The impact of Covid-19 has clearly rattled the UK retail and leisure industries. As the pandemic continues to unfold, many retail and leisure businesses will remain in survival mode. They are cutting costs to preserve working capital and attempting to strengthen balance sheets to weather the storm as much as possible.

However, many businesses are thriving in a digital-first environment. They are well positioned to grasp opportunities in emerging markets, retain loyal customers and win new ones as consumers seek alternatives that meet new expectations. Albeit, these changes will be felt unevenly across different sectors, channels and regions as the ‘new normal’ emerges.

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Trend 1: The changing face of consumers

Consumer spending behaviour is changing. The research identifies four groups:

‘Unfazed’ (36%) have not changed their behaviour

‘Reverters’ (27%) have changed but will rediscover old habits after the pandemic

‘Part-shifters’ (18%) have changed some buying habits

‘Fundamentals’ (18%) group have permanently changed habits across the board.

Spending habits for 2021 also can be characterized by four further groups:

‘Confident’ consumers will spend more but only comprise 8% of consumers

‘Undeterred’ (49%) who will spend the same

‘Cautious’ (31%) who will cut back on some spending and wait

‘Hibernators’ (13%) who will cut down on all non-essentials.

Trend 2: Long term impact of Covid-19

Most consumers envisaged a six-month period of disruption during the first lockdown. That was then, now:

38% think that their lives will return to normal by June 2021

55% by September 2021

65% by December 2021

35% believe it will take longer, and

16% think things will never return to normal.

Consumers who feel it will take longer than 12 months for ‘normality’ to return are much more likely to cut back on discretionary spending in 2021, with younger consumers being more pessimistic. Households savings have also seen an uptick with more affluent households possessing a larger proportion of their spending which can be delayed.

Trend 3: Channel shift to online

In 2020, the proportion of online sales was 28%. Consequently, the online penetration rate has achieved five years of growth in just 2020 alone. The closure of leisure, hospitality and non-essential retail during lockdowns forced many consumers online: 46% of consumers made an online purchase that they previously only purchased in-store; and about a third of consumers believe this behavioral change will be permanent.

Trend 4: Prioritising digital in the customer journey

Consumers, businesses and brands are intimately linked by digital connectivity. Covid-19 has completely rewired the customer journey, and businesses will need to adopt a digital-first approach.

The Retail Economics customer journey begins with ‘Awareness’, as consumers discover businesses, brands, products and services across different channels. Increased working from home and a more ‘distributed office’ will also affect consumer behaviour. City centre footfall has been hugely impacted, suppressing retail sales growth in once bustling locations. Similarly, increased time at home supports successful online deliveries. The customer journey is also impacted as 61% of workers suggest that Covid-19 has influenced how and where they shop. Also, higher paid jobs are more suited for home.

Trend 5: The changing role of physical stores 

Positive consumer experiences create emotive ties to a brand – this is key. Stores that can deliver engaging experiences will be essential in the formation of an integrated marketing strategy where store performance will be measured against new metrics as they become powerful media assets as opposed to just distribution hubs. They will employ increasingly sophisticated techniques to measure the quality and value of in-store interactions; and gathered data can be used for analytics. Nearly a quarter (24%) of consumers purchased a retail product online while in a store. However, this rises to almost half (47%) for 18-24-year-olds.

Trend 6: Brands connecting directly with consumers

Customers are becoming familiar with purchasing directly from brands, and the online shift means brands can embrace customer-facing channels. Brands can also unearth deeper insights about their customers which can be used to improve the customer journey and improve brand differentiation.

Retailers and brands will need to pivot their business models and acquire new skills to effectively leverage new opportunities arising. Such opportunities are found in falling rents to engineer own-brand stores that support the ‘halo effect’, boosting their online presence. About 47% of shoppers feel that price is the driving motive for buying directly from brands.

Trend 7: Raising Environmental Social & Governance (ESG) credentials

Sustainability compliance, and to be seen ‘doing the right thing’ is becoming more important than ever. Pressure from conscious shoppers, investors and supply chains is pushing this up the priority ladder.   

Near-shoring and on-shoring will help reduce manufacturing carbon emissions, along with shorter routes for the transportation of goods. There were 360 sustainability-focused funds launched in 2019. This exemplifies the rising demand for sustainable investment from large pension funds to retail investors. About 45% of shoppers feel they are responsible for reducing carbon emissions through making better choices, with British consumers prepared to pay more for locally sourced products if they benefit the environment.

Trend 8: Developing resilient supply chains

Covid-19 has exposed the weakness in supply chains, showing that they are only as strong as their weakest link. Worldwide factory closures caused a ripple effect which led to global disruption on an unprecedented scale. This highlighted the risks of overreliance on a single country, operating with too few suppliers, and Just-in-Time (JIT)models. Shorter and more flexible supply chains are likely to be more common in the near future, but may be more costly.

Trend 9: Managing Brexit policies

A Brexit free trade agreement (FTA) has finally been reached, providing a modicum of certainty for UK businesses sourcing EU products and selling directly to the EU online. Fortunately, new EU tariffs have been widely avoided, and the FTA contains provisions to minimise the cost of regulatory friction at borders, but its efficacy is still to be assessed in practice.

Additional tariffs in some cases and Rules of Origin regulations will increase administration costs, leading to increased paperwork at the border. However, future FTAs (e.g. with the US, Australian and New Zealand) could lead to reduced tariffs on imported consumer goods, especially for food and drink.

Trend 10: Updating businesses models

New, more robust business models will be required to weather the ongoing disruption. Businesses will require to continually monitor, assess and react to past-faced changes in the environment. Evolving consumer behaviour will need addressing, especially as permanent changes take hold. Physical stores will need to play a more holistic role. In general, as rapid strategic changes are needed to meet ongoing challenges, additional investment in IT, acquisition, and specialization will be required.

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