Falling rental prices help ecommerce hit the high street

As the retail sec­tor becomes increas­ing­ly polarised between pro­vid­ing con­sumers with either func­tion­al or emo­tion­al shop­ping activ­i­ties, the future of the high street will pro­gres­sive­ly be based on expe­ri­ences and the per­son­alised ser­vices gen­er­al­ly pro­vid­ed by small­er stores.

Tim Green­hal­gh, chair­man and chief cre­ative offi­cer at retail and brand con­sul­tan­cy Fitch, explains: “The future of shop­ping is not retail. The future of shop­ping is expe­ri­ence. Things were already in motion here before COVID, but they’ve now been accel­er­at­ed and brought to the fore.”

In his view, retail has now become trans­ac­tion­al, whether a pur­chase takes place via a mobile phone, online or in store. Shop­ping, on the oth­er hand, is all about ser­vice, which is being dri­ven by sev­er­al key trends. These include a grow­ing move to buy both local­ly and more sus­tain­ably, and the appeal of the more human approach offered by small­er, inde­pen­dent shops.

As a result, says Green­hal­gh, he is already see­ing evi­dence of big-box retail start­ing to fol­low the lead of the inde­pen­dent sec­tor and embrace the idea of hav­ing a “local pres­ence rather than just a small­er for­mat shop in a local envi­ron­ment”. In oth­er words, it is about curat­ing and stock­ing local prod­ucts and brands, while also “work­ing hard­er to ensure staff are the face of the brand” and cre­ate ongo­ing rela­tion­ships with their cus­tomers, he says.

“They’re start­ing to realise that just hav­ing shops with shelves is the old retail, while the new shop­ping is about ser­vice and mak­ing it real,” Green­hal­gh explains.

The retail status quo, disrupted

At the same time, although many of the big brands may have been dab­bling with ecom­merce for a while, the pan­dem­ic has inevitably accel­er­at­ed their move online, forc­ing them to seek new rev­enue streams as the usu­al foot­fall to phys­i­cal stores has been cur­tailed.

Accord­ing to Moira Clark, pro­fes­sor of strate­gic mar­ket­ing at Hen­ley Busi­ness School, this sit­u­a­tion is open­ing up oppor­tu­ni­ties for small­er online retail­ers as sup­ply dis­rup­tion has meant con­sumers have bought else­where, liked what they’ve seen and may not go back. “COVID has been a loy­al­ty dis­rup­tor,” she says.

But there have been oth­er impacts too, says Con­nie Nam, founder and chief exec­u­tive of jew­ellery brand Astrid & Miyu. On the one hand, for direct-to-con­sumer (D2C) and chal­lenger brands, sell­ing online was once a much cheap­er option than set­ting up a phys­i­cal store due to the cost of high street rents and busi­ness rates.

Because big brands with deep­er pock­ets are now strength­en­ing their pres­ence online though, the steadi­ly ris­ing cost of online mar­ket­ing means many small­er brands are being priced out, says Nam.

To make mat­ters worse, Lar­isa Dumitru, head of ecom­merce at adver­tis­ing and mar­ket­ing agency Ogilvy UK, points out: “What was once the play­ground of dig­i­tal­ly native brands has become a more clut­tered space, where every­one is try­ing to increase their share of audi­ence atten­tion.”

The impact of falling rental prices

On the oth­er hand, high street rents are start­ing to fall due to a range of fac­tors, includ­ing social dis­tanc­ing and chains either clos­ing stores or going bust.

In Lon­don, for exam­ple, estate agency Sav­ills has report­ed the biggest drop ever in rentals across prime cen­tral-Lon­don sites, with a 12.9 per cent fall year on year. Land Com­mer­cial Sur­vey­ors, mean­while, fore­casts post-pan­dem­ic rents could plum­met by as much as 50 per cent.

As a result, Nam expects to see grow­ing num­bers of D2C and chal­lenger brands try­ing their luck on the high street. While this trend is already mak­ing its pres­ence felt in the Unit­ed States, it is much more ear­ly stages in the UK. “But I can pre­dict con­fi­dent­ly it will hap­pen,” she says.

“Land­lords are start­ing to under­stand D2C retail­ers bring more traf­fic as we have a ded­i­cat­ed online fol­low­ing that will come to our offline store and that dri­ves up the over­all val­ue of the street,” Nam explains.

She has just nego­ti­at­ed a new rental agree­ment with a land­lord in London’s West­bourne Grove. Despite being an unaf­ford­able loca­tion in the past, the fee is now based on turnover rather than being a tra­di­tion­al fixed-cost arrange­ment.

Creating an omnichannel experience

Dumitru like­wise expects to see “more and more D2C brands test­ing the offline waters”. While she believes retail part­ner­ships, such as those offered by Show­fields in New York, which in a reimag­in­ing of the tra­di­tion­al depart­ment store enables dig­i­tal­ly native brands to inter­act with cus­tomers in an offline set­ting for a month­ly mem­ber­ship fee, will flour­ish, there could well, in the short-term at least, also be a grow­ing appetite among D2C busi­ness­es to open high street pop-up stores.

Should they prove suc­cess­ful, these offline spaces could then turn into a more per­ma­nent fix­ture, while man­ag­ing to stay true to their iden­ti­ty and the val­ues that helped them grow in the first place,
says Dumitru.

A pos­i­tive exam­ple of this mixed approach, she believes, is the French D2C cloth­ing label Sézane. Its Lon­don store has a sim­i­lar aes­thet­ic to the firm’s Insta­gram feed, holds care­ful­ly curat­ed stock and enables shop­pers to col­lect their orders or return items. Dumitru describes it as “tru­ly chic omnichan­nel exe­cu­tion”.

Oth­er so-called expe­ri­ence trends include con­cept stores, which were first pio­neered by fash­ion design­er Mary Quant in the 1950s and the rather new­er “camp­fire” com­mu­ni­ties, such as The People’s Super­mar­ket in Hol­born, Lon­don. The super­mar­ket, which sells local­ly and eth­i­cal­ly sourced pro­duce, acts as a com­mu­ni­ty hub staffed by vol­un­teers who work for four hours a month in exchange for a dis­count on their shop­ping bill.

Ulti­mate­ly, what this all means is, despite wide­spread prophe­cies of doom, “the high street isn’t going any­where soon”, says Dumitru. Instead it will increas­ing­ly morph and change into a place where peo­ple inter­act with and expe­ri­ence brands rather than sim­ply under­take a trans­ac­tion. In this con­text: “D2C brands will enhance the high street, but there’ll also be tra­di­tion­al brands that will adapt and flour­ish too,” she con­cludes.