Retail in the UK and worldwide has been flipped on its head by the COVID-19 pandemic. Where do we go from here?
We’re living in unprecedented times. Unprecedented. That word is definitely losing meaning to me at this point.
Over 38 million have filed unemployment claims in the USA since this pandemic began, and that number sits at over 1 million in the UK. The retail industry has been hit particularly hard; in one fell swoop, COVID-19 has wiped total April sales to pre-2011 levels.
10 years of economic growth and so little to show for it. Not to mention the above graph is probably the most positive visualization of the retail industry I could unearth.
The reality is that the growth visible in the above chart obscures the fundamental difficulties plaguing the industry.
In fact, retail is one of the most stagnant employment sectors in the country. Even the ‘declining’ manufacturing industry has seen a greater increase in employment since the financial crash than the retail sector.
What’s worse, 2018 saw on average as much retail job loss as 2009.
The retail sector is struggling. However, it is at least diversifying.
Retail as a diverse industry
True, the performance of most retail sub-sectors has plummeted. Why?
Well, most people haven’t been going out and non-essential stores have closed. You know that already. Gas stations haven’t closed, but people are scarcely driving and demand for fuel has plummeted.
Don’t even get me started on the effect that had on oil prices.
However, not every sub-sector has crashed. There are instead glimmers of hope in our economy.
Many diversified businesses have been able to remain open, meaning their losses have been less catastrophic. And, if there’s any benefit to the panic buying fiasco—and I mean any at all—it is that it has managed to single-handedly prop up the food sector through March and into April.
The decline of the high street has been discussed for several years, yet more damage has been done in just 2 months than the last 10 years. Entire industries are on life support.
And no retail sector is facing a more turbulent future than fashion.
The demise of high street fashion
For much of the last 25 years, high street fashion performed reasonably well. For nearly 10 years, the sector showed consistent growth in the volume of sales, progress cut short by nothing less than the 2008 financial crisis.
Since then, periods of decline have come thick and fast, and periods of positive growth have not been as fruitful as they once were.
The collapse of high street staples such as JJB Sports and BHS rocked the industry, but these troubles pale in comparison to today.
The chained volume of sales fell nearly 70% in one month. The government furlough scheme in the UK may have saved businesses in the short run, but if revenue fails to arrive as fixed costs continue to mount, businesses will go under.
Everybody knows someone who will be affected.
Besides, furloughing employees cannot last forever. There must eventually be a balance between protecting employment and piling more debt on to the budget deficit.
There’s hope for retail yet
With the population confined to their homes, we have turned to online shopping to scratch our consumerism itch. Online retail has filled the void left by COVID-19—and it was a big void.
With the exception of the food industry, online shopping now accounts for more than 35% of each retail sector available online.
Yes, it may sound strange, but by lying in bed in your pajamas and ordering items directly to your front door, you may be helping to preserve the fashion industry.
Overall, internet sales are booming. Through the 2010s, the size of the online retail industry increased more than threefold.
Then COVID-19 arrived and by April 2020 online retail spiked again by more than 40%.
Lockdown has brought benefits that we had not predicted. Remote working has been positively received by many, and families are spending more time together than ever before.
However, notice something about the above chart. Online clothes sales are falling. If you are not planning on going out, why would you need to buy more clothing?
Online sales are providing a lifeline to sectors in dire need, yet this is unlikely to be enough for the fashion industry.
Yes, consumers would adjust if the entire fashion industry moved online. But what would then happen to our high streets, and how would we adjust to the structural change this would incur on our labor force?
The future of fashion
Plasticity. Flexibility. Adaptation. Whatever you call it, the economy needs it. A rigid economy is an economy vulnerable to lasting effects from external shocks. Just how tech companies that adjusted the quickest to remote working have flourished, fashion companies that shifted quickly to loungewear have performed well.
Flexibility is how we recover our economy and our retail sector from this crisis and will be how we protect ourselves from the crises of the future.
All markets have opportunities. The market during and post-COVID-19 may be smaller, but it is not without its opportunities.
Business success, as with survival, is about finding these opportunities and adapting to them.
Data sources: Office for National Statistics