Retailers faced an incredibly challenging year during 2020; and even if the vaccination campaign provides hope in 2021, our town and city centres still resemble ghost towns. With the market penetration of online sales rising faster than ever due to the pandemic, it is vital for retailers to trade effectively through the digital channels their customers are now using. One thing is certain, innovation is key to survival for all retail businesses; and accessing available tax reliefs can further enhance investment in this area.
The effect on the high street
Can you imagine a town or city without a buzzing centre where residents and visitors communicate, socialise and, of course, shop? Typically, people travel to city centres so they can visit more stores and shop for a wider range of products than are available locally. Homeworking and various restrictions that were introduced to combat the pandemic dramatically reduced high street footfall such that even iconic stores such as Topshop's flagship on Oxford Street, are facing the danger of closing down. Overall average daily visitor numbers to retail within the City of London fell by almost 77% between February and November 2020. The second lockdown, which began in November 2020, found retail visitor numbers decreased by 90% compared to pre-COVID numbers.
Back to top
The impact of the transition to online channels
Undoubtedly, there has been a marked increase in online shopping. Figures from the ONS show a 46% year on year uplift in e-commerce sales between December 2019 and December 2020 with 55.2% of consumers saying that they will continue shopping online, even when COVID restrictions are lifted. It is estimated that the pandemic has accelerated by roughly five years the transition to e-commerce with its associated reduction in physical presence. There also continues to be a clear trend of market consolidation in retail, as a result of the continued challenges facing the high-street. Of course, the increased preference of consumers to shop online is no surprise as this has been the dominant trend in the past few years. However, the acceleration to online shopping has meant retail companies; both e-commerce and bricks-and-mortar, have sought technological developments in order to survive and evolve.
Back to top
Adaptation and innovation
It is widely acknowledged that the retail sector had to adapt and transform from physical to digital. This transformation requires investment in new teams and technology and a refresh of strategic priorities to ensure that the digital proposition is commercially sound. A consequential effect of the online boom is that it has also lowered the barriers for start-up retailers to enter the market, which in turn has challenged the established brands to “think on their feet”. Technical innovations are also shaking up warehousing with robotic automation and autonomous vehicles opening new horizons in the supply chain and fulfilment processes.
Whilst online shopping is certainly on the rise the change in consumer behaviour is more difficult to map. The online customer journey is far from linear with consumers able to discover product in marketplaces or via search engines as well as make purchases via ‘home assistants’ or via a few clicks from social media channels. A transaction will often only occur after a customer has visited multiple sites to discover, research, compare and price check with alternatives.
Back to top
Prioritising User Experience
High street retailers that prioritised unique shopping experiences in store are now exploring the application of innovations such as augmented reality to replicate this user experience in a virtual environment to regain their competitive advantage. As an example, ASOS launched an innovative user experience which allows customers to view clothes on various body types to mimic the “try-on” experience in a digital (and safe) manner.
The use of technology supplemented by a data driven approach has also improved the convenience and quality of consumers’ personalised digital experience. For example, Selfridges has expanded their virtual infrastructure, which includes a personalised online gifting advice service to assist the customers in making their buying decisions in conjunction with an online version of their popular personal shopping service via video calls.
Furthermore, new operating models emerged from the lockdown periods, ready to cover a growing number of consumer needs by enabling them to sign up on platforms for regular deliveries of groceries, alcohol, beauty products and flowers. Whilst improving the user experience and increasing the speed of customer interactions, these models also provide a wealth of data for the retailer which if mined effectively can transform and enhance their digital offerings.
Back to top
Appealing to the social conscience
Focussing on ensuring the end to end customer experience is right has become a vital hygiene factor for consumers but not the only one. With 44% of the consumers saying their preferences are often or always influenced by how environmentally-friendly, ethical and socially responsible a product or a service is, it is clear that sustainability, even during the pandemic, is high on their agenda. More pressure has been put on retailers to redesign their supply chain and delivery logistics to ensure they can meet both the increase in delivery demands and be energy efficient. For example, McDonald's has started recycling the used cooking oil from their kitchens into biodiesel, which then is used to fuel more than half of their delivery trucks.
Back to top
R&D tax relief enhancing innovations in retail
While this sort of innovation is not without costs, it is fast becoming the norm for retail businesses as they strive to remain competitive. As a result of the above, Innovation Retail has emerged as a new area. There are both grants and tax reliefs available for businesses that research and innovate new technological solutions and the number of R&D tax relief claims focused on the retail sector is increasing. In our experience, careful consideration of these measures can further enhance and sometimes facilitate an acceleration of investment in technology as companies that claim R&D tax credits will have access to more funds which in turn will facilitate an opportunity to invest more in technological advancements.
Back to top
A glimpse into the future
As sales in physical retail are dropping, retailers are seeking multichannel offerings; rightsizing their store portfolios while growing their online presence. There is a possibility that high-street stores will play a new role for some major brands – although perhaps more as social and discovery spaces than selling places. Where this doesn’t happen, conversion to residential use looks likely. Therefore, if home working is more than the pandemic's necessary evil, and the trend remains after the vaccination process is completed; then future high streets and city centres could look very different. Maybe they will have a more relaxed ambience, more residents, and stores which will provide more personalised customer services. Crucially, technological developments will ensure all our shopping needs are met, it is just our future town and city centres may look different to how we remember them from 2020.
Back to top
If you would like more information on how your business can access grants and R&D tax credits for your technological developments, please get in touch with one of us or your usual BDO contact