Physical stores remain key driver to success for the retail sector

Physical stores remain a key driver to success for retailers, according to the latest research from global real estate advisor, CBRE. The government’s furlough scheme and business rates relief have provided lifelines for many retailers since the outbreak, but further assistance from landlords is required to help keep stores open, while the true cost of Covid-19 to retailers is still unknown.

During this period the retail sector has been put under huge pressure, and new CBRE research identifies predictions, trends and insights across the sector, based on interviews and surveys with leading UK occupiers. Most non-essential retailers will be looking to open as soon as possible, in line with the government guidelines of 15th June. Others will carry out a staged ‘wait-and-see’ approach.

Reopening comes at a cost following a time of prolonged closure. Retailers are faced with operational challenges such as safety and training of staff and encouraging customers into stores whilst ensuring they feel safe and adhering to social distancing guidelines. These measures present further cost implications to provide PPE, security, queue management and specialist cleaning during what is set to be a period of reduced instore footfall.

Retailers have reported an increase in online activity throughout the lockdown period in the UK and it is expected that this trend will continue. According to the research, retailers are actively investing in online capabilities which, for some retailers, can contribute significantly towards gross turnover. However, social distancing challenges have meant that some retailers have stopped their online delivery slots, and costs associated with returns, orders and deliveries remain hard to control, whereas physical stores help to keep control of fixed costs.

The majority of retailers interviewed anticipated a 50-60% reduction in turnover for 2020 and estimate a return to pre-Covid turnover levels in Q4 2021-Q1 2022, however this is influenced by individual views on the timing of widespread vaccinations or finding a cure. CBRE’s findings show that it is expected that the number of stores for each retailer will decrease, with the most profitable stores remaining open. Whilst many acquisitions are currently on hold, those in strategic, pre-planned locations will still go ahead.

Jonathan Eastwood, Senior Director, CBRE Retail
Whilst the need for physical stores is evident, reviewing store portfolios was on the agenda pre Covid-19 and has since been bought to the forefront. It is clear that physical stores are of the highest importance to a retailer’s success, making the relationship between landlords and tenants more important than ever. Collaboration is key for the success of our sector and we encourage a better understanding of business plans for both investors and occupiers as we navigate through these unprecedented times, that are hopefully short-lived.
Jonathan Eastwood, Senior Director, CBRE Retail