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Strings of twinkling lights illuminate the inky early-evening sky, wobbly skaters flap their way around temporary ice rinks and the sounds of carols drift up the streets on the bitterly cold air. Minus the odd elbow to the ribs, Christmas shopping is an activity that lots of us get excited for each year.
From Selfridges to Fortnum & Mason and Fenwick to Winter Wonderland, gawping at the window displays and sipping mulled wine are just a much a part of Christmas as spending too long trying to find ‘hilarious’ socks for the office Secret Santa.
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The two-month festive season accounts for 25 to 30 per cent of the high street’s annual revenue, according to the British Retail Consortium (BRC). And until now, the lion’s share of that cash is spent in stores: a 2019 survey found that 64 per cent of us still preferred to shop this way as opposed to online.
In the context of a socially distanced, pandemic-struck Christmas, all this is about to change. Around a quarter of retailers’ 2020 income could be at risk because there simply won’t be the same crowds of shoppers pouring down high streets.
The numbers speak for themselves. Footfall in August for non-food stores was down 34.8 per cent nationally, year-on-year, and London was the worst-performing city at -45.3 per cent, according to the BRC. Online figures, though, have shot up. Before Covid-19, online accounted for just 20 per cent of consumer retail spending, according to the Office for National Statistics: now it’s almost 30 per cent.
With non-food retail down 6.6 per cent as of July when compared with pre-pandemic levels, the months running up to the festive season are going to be make or break for some brands. If they don’t take action now to ensure they have the capacity to make up for in-store sales with online orders this Christmas, they may not still be trading by the next one.
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“The industry was going through a period of transformation before the pandemic began, and it has essentially kicked us five years down the road overnight,” says Kyle Monk, director of retail insights and analytics at the BRC. “And there are costs that come with that. Stores are profitable whereas online isn’t in the same way, so even moving stuff online can mean a hammering for profitability.”
High street stalwarts such as John Lewis, Selfridges, Marks & Spencer and Harvey Nichols will have to square up to e-commerce giants like Amazon, which flourished during lockdown with sales up 40 per cent in the three months to June. The e-commerce giant already threw down the gauntlet to claim this Christmas, announcing plans to take on 7,000 more permanent staff by the end of the year and created 20,000 temporary roles. Two new fulfilment centres are launching this autumn, as well as three seasonal pop-up warehouses.
Rather than taking action to save themselves from a complete wipe-out this Christmas, some retailers are in a pandemic-induced shock, says Tom Enright, retail supply chain vice president at Gartner. Enright works with retail giants across the world and has specialised in logistics and fulfilment in the retail sector for over a decade, and previously worked for Marks & Spencer, Liberty London and The Arcadia Group.
“Many are sort of just sitting on their hands feeling sorry for themselves and waiting for this to blow over, which really isn’t an approach they can take for much longer,” he says. “If they just carry on doing what they’re doing and hope that they can cope with the extra volume, a lot of them will struggle; their supply chains will not have been built for this volume of products.”
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Some forward-thinking businesses began working on robotic fulfilment solutions for Christmas back in March, helping to speed up the process and solve distancing issues. But those that didn’t will be facing a potential tsunami of online orders with no extra capacity and perhaps even a smaller-than-usual workforce.
John Lewis – one of the most digitally evolved of the traditional retailers – has six distribution centres across the UK following a £500 million investment plan in 2016. (Amazon has 17 fulfilment centres and has invested £9.3 billion). But even this forward-thinking high street outfit couldn’t have predicted the 84 per cent year-on-year increase in online orders between March and April 2020. Pre-pandemic, John Lewis’s e-commerce accounted for an already significant 40 per cent of sales, but this is expected to be as high as 60 per cent now. Put in context using last Christmas’ gross sales figures, that would mean there’s potentially more than £680 million riding on the retailer’s e-commerce fulfilment capabilities this festive season.
Usual practice in the retail industry is to up staff counts by around a third over this period to account for extra demand. But this year it’s not as simple as sending thousands of extra people into warehouses, Enright explains.
“While retailers always increase their headcount in the lead up to Christmas, the pandemic is certainly going to change that, as there are only so many people you can actually have in a depot,” says Enright. “So, they’re going to have to be creative and find ways to avoid everything just being fulfilled through the same path as today. It’s basically about opening up as much of your network as possible to be distribution points, and at the same time trying to get the customer to do collections. That’s the way to get the volume flowing through the business without it all bottlenecking at the warehouse.”
High street natives already have an invaluable weapon in their arsenal when it comes to upping their online game, then. As counter-intuitive as it may seem, their stores could be the answer to their storage crisis.
Firstly, they help with the actual generation of orders. Having a physical shop increases online sales for that retailer in that catchment area: a 2019 study by CACI put the increase at 106 per cent. But second, and perhaps more critically, stores also have the potential to help with fulfilment.
“You have retailers like Next and John Lewis who recognised early on, and I think others are starting to catch on, that the future of e-commerce – Covid-19 aside – is stores,” says retail analyst Natalie Berg. “Retailers with physical stores are really well-positioned to cater to the surge in demand of online orders we’re expecting at Christmas.”
Sure, people are less keen to amble around shops for a casual browse and won’t necessarily be dropping in spontaneously as they used to. But if they can order online and have their items delivered to store for a smaller delivery charge, some will be more than happy to duck in for a swift pick up.
And it’s advantageous to the retailers too: they can utilise stockroom space in-store while the elimination of the notorious ‘last mile’ (the part of the delivery that’s between a central hub and a customer’s front door) can help make e-commerce more financially sustainable.
To bolster logistical processes even further, retail brands are joining forces. Marks & Spencer, for instance, has recently launched its partnership with Ocado to offer clothes and homeware alongside food, just in time for the busiest season of the most precarious year in retail.
“Broadly speaking, the sector has become increasingly collaborative over the last decade,” says Natalie. “Brands recognise that digital transformation is no longer optional, they have to evolve, in many ways it makes sense to partner with a non-competing retailer. At the end of the day, it’s about providing the best possible service to keep up with the likes of Amazon, so if retailers can join forces in a non-competitive way to do that, it makes total sense.”
It’s likely that this shift to online will also see Christmas coming far earlier in 2020. The recent Eat Out to Help Out scheme was proof that relying on a small window of time to bring in a considerable proportion of revenue is a risky logistical game. And it becomes even more perilous when it hinges on your weakest fulfilment processes.
This in mind, don’t be surprised to see brands start to encourage festive spending as soon as possible, argues Simon Gregory, joint chief strategy officer at branding agency BBH London. “Christmas shoppers usually fall into two types: the planners and the last-minuters, and this year I’d expect a rise in the former, so we may see sales spread out more consistently across the season than previous years,” says Gregory.
Indeed, John Lewis launched its online Christmas shop earlier than ever this year, on August 25. This was prompted by the increased number of searches on its website for Christmas products (by the third week of August, they were up 370 per cent on 2019), meaning shoppers are ready to get cracking, too.
This pandemic-induced shift to online spending has forced traditional retailers to throw themselves into a serious game of catch up, all while having to adhere to safety precautions to protect staff. While it might be too late for many to start investing in innovative tech for order fulfilment, their existing networks could be made to work harder for them to save shrivelled bottom lines – if they’re smart about it.
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