Insights

Online shops buying retail stores – what’s the future?

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The high street is going through a dramatic change, as online only brands become the new dominant force in retail

When non-essential shops reopen from April, consumers are going to find a completely different high street to the one they knew before the pandemic. In the last few months, some of the most established names have disappeared to online players, dramatically changing the way we shop.

So far 2021 has felt like a watershed moment for the fortunes of the former giants of the high street. In January the online fashion retailer Boohoo bought Debenhams for £55m. The grand old lady of the high street - which had been trading since 1778 - was sold to a company just 15-years-old.

Then in February the remains of Sir Philip Green’s Arcadia Group, an empire that at its peak spanned 2,500 outlets in the UK, also fell to the online-only players. Boohoo bought Dorothy Perkins, Wallis and Burton for £25m; while rival Asos snapped up Topshop, Topman, Miss Selfridge and HIIT for £265m.

What that means for Topshop’s flagship Oxford Street branch – one of the high street’s most iconic stores – is unclear. Once it was the ultimate in destination shopping, with consumers flocking to its nail bar, DJ booths, and A-list celebrity clothing launches - including the likes of Beyoncé and Kate Moss.

Asos has not ruled out buying it but said “it is not a key priority” as the brand’s focus is digital only. It also said it would look at other brand acquisitions as opportunities arise. The future shopping experience looks destined to be far less physical.

On-going disruption

For many these events felt like a sudden shift of power in retail. But the reality is huge changes have been building for some time.

“The high street is changing, but that is not new news,” notes KPMG’s head of retail Paul Martin. “Retail, up until 10 years ago, had probably broadly been the same for the past 2,000 years.”

Ecommerce disrupted the traditional route to market of sourcing a product, shipping it and selling it in a physical location - a trend the pandemic put rocket boosters under.

Many commentators have remarked we’ve seen 10 years’ digital growth in just 12- months. Pre-Covid 20% of all retail sales were online, says Martin. Today that stands at 30% and could hit 50% before 2025.

So does that mean we’re likely to see more brands disappear from the high street? Martin believes so. “I do absolutely expect 30% of the brands we know and have come to love on the British high street to fail in the next 10 years.”

Structural issues

A lack of investment in new channels and issues with legacy technology have been common themes among brands to have gone under, hobbling their ability to survive the current crisis.

Agile online-only players also had the advantage of being unencumbered by vast and expensive store estates. That was a problem for both Debenhams and Arcadia before the pandemic and became their Achilles heel when shops were forced to close.

Unfortunately, many other bricks and mortar stores are in a similar position today.

But while the prognosis is bleak for those remaining brands unable to change with the evolving market, KPMG’s Martin says that does not mean retail is dying.

“Going forward the consumer commerce sector will continue to grow. Its shape will just look different to what it has over the last decade.” Consumers will continue to buy products and services from retailers. “But some of the players we all recognised as key stakeholders on the high street may not be the players we buy from in the future.”

While brands have always come and gone from the high street, this time it’s different – they’re migrating online and switching to completely new business models. When consumers tentatively return to the high street next month, it will be the start of a new era of retail.