused create new opportunity. Others need careful Trend 1
on survival whilst the realities of the future consideration and recognition of our own Changes in consumer
landscape are still emerging. responsibilities. As the industry recovers, agility spending behaviour
and positioning yourself as fit for the future
As we discover the new normal, the Trend 2
is key, together with the acceptance that
importance of purpose, social interaction,
recovery will be different across the industry. Consumer confidence
community and our responsibilities towards
sustainability are becoming increasingly The start of 2021 is not what many have Trend 3
David Scott important to consumers, retailers, leisure
operators and investors. Brands’ actions
wished for, further clouding the way forward
with ongoing uncertainty. However, the
Continued focus towards
online channels
David Scott, throughout the pandemic and environmental ability of the sector to adapt and change
Head of Retail & Leisure achievements will be fundamental to their Trend 4
has, and will, continue to enable success
NatWest continued success. in an ever-disrupted market. Prioritising digital within
the customer journey
Trend 5
In a recent interview I was asked to sum But despite these seismic challenges, it’s not
up the prospect of 2021 in one word. all been doom and gloom. Well, not from my The changing role of physical stores
The immediate answer that sprung to experience. Many businesses have pivoted
Trend 6
mind was: ‘polarisation’. The impact of the their proposition to align to a new set of
pandemic will widen the gap between the customer expectations and leveraged these Brands connecting directly
most and least affluent households while opportunities. The impact of digital has been with their consumers
separating those retailers with the most intensified across all parts of the customer Trend 7
sophisticated online proposition from those journey, leading to a permanent change in
with legacy store-dependent business shopping habits across the industry. Raising Environmental, Social and
Governance (ESG) Credentials
models. As a result, different parts of the
market will recover at different rates, The way forward Trend 8
times and magnitudes which will reveal a As a new retail paradigm emerges,
successful retailers and hospitality Developing more resilient
disparate and uneven landscape emerging supply chains
in the coming months and years ahead. businesses will be those that can identify
and secure new customers, leverage Trend 9
Changing propositions permanent shifts in consumer behaviour and
Managing the implications
There’s no doubt that government support has fill gaps in the market as opportunities arise. of Brexit trade policies
shielded many retail and hospitality businesses
from decline, but these unprecedented They’ll also need to repurpose stores to meet Trend 10:
Richard Lim measures cannot remain in place forever.
As they are withdrawn, it is inevitable
new customer expectations and operate
with resilient supply chains. The fallout from
Updating business models
Richard Lim that the pace of industry restructuring the pandemic will cause permanent shifts Conclusion
CEO will accelerate. Independent businesses in consumer behaviour and will reshape the
Retail Economics are likely to be hardest hit. retail and leisure sectors for years to come. Find out more
2
Introduction Foreword
Introduction
The macroeconomic The macroeconomic fallout
fallout from COVID-19
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
3
Introduction Foreword
Introduction
The macroeconomic fallout from COVID-19 The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
The UK A high degree The high street spending behaviour
Government of uncertainty is suffering but Trend 2
has taken persists, making many businesses
Consumer confidence
unprecedented it difficult to are thriving in
action to support accurately assess the digital-first Trend 3
businesses and the trajectory of environment. Continued focus towards
protect jobs. the virus. online channels
Trend 4
Prioritising digital within
The world continues to face an extraordinary crisis. the customer journey
The COVID-19 pandemic sent shockwaves throughout the Trend 5
global economy, dislocating international supply chains and The changing role of physical stores
reshaping the way consumers live, work, communicate and shop.
Trend 6
Brands connecting directly
Coordinated action from global policymakers A shock to the system with their consumers
and central banks was swift. The UK
Government took unprecedented action Trend 7
Nevertheless, the shock to the UK economy
to support businesses and protect jobs, has been severe. Raising Environmental, Social and
while the Bank of England cut interest Governance (ESG) Credentials
rates to new record lows and kick-started • Retail Economics forecasts UK output to fall
by 10.5% in 2020 before bouncing back by Trend 8
quantitative easing.
5.3% in 2021. Developing more resilient
These actions helped to cushion the blow by supply chains
• While economic output is not expected to
boosting the availability of corporate credit, Trend 9
return to pre-pandemic levels until 2022, the
injecting liquidity, providing assurances with
strength, speed and shape of the recovery will Managing the implications
loan guarantees, offering tax breaks, and
be highly contingent on the effectiveness of the of Brexit trade policies
providing generous employment subsidies.
vaccine rollout.
Trend 10:
• The hit to the economy will be felt unevenly
Updating business models
with unemployment expected to rise to 7.1%
in 2021, with retail and leisure being two of Conclusion
the hardest-hit sectors.
Find out more
Introduction 4
Big challenges ahead The changing high street Digital-first thrives Foreword
Introduction
The UK economy enters 2021 with The high street will undergo a Elsewhere, other businesses
fierce challenges ahead. Further transformation as we emerge into are thriving in this digital-first The macroeconomic fallout
from COVID-19
national lockdowns cast doubt over a new normal. Retailers such as the environment. They are well positioned
the survival of many viable retail Arcadia Group, Debenhams, Peacocks, to grasp opportunities in emerging Trend 1
and leisure businesses. Edinburgh Woollen Mill, Bonmarché markets, retain loyal customers
Changes in consumer
and others have already fallen into and win new ones as consumers spending behaviour
Meanwhile, other measures to control administration. The reality is that many seek alternatives that meet new
the virus continue to disrupt daily life, others will follow. This will likely mean expectations. However, these changes Trend 2
causing long-term consequences for fewer shops across high streets and will be felt unevenly across different Consumer confidence
the economy. the purpose of stores changing rapidly. sectors, channels and regions as the
‘new normal’ emerges. Trend 3
As the pandemic continues to unfold, Continued focus towards
many retail and leisure businesses Using nationally representative online channels
will remain in survival mode. They consumer surveys and engaging with
are cutting costs to preserve working retailers and the leisure industry, this Trend 4
The closure of non-essential capital and attempting to strengthen research identifies ten key trends for Prioritising digital within
retail outlets and leisure balance sheets to weather the storm UK retail and leisure in 2021. the customer journey
as effectively as possible.
venues will make it Trend 5
necessary for households Further government support in the The changing role of physical stores
to engage more with online form of top-up grants will help, but
Trend 6
we are heading towards a cliff-edge
channels, and in some cases as the furlough scheme, the business Brands connecting directly
cement online behaviour. rates holiday and other support with their consumers
measures unwind in April 2021.
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
Introduction 5
Trend 1: Foreword
Introduction
Changes in consumer The macroeconomic fallout
spending behaviour
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
6
Trend 1: Foreword
Introduction
Changes in consumer spending behaviour The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
The pandemic is Research Consumers are
changing buying identifies four migrating towards Trend 2
behaviour and consumer buying businesses that
Consumer confidence
households’ behaviour groups are better aligned
propensity and spend to their values. Trend 3
to spend. behaviours. Continued focus towards
online channels
Trend 4
Prioritising digital within
Themes that defined 2020 will continue to resonate in the short-term. the customer journey
In an environment of disruption, restructuring and consolidation, Trend 5
new business opportunities will emerge, fuelled by a new set of The changing role of physical stores
consumer expectations.
Trend 6
Brands connecting directly
The outlook for consumer spending will with their consumers
be shaped by two underling factors:
Trend 7
1 H
ow the impact of the pandemic continues Raising Environmental, Social and
to influence buying behaviour. Governance (ESG) Credentials
2 How
the economic shock impacts personal Trend 8
finances and households’ propensity to spend. Developing more resilient
supply chains
This research segments and quantifies households
Trend 9
into ‘Behavioural Change Quadrants’.
Managing the implications
• The first analysis looks at buying behaviour of Brexit trade policies
• The second at consumers’ propensity to spend.
Trend 10:
• Third, we analyse a combination of the two.
Updating business models
This final segment provides an overall picture to help
identify four general consumer archetypes. This in Conclusion
turn allows us to better understand the direction and
expected shifts of spending patterns throughout 2021. Find out more
Trend 1: Changes in consumer spending behaviour 7
Buying behaviour Foreword
Households will continually reshuffle priorities, while Introduction
As the way we live, work, communicate and shop is
reshaped by the pandemic, the emerging customer reconciling the impact of the crisis on their lifestyles, The macroeconomic fallout
journeys will reflect the path of least resistance to well-being and personal finances. from COVID-19
consumer products and services. Trend 1
Changes in consumer
spending behaviour
Figure 1 Consumer buying behaviour quadrants Fundamental Trend 2
Fundamental
Spending has changed permanently across the majority of shopping.
Spending has changed permanently across the majority of shopping. Consumer confidence
This group represents consumers whose shopping habits will see the
This group represents consumers whose shopping habits will see the
largest change. Just under one in five respondents (18%) say there will
Fundamental 18%
Rising impact of Covid-19 on behavioural change
largestbe
change. Just under
permanent oneininthe
changes fiveway
respondents
they shop(18%) say there
for most willspending.
of their Trend 3
be permanent changes in the way they shop for most of their spending.
Continued focus towards
Part-shifters online channels
Part-shifters
Spending
Spending has changed
has changed permanently
permanently for some
for some aspects aspects
of their of their behaviour.
behaviour.
Part-shifters 18% This cohort
This cohort represents
represents just underjust one
under one consumers
in five in five consumers (18%), who suggest
(18%), who
Trend 4
suggestthat the
that impact
the impactofofthe
thevirus
viruswill
willhave
havea apermanent
permanentchange
changeinintheir shopping
habits across certain categories. Prioritising digital within
their shopping habits across certain categories.
the customer journey
Reverters
Reverters Trend 5
Reverters 27%
27% Spending
Spending habits
habits have have
been been impacted
impacted, but aretoexpected
but are expected revert to to revert
to pre-COVID-19
pre-COVID-19 behaviour
behaviour once once
the threat of the threat
the virus of the virus recedes.
recedes. The changing role of physical stores
This segment
This segment accounts
accounts fora over
for over a quarter
quarter (27%) of(27%) of consumers,
consumers, whose
whose
spending spending
habits habits
have been have beenimpacted,
temporarily temporarilybut impacted,
they intendbut
to they Trend 6
intend to revert to previous behaviours when
revert to previous behaviours when ‘normality’ returns. ‘normality’ returns.
Brands connecting directly
Unfazed 36% with their consumers
UnfazedUnfazed
Spending behaviour
Spending and motivations
behaviour are unaffected
and motivations by the impact
are unaffected by the impact of COVID-19.
of COVID-19. Trend 7
Source: Retail Economics This group represents over a third (36%) of consumers who suggest that
This group
their represents over aremain
spending habits third (36%) of consumers
unaffected who suggest
by the impact of the that
pandemic. Raising Environmental, Social and
their spending habits remain unaffected by the impact of the pandemic.
Governance (ESG) Credentials
Trend 8
Buying behaviour groups households who have experienced a significant boost in Developing more resilient
supply chains
their discretionary income as habitual spending patterns
The research identifies four consumer buying behaviour have been disrupted from the impact of the virus. Trend 9
groups, the largest of which indicated that their spending
behaviour has been unaffected by the impact of the virus, Managing the implications
Reverting habits of Brexit trade policies
‘unfazed’ by the disruption caused.
Interestingly, more than a quarter of consumers expect to Trend 10:
In part, many of these consumers are from affluent
‘revert’ to previous purchasing habits once the impact of
households who, prior to the pandemic, already conducted Updating business models
the virus recedes. Together, this makes up a majority of
a high proportion of their spending online. In many instances,
households who, after the impact of the pandemic resides, Conclusion
these consumers are comprised from more affluent
expect to shop in the same way they did previously.
Find out more
Trend 1: Changes in consumer spending behaviour 8
Propensity to spend Foreword
Introduction
Household spending will be shaped by consumers’ expectations
around personal finances and their propensity to spend. The macroeconomic fallout
Hibernators from COVID-19
The research identifies the following Cutting back on all non-essential purchases.
Trend 1
four spending behavioural groups: Just over one in eight consumers say that they will cut back on all non-essential
purchases in 2021 as they continue to ‘hibernate’ until more certainty arises. This
Changes in consumer
consumer segment is likely to come from lower income households, typically aged
between 35-55 years old. Fears about their personal finances are correlated with spending behaviour
the belief that the impact of the virus will last much longer compared with other
consumer segments. Indeed, over a third of hibernators think that their lives will Trend 2
Figure 2 Consumer propensity to spend behaviour quadrants never return to normal.
Hibernators Consumer confidence
Cutting back on all non-essential purchases.
Cautious
Just over one in eight consumers say that they will cut back on all Trend 3
Hibenators 13% Cut back on some
non-essential spending
purchases while
in 2021 as waiting for more
they continue normal times.
to ‘hibernate’ until
Continued focus towards
Rising negative impact on personal finances
This
moregroup makesarises.
certainty up almost
This aconsumer
third (31%) of consumers
segment is likelywho are looking
to come from to cut
back
loweronincome
some ofhouseholds,
their discretionary
typicallyspending and remain
aged between 35-55‘cautious’. This group
years old. online channels
typically comprises younger consumers who are less affluent than the average
household. They are more likely to work in parts of the economy that have been Trend 4
negatively
Cautious affected by the crisis, with a lower proportion able to work remotely.
Cautious 31% Cut back on some spending while waiting for more normal times. Prioritising digital within
Undeterred
This group makes up almost a third (31%) of consumers who are looking the customer journey
to cut back
Spending on some
levels haveof their discretionary
remained unaffectedspending and remain
by the impact of the‘cautious’.
virus.
Thisgroup
This groupoftypically
consumers comprises younger
constitute consumers
the largest whoshowing
proportion, are less that
affluent
the Trend 5
than the average
prevailing customerhousehold.
instinct is to ‘keep calm and carry on’. These are typically
mature
They areandmore
morelikely
affluent consumers,
to work in partswith greater
of the job security
economy and been
that have the ability to The changing role of physical stores
Undeterred 49% work from home. Some of these consumers have seen their discretionary income
negatively affected by the crisis, with a lower proportion able to
rise through cancelled holidays, fewer evenings out and reduced commuting.
work remotely. Trend 6
As such, their propensity to spend remains largely unaffected.
Brands connecting directly
Confident
Undeterred with their consumers
Spending
Spending levels
levels are
haveexpected
remainedtounaffected
rise. by the impact of the virus.
Confident 8% These consumers
This group make up just
of consumers 8% of households
constitute the largestwho intend toshowing
proportion, spend more
that in Trend 7
2021 than the previous
the prevailing year.
customer They isare
instinct to typically
‘keep calmhigh-earning,
and carry older consumers,
on’. These are
but crucially they are much more confident that their lives will return to some Raising Environmental, Social and
typically mature and more affluent consumers, with greater job security
Source: Retail Economics semblance of normality sooner than other consumer segments. Governance (ESG) Credentials
and ability to work from home.
Some of these consumers have seen their discretionary income rise
through cancelled holidays, fewer evenings out and reduced commuting.
Trend 8
As such, their propensity to spend remains largely unaffected. Developing more resilient
supply chains
Confident
Spending levels are expected to rise.
Trend 9
Just over one in eight consumers Almost a third (31%) of
These consumers make up just 8% of households who intend to spend
more in 2021 than the previous year. They are typically high-earning,
Managing the implications
say that they will cut back on all consumers are looking to
older consumers, but crucially they are much more confident that their
of Brexit trade policies
non-essential purchases in 2021 cut back on some of their
lives will return to some semblance of normality sooner than other
consumer segments.
Trend 10:
as they continue to ‘hibernate’ discretionary spending and Updating business models
until more certainty arises. remain ‘cautious’. Conclusion
Find out more
Trend 1: Changes in consumer spending behaviour 9
Overall consumer behaviour changes Figure 3 Consumer behavioural change quadrants
Proportion of UK households in each quadrant
Foreword
Introduction
This section looks at combining the previous two Temporary/No change Permanent Change
behavioural aspects (buying behaviour and propensity The macroeconomic fallout
from COVID-19
to spend) into an overall ‘quadrant analysis’ to identify Wary Reverters Cautious Modifiers
Personal finances Personal finances
four general consumer archetypes. under pressure under pressure Trend 1
Hibernators/Cautious
Spending habits remain Spending cautiously,
modified to include
largely unaffected
more online Changes in consumer
Where spending spending behaviour
24% behaviour has changed, 19% Shifts in spending
likely to be permanent
it is expected to revert across many categories
Trend 2
Rising impact of economic shock
to pre-COVID-19
patterns post-pandemic
This approach captures both underlying Consumer confidence
behavioural shifts and addresses the
economic realities in 2021. Trend 3
Continued focus towards
The impact of these consumer behaviour Undeterred Optimists Confident Adapters
online channels
groups will be felt unevenly across the Personal finances
boosted from
Personal finances boosted
from changes in lifestyle
Trend 4
Confident/Undeterred
industry depending on a business’s core changes in lifestyle
Consumers have
Spending behaviour
customer base, attitudes to risk, region and remains largely
adapted quickly to
shop more online Prioritising digital within
unchanged given
many other factors. Also, further disruption 36% higher proportion 21% Changes in spending the customer journey
of online spending habits likely to remain
throughout 2021 will involve a series of permanent across
complex societal shifts based on public
Where spending
habits have many categories Trend 5
changed, they
policy, experiences and emotion. will likely revert to The changing role of physical stores
previous patterns
post-pandemic
Trend 6
Brands connecting directly
Companies who fail to pivot Rising impact on behavioural change
with their consumers
their business models fast
Source: Retail Economics
Trend 7
enough will be replaced by
Raising Environmental, Social and
those with nimbler strategies Fixed store costs
Governance (ESG) Credentials
and new entrants. It is critical for many businesses to tackle the Trend 8
legacy of hefty, fixed store-based costs in order
to become more agile as the virus amplifies the Developing more resilient
supply chains
influence of digital technologies. Retailers and
A ‘shake-out’ across retail and leisure has hospitality businesses will need to address the Trend 9
begun, and consumers will continue to migrate burden of rent and other occupancy costs to
towards business models that are better aligned support the footprint of the future.
Managing the implications
of Brexit trade policies
to their new values. Companies who fail to
pivot their business models fast enough will be Those that emerge ‘on the other side’ will Trend 10:
replaced by those with nimbler strategies and be more adaptable and resilient to future
Updating business models
new entrants. The pace of change will make for challenges that lie ahead as a new consumer
a painful period of adjustment. paradigm emerges. Conclusion
Find out more
Trend 1: Changes in consumer spending behaviour 10Foreword
Trend 2: Introduction
Consumer confidence The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
11Trend 2: Foreword
Introduction
Consumer confidence The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
The longer Younger groups UK households spending behaviour
consumers are typically less are holding onto
think that the confident about over £100 billion Trend 2
pandemic will their spending of additional Consumer confidence
last, the less than other savings heading
Trend 3
they are likely generations. into 2021.
to spend. Continued focus towards
online channels
Trend 4
Consumer perceptions about the threat, disruption and duration of the Prioritising digital within
COVID-19 pandemic altered significantly throughout the course of 2020 the customer journey
and this will continue throughout 2021. The initial national lockdown Trend 5
in March 2020 caused a seismic shock to societal norms, uprooting The changing role of physical stores
everyday lives in the way people work, socialise, communicate and shop.
Trend 6
Brands connecting directly
Research from Retail Economics showed that Spending cutbacks with their consumers
during this initial period of lockdown, most
consumers envisaged a six-month period Our research shows that consumers who Trend 7
of disruption (until around November 2020) believe that it will take longer than 12 Raising Environmental, Social and
before a return to normal. In hindsight, months for their lives to return to normal Governance (ESG) Credentials
this was a gross underestimate. But as the are significantly more likely to cut back on
impact of the pandemic endures, consumers discretionary spending in 2021. Trend 8
have become more accustomed to living Developing more resilient
under varying degrees of restrictions and Younger consumer groups appear more supply chains
have adapted behaviours accordingly. pessimistic about both the duration of the
impact of the virus and their propensity Trend 9
to spend. Of course, there are many Managing the implications
other factors to consider such as higher of Brexit trade policies
youth unemployment rates, the roll-out
Trend 10:
of the vaccine and the impact on the
Almost two in five consumers wider economy. Updating business models
(38%) think that their lives will Conclusion
return to normal by June 2021.
Find out more
Trend 2: Consumer confidence 12Confidence linked to spending
Figure 4 Consumers who believe it will take more than 12 months for their lives to return
to normal are significantly more likely to cut back on discretionary spending in 2021
Rising savings Foreword
Introduction
Our
39% research reveals a strong correlation Perceptions about the duration of the
% of consumers who believe it will take longer than
12 months for their lives to return to normality
between the perceived length of the pandemic
25-34
pandemic’s impact is also critical because The macroeconomic fallout
37% from COVID-19
and confidence in spending in 2021.18-24 it influences attitudes towards saving.
35% Many households have boosted savings Trend 1
lmost two in five consumers (38%) think that
A due to cancelled holidays, commuting less,
their
33% lives will return to normal by June 2021. Changes in consumer
55-64 having fewer evenings out, and purchasing spending behaviour
fewer products.
31%
T his rises to 55% by September
45-54 2021 35-44
Trend 2
and
29%
65% by December 2021.
65+
The Bank of England estimate that
Consumer confidence
households in the UK are holding onto over
27%
T he remaining 35% believe it will take more
£100 billion of additional savings heading Trend 3
than a year for their lives to return to normal.
25% into 2021. Our analysis shows that more Continued focus towards
6%25%of this 30%
1 group believe
35% that
40% things45% 50% than half of household expenditure has been
55%
online channels
will never return to normal.
% of consumers expecting to cut back discretionary spending impacted by the effects of the pandemic.
Source: Retail Economics
Trend 4
Figure 4 Consumers who believe it will take more than 12 months for their lives to return
Prioritising digital within
Figure 5 A comparison of the impact pandemic across household income levels
to normal are significantly more likely to cut back on discretionary spending in 2021 and spending categories
the customer journey
39%
Trend 5
% of consumers who believe it will take longer than
12 months for their lives to return to normality
25-34
Least Affluent 58% 20% 7% 15%
37% The changing role of physical stores
18-24
35% Trend 6
33% Median 45% 25% 10% 20% Brands connecting directly
55-64
with their consumers
31% 45-54 35-44
65+
Trend 7
29% Most Affluent 34% 30% 12% 24%
Raising Environmental, Social and
27% Governance (ESG) Credentials
% of household expenditure
25% Staple Delayable Work-related Social Trend 8
25% 30% 35% 40% 45% 50% 55%
Source: ONS and Retail Economics Analysis Developing more resilient
% of consumers expecting to cut back discretionary spending
supply chains
Source: Retail Economics
Trend 9
Figure 5 A comparison of the impact pandemic across household income levels
and spending categories Managing the implications
of Brexit trade policies
Younger consumer groups appear
Least Affluent
The Bank58%
of England 20%
estimate that
7% 15% Trend 10:
more pessimistic about both the households in the UK are holding Updating business models
duration of the impact of theMedian
virus onto 45%
over £100 billion
25%
of10%
additional
20%
Conclusion
and their propensity to spend. savings heading into 2021.
Find out more
Trend 2: Consumer confidence Most Affluent 34% 30% 12% 24% 13
% of household expenditureForeword
Introduction
The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Income discrepancies Figure 6 Given the impact of the pandemic throughout 2020, how long do you think it will
take before life returns to some semblance of normality for you? Prioritising digital within
the customer journey
However, this masks a significant divergence 30%
by household income. Indeed, for the least Trend 5
27.1%
affluent households c.40% of their spending The changing role of physical stores
is delayable (e.g. clothing, recreation and 25%
culture), work-related (e.g. travel expenses) Trend 6
or social (e.g. eating out, going on holiday). Brands connecting directly
20% with their consumers
This proportion rises to c.65% for households
% of respondents
in the highest 10% of earnings which equates Trend 7
17.2%
to c.£2,895 per month. 15% 16.3% Raising Environmental, Social and
Governance (ESG) Credentials
Even for the average household, it equates
to £1,266 per month, a significant annual Trend 8
10% 10.9%
‘saving’ of c.£15,000. Households’ propensity 10% Developing more resilient
to spend will partially be driven by supply chains
perceptions around the duration of the virus. 5%
7% 6.9%
Trend 9
Managing the implications
2.3% 2.3% of Brexit trade policies
0%
By March
2021
By June
2021
By
September
By
December
By March
2022
By June
2022
By
September
Longer Never
return to
Trend 10:
2021 2021 2022 normal
Updating business models
Source: Retail Economics
Conclusion
Find out more
Trend 2: Consumer confidence 14Trend 3: Foreword
Continued focus towards
Introduction
The macroeconomic fallout
online channels
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
15Trend 3: Foreword
Introduction
Continued focus towards online channels The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Lockdowns have Questions remain in the Consumers are
necessitated industry as to whether this better prepared Trend 2
a shift to shift is temporary and switching
Consumer confidence
purchasing or permanent. more easily to
online away from ‘lockdown buying Trend 3
physical stores. habits’. Continued focus towards
online channels
Trend 4
Prioritising digital within
The closure of leisure and non-essential the customer journey
retail during periods of national lockdown Trend 5
necessitated a shift towards online. Consumers The changing role of physical stores
were faced with an entirely new customer
Trend 6
journey, ordering products online that they
normally purchase at a physical store. Brands connecting directly
with their consumers
Trend 7
Our research shows that almost half (46%) of
consumers completed a new online purchase Raising Environmental, Social and
Governance (ESG) Credentials
that they previously only ever purchased in-store.
Trend 8
This new wave of online shoppers has
broken through the typical barriers of setting Developing more resilient
supply chains
up online accounts, entering payment details
and overcoming issues of trust. Trend 9
Managing the implications
of Brexit trade policies
Almost half (46%) of consumers Trend 10:
completed a new online Updating business models
purchase that they previously Conclusion
only ever purchased in-store.
Find out more
Trend 3: Continued focus towards online channels 16Permanent or temporary? Figure 7 Consumers who believe that the pandemic’s impact will permanently change their
shopping habits, intend to spend more online post-pandemic, particularly wealthier households.
Foreword
Introduction
The crucial question facing many retailers and 80
leisure businesses is ‘to what extent are these The macroeconomic fallout
% of consumers intending to spend more online
from COVID-19
shifts in consumer behaviour permanent?’ 70
35-44
and ‘will consumers revert to previous Trend 1
habits when more normal times return?’ 60
45-54 Changes in consumer
post-pandemic by age
50 25-34 spending behaviour
In reality, changes to spending habits will
be diverse, affecting different consumer 40 25-34 Trend 2
18-24 45-54 55-64
groups across different product categories 35-44 Consumer confidence
as outlined in Trend 1. 30 65+ 65+
55-64
Trend 3
20 18-24
Continued focus towards
Just under a third (32%) 10
online channels
of consumers believe their Trend 4
shopping habits will change on 0
Prioritising digital within
15 25 35 45 55 65 75
a permanent basis as a direct the customer journey
% of%consumers who
of consumers whobelieve
believeCOVID-19 hashad
COVID-19 has hada a permanent
permanent impact
impact
impact of COVID-19. onontheir
theirshopping habitsbybyage
shopping habits age Trend 5
Least
Least affluenthouseholds
affluent households Most
Mostaffluent
affluenthouseholds
households The changing role of physical stores
Source:Retail
Source: RetailEconomics
Economics
Trend 6
Brands connecting directly
with their consumers
The research shows that:
Trend 7
• Just under a third (32%) of consumers The research also shows a strong The motivation for a more permanent
Raising Environmental, Social and
believe their shopping habits will change positive correlation between those who behavioural shift towards online Governance (ESG) Credentials
on a permanent basis. feel their shopping habits will change shopping was strongest for the most
permanently and their intentions to affluent households, particularly for those Trend 8
• A higher proportion (40%) of 45-54
spend a greater proportion online – aged between 25 and 44 years old. Developing more resilient
year olds believe this to be the case.
even after the pandemic (Figure 7). supply chains
There is a positive correlation with
income – with wealthier households Trend 9
displaying the greatest propensity for Managing the implications
permanent change. of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
Trend 3: Continued focus towards online channels 17Figure 8 As a result of the COVID-19, I am likely to spend a higher proportion of my spending Figure 9 Online sales have accelerated by five years in the space of 12 months
Foreword
on retail products online, rather than in physical shops, even after the virus subsides.
5 years’ growth
in twelve months 28% Introduction
60%
The macroeconomic fallout
from COVID-19
50%
Trend 1
Changes in consumer
% proportion of online sales
19%
40% 35% 18% spending behaviour
33% 16% Trend 2
% of respondents
34% 15%
30% 29%
Consumer confidence
28% 24% 12%
11% Trend 3
18% 10%
20%
9% Continued focus towards
8%
7%
online channels
6%
10% 22% 5% Trend 4
16% 16% 18%
13% 13% 15%
3%
Prioritising digital within
0% the customer journey
Under £19,000 to £26,000 to £32,000 to £48,000 to £64,000 to More than 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
£19,000 £25,999 £31,999 £47,999 £63,999 £96,999 £96,000 Trend 5
Source: ONS, Retail Economics
Strongly agree Agree
The changing role of physical stores
Source: Retail Economics
Figure 8 shows a clear correlation More disruption ahead Shift to retail parks Trend 6
between households who intend to Brands connecting directly
spend more online and household Throughout 2021, further disruption A noticeable shift towards retail parks with their consumers
incomes. The highest income households should be expected. However, consumers has occurred. This is predicated on
are almost twice as likely compared will be much better prepared from the convenience of free parking, larger Trend 7
with the least affluent households. previously learned behaviours and spaces for easier social distancing, and Raising Environmental, Social and
switching more easily to ‘lockdown open-air environments which promote Governance (ESG) Credentials
Retail Economics estimate that buying habits’. For many, this will mean confidence for consumers.
online sales reached 28% of total Trend 8
a greater proportion of their spending
retail sales in 2020. will be conducted online, although Meanwhile, working from home has Developing more resilient
consumers have altered their distribution also encouraged more localised supply chains
Interestingly, based on the trajectory shopping which has supported some
of growth in recent years, the online of spending within physical channels too. Trend 9
local businesses.
penetration rate achieved five years’ Managing the implications
worth of growth in 2020 alone. Transitioning between ‘full lockdown’ of Brexit trade policies
Consumers will be much shopping behaviour, and shopping
Trend 10:
However, considerable uncertainty better prepared from during ‘relaxed restrictions’ is becoming
remains over the ongoing impact of
the pandemic, the effectiveness of
previously ‘learnt’ behaviours normalised, hence consumers will find Updating business models
it easier to switch between modes
the vaccine and future government and switching more easily when required.
Conclusion
measures to try to control the virus. to ‘lockdown buying habits’.
Find out more
Trend 3: Continued focus towards online channels 18Trend 4: Foreword
Introduction
Prioritising digital within The macroeconomic fallout
from COVID-19
the customer journey Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
19Trend 4: Foreword
Introduction
Prioritising digital within the customer journey The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
The influence of digital Changes in the workplace Business that are
is accelerating are affecting the able to react quickly Trend 2
across the entire way in which can capitalise on
Consumer confidence
customer journey. consumers shop. the new normal.
Trend 3
Continued focus towards
online channels
Trend 4
The impact of the pandemic has completely rewired the customer Prioritising digital within
the customer journey
journey for many parts of retail and leisure. The closure of non-
Trend 5
essential retail outlets created an urgent need to engage with the
online channel for many households, and the growing influence of The changing role of physical stores
digital across the entire customer journey will accelerate. Trend 6
Brands connecting directly
In recent years, technological advances in with their consumers
online platforms and connected devices has
Trend 7
created new consumer groups and more
complex interactions. Raising Environmental, Social and
Governance (ESG) Credentials
Retailers are having to reassess and relearn
Trend 8
what is driving customer behaviour across
digital and physical channels as we transition Developing more resilient
into a new normal. supply chains
Trend 9
Managing the implications
of Brexit trade policies
Retailers are having to reassess
and relearn what is driving Trend 10:
customer behaviour across Updating business models
digital and physical channels as Conclusion
we transition into a new normal.
Find out more
Trend 4: Prioritising digital within the customer journey 20Digital connectivity Foreword
Introduction
Digital connectivity now lies at the epicentre between online marketplaces or search engines) has
consumers, retailers and brands. Arguably, the impact of the become fiercer than ever. The customer The macroeconomic fallout
from COVID-19
pandemic has amplified the influence of digital in our lives. journey involves five stages of interaction
Competition for consumer attention (e.g. on social media, between consumers and retailers/leisure. Trend 1
Figure 10 The Retail Economics Customer Journey Changes in consumer
spending behaviour
Consumer
Trend 2
1 2 3 4 5
Consumer confidence
Awareness Research &
Consideration
Purchase Fulfilment Service
& Support
Trend 3
Continued focus towards
Retailer
online channels
1 2 3 4 5 Trend 4
Influence Educate & Channel Sale Fulfilment Retention Prioritising digital within
& Loyalty
the customer journey
Source: ONS, Retail Economics
Trend 5
Stage One: Awareness. Stage Four: Fulfilment.
Consumers
Stage One:initially
Awareness discover retailers/brands and their Retailers work to get products into the hands of consumers The changing role of physical stores
products andinitially
Consumers services across
discover different channels.
retailers/brands and their products and shoppers make decisions about how they want to
and services across different channels. receive their purchases/orders (e.g. direct from in-store, Trend 6
Stage Two: Research. click-and-collect or home delivery).
Shoppers consider products in more detail (e.g. reading Brands connecting directly
Stage Two:
reviews, Researchalternatives, service levels and price).
comparing
Shoppers consider products in more detail (e.g. reading reviews, Stage Five: Service and returns. with their consumers
Stage Three:
comparing Purchase.
alternatives, service levels and price). Retailers work at the post-sales stage to resolve any issues
Consumers make decisions about different payment options, from the purchase and fulfilment stages (e.g. product enquiries, Trend 7
promotions and decide the most appropriate channels to warrantee issues, refunds, returning unwanted items etc.).
Stage Three: Purchase
purchase goods.
Consumers make decisions about different payment options, promotions Raising Environmental, Social and
and decide the most appropriate channels to purchase goods. Governance (ESG) Credentials
New ways
Stage Four: Fulfilment to shop Trend 8
Retailers work to get products into the hands of consumers and shoppers
make decisions about how they want to receive their purchases/orders Developing more resilient
The pandemic has impacted all stages of the
(e.g. direct from in-store, click-and-collect or home delivery). supply chains
customer journey, from the awareness of Retail and leisure providers will need
products
Stage Five:during a returns
Service and shopping trip with friends, to adopt a digital-first approach to Trend 9
retailers work at the post-sales stage to resolve any issues from the
to click-and-collect services,
(e.g. productwhere delivery
purchase and fulfilment stages
to customers’
refunds, returning cars
unwantedis items
being
enquiries, warrantee
etc.). used as a new
issues,
improve the customer journey. Managing the implications
of Brexit trade policies
way of fulfilment to reduce social contact.
Trend 10:
As consumers embrace new shopping Updating business models
methods and permanent shopping
behavioural shifts emerge, retail and leisure Conclusion
providers will need to adopt a digital-first
approach to improve the customer journey. Find out more
Trend 4: Prioritising digital within the customer journey 21Foreword
Introduction
The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Takeaways deliver Digitising the A changing working Prioritising digital within
the customer journey
Consider the takeaway sector customer journey environment
for example. The sector has been Trend 5
From a retail perspective, the closure However, structural change in
agile and swift to capitalise on the The changing role of physical stores
of non-essential stores meant that the workplace and the location
opportunity afforded to it from
digital platforms were the sole channel of many office jobs will also have Trend 6
diverted spending amid restrictions
to raise awareness of new products repercussions on how consumers
on socialising. Brands connecting directly
and seasonal lines – in addition to shop. For retail and leisure, where with their consumers
Restaurants that previously overlooked traditional media. people work is more important than
offering takeaways as a product where they sleep. Trend 7
For certain sectors, there was a frenzy
embraced delivery platforms such as Raising Environmental, Social and
to adopt a digital spread throughout Less time in city centre locations
Uber Eats, Deliveroo or Just Eat to Governance (ESG) Credentials
the entire customer journey as is an obvious factor stunting sales
explore new ways to market. From
retailers innovatively crafted their growth in these locations. Likewise, Trend 8
a consumer perspective, a widening
online propositions to meet evolving more time spent at home increases
range of cuisines, more frictionless Developing more resilient
consumer expectations. the chances of successful online supply chains
delivery and ordering options has
deliveries, the obvious example
increased uptake. Trend 9
being groceries. This is a key
factor, given that many consumers Managing the implications
are unable to receive online orders of Brexit trade policies
at their workplace or when they’re
Trend 10:
not at home.
Updating business models
Conclusion
Find out more
Trend 4: Prioritising digital within the customer journey 22Impacting work, influencing shopping Reactive business models capitalise Foreword
Introduction
The research shows that 61% of employed people agree Retailers operating nimble and reactive business models have
that COVID-19 has impacted the way they work and this capitalised on these trends, swiftly promoting their products The macroeconomic fallout
from COVID-19
has influenced how and where they shop. While there does to new cohorts of customers that are working, living and
not appear to be a strong correlation with age corollary, shopping in a different way. Trend 1
there is a firmer relationship with income group. Indeed, the
Some launched new digital services (e.g. fitness clothing Changes in consumer
proportion of consumers who agree that there has been spending behaviour
an influence in where they shop rises to 82% for the most retailer Sweaty Betty began offering online tutorial classes),
affluent households. while many retailers began to adapt with free delivery Trend 2
services and extended return periods, compensating for
Consumer confidence
In addition, there is also a strong relationship between higher paying limited access to their products.
jobs and the ability to work from home as shown in Figure 11. Trend 3
Continued focus towards
online channels
Figure 11 Affluent households are more likely to be able to work remotely
which is influencing their spending habits Trend 4
50.00 Chiefexecutives
Chief executivesandand senior
senior officials
officials Prioritising digital within
the customer journey
45.00 Marketing and sales directors
Marketing and sales directors
Trend 5
40.00 IT user support technicians
IT user support technicians The changing role of physical stores
Average hourly pay (£)
35.00 Plumbers and heating and ventilating engineers
Plumbers and heating and ventilating engineers Trend 6
30.00 Elementary construction occupations
Brands connecting directly
25.00 Elementary construction occupations
Gardeners and landscape gardeners with their consumers
20.00 Gardeners and landscape gardeners Trend 7
15.00 Our research shows that more than two in five consumers use their
smartphone while in a store to browse retail products, check reviews or
Raising Environmental, Social and
compare prices. shows
Almost a quarter (24%) of two
consumers Governance (ESG) Credentials
10.00 Our research that more than in five have purchased
consumers use
a retail product while they have been in a store. However, this rises
their smartphone while in a store to browse retail products, check
5.00
to almost half (47%) for 18-24 year olds. Indeed, these consumers are Trend 8
reviews
almost or times
eight compare
moreprices. Almost
likely than a quarter
consumers aged (24%) of to
over 65% consumers
have
have purchased
bought a retail
something online in aproduct
store. while they have been in a store. Developing more resilient
0.00 However, this rises to almost half (47%) for 18-24 year olds. Indeed, supply chains
Least likely to be able Unlikely to be able to More likely to be able these consumers are almost eight times more likely than consumers
to work from home work from home to work from home aged over 65% to have bought something online in a store. Trend 9
Source: ONS, Retail Economics analysis
Managing the implications
of Brexit trade policies
61% of employed people agree that Trend 10:
COVID-19 has impacted the way Updating business models
they work and this has influenced Conclusion
how and where they shop.
Find out more
Trend 4: Prioritising digital within the customer journey 23Trend 5: Foreword
Introduction
The changing role The macroeconomic fallout
of physical stores
from COVID-19
Trend 1
Changes in consumer
spending behaviour
Trend 2
Consumer confidence
Trend 3
Continued focus towards
online channels
Trend 4
Prioritising digital within
the customer journey
Trend 5
The changing role of physical stores
Trend 6
Brands connecting directly
with their consumers
Trend 7
Raising Environmental, Social and
Governance (ESG) Credentials
Trend 8
Developing more resilient
supply chains
Trend 9
Managing the implications
of Brexit trade policies
Trend 10:
Updating business models
Conclusion
Find out more
24Trend 5: Foreword
Introduction
The changing role of physical stores The macroeconomic fallout
from COVID-19
Trend 1
Changes in consumer
There will be a renewed AI will help businesses Retail and leisure spending behaviour
focus on repurposing to generate a single providers will need to Trend 2
physical stores to customer view through leverage technology
Consumer confidence
improve customer in-store tracking to successfully
experiences. and analytics. merge the physical Trend 3
and digital realms.
Continued focus towards
online channels
Trend 4
The continued fusion of physical and digital realms will be a key feature Prioritising digital within
the customer journey
throughout 2021, with a renewed focus on repurposing physical stores in
the context of evolving customer journeys. The impact of the pandemic has Trend 5
intensified across each journey stage and the urgency to reflect this across The changing role of physical stores
retail estates and leisure operators will become increasingly important. Trend 6
Brands connecting directly
In reality, this trend is simply an acceleration Strategic use of properties with their consumers
of what is already unfolding. A physical
Trend 7
outlet’s value will be measured against Businesses will need to reassess the value
new performance metrics incorporating its of properties and consider how to use them Raising Environmental, Social and
Governance (ESG) Credentials
‘media value’. Inevitably, retail and leisure as powerful media assets, integrating digital
brands will associate ‘physical customer strategies, rather than just as distribution Trend 8
engagement’ with ‘impressions’ that enhance hubs. Also, successful retailers and
Developing more resilient
numerous processes within an increasingly leisure brands will use more sophisticated supply chains
complex customer journey. techniques to assess the quality and value
of physical interactions with them. Trend 9
Managing the implications
This will include more wi-fi, video analytics of Brexit trade policies
With AI, businesses can focus on and AI-powered insights. With AI, businesses
can focus on generating a single customer Trend 10:
generating a single customer view,
view, where tracking in-store customer
where tracking in-store customer journeys will be correlated with online
Updating business models
journeys will be correlated with shopping characteristics. Conclusion
online shopping characteristics.
Find out more
Trend 5: The changing role of physical stores 25Smartphone shopping Physical channels Foreword
Our research shows that more than two in five consumers support digital Introduction
use their smartphone while in a store to browse retail The macroeconomic fallout
Consumers’ reliance on digital channels to from COVID-19
products, check reviews or compare prices.
bring awareness of new products that are
supported by physical retail will be critical. Trend 1
• Almost a quarter (24%) of consumers have purchased
a retail product online while they have been in a store. Physical channels such as high streets and Changes in consumer
shopping centres are of comparable value spending behaviour
• This rises to almost half (47%) for 18-24-year olds. to digital channels – if used in the right way.
Indeed, these consumers are almost eight times more Trend 2
When done so, they can create a rich and
likely than consumers aged over 65% to have bought meaningful environment to strengthen brand Consumer confidence
something online in a store. loyalty and secure lifetime value. Trend 3
Continued focus towards
online channels
Figure 12 Almost half of 18-24 year olds have bought a product online while browsing in a physical store
Trend 4
50%
Physical channels such as high
45% 47% streets and shopping centres are Prioritising digital within
the customer journey
of comparable value to digital
40%
Trend 5
39%
channels – if used in the right way.
35% The changing role of physical stores
Trend 6
% of respondents
30%
25%
Evolving stores Brands connecting directly
27% with their consumers
As the industry transitions to a new normal,
20%
the purpose of stores will continue to evolve. Trend 7
Figure 13 What is the most important factor influencing your choice to shop with a manufacturer
15% 18% Stores
(e.g. can no
Nike, Microsoft) longer
or retailer be treated
(Next, Marks & Spencer)?as ‘uni-
(select all that apply)
Raising Environmental, Social and
functional’
50% distribution hubs. Retailers will Governance (ESG) Credentials
10% need to leverage technology to successfully
merge
45% physical and digital realms. In
47% Trend 8
5% 8% tandem, the purpose of stores will evolve to Developing more resilient
6% 40% supply chains
0%
offer dazzling consumer experiences that
18-24 25-34 35-44 45-54 55-64 65+ create emotive ties to a brand, acting as Trend 9
35% 37%
effective customer acquisition tools.
Source: Retail Economics
Managing the implications
% of respondents
30%
More immediately, the impact of COVID-19 of Brexit trade policies
30%
will
25%accelerate the need for retailers to
27% Trend 10:
develop the role of their stores as part
of20%
a wider marketing strategy. Updating business models
15% Conclusion
15% 15%
10% Find out more
5% 26
Trend 5: The changing role of physical stores
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