At the start of 2022, we look back at how the retail industry started making a post-pandemic recovery last year and explore the prospects for the market in 2022.
A better but still pandemic-led year
2021 was one where the pandemic continued to loom large, although in certain areas the landscape of post-pandemic retail became a little clearer. Online purchasing remained heightened and it is clear that COVID-19 will indeed mark a step-change in engagement in the channel. Mintel’s COVID-19 Tracker has on average recorded over four in ten consumers shopping more online in 2021 than pre-pandemic, while so far online has accounted for 29% of total sales in the sector – a little ahead of the level (28%) seen in 2020.
The protracted period of online reliance in 2020 and early 2021 during lockdown periods has been habit forming, and the ‘stickiness’ of these habits is no more evident than in online grocery. Some sales have moved back to store in comparison to the peak Q1 2021 demand, but online grocery shopping is still essentially double what it was pre-pandemic. This has ushered in a host of new faces to the retail sector, from Gorillas to Getir to the mergers and acquisitions (M&A) hungry GoPuff, these rapid delivery players will continue to be a disruptive influence in the sector, and in particular convenience retail, even if further consolidation in this likely over-subscribed market is unavoidable moving forward.
Shoots of recovery in the store-based sector
While online has loomed large, the positive for the store-based sector is that recovery did come as restrictions were fully lifted. From August through to November stores have reclaimed the majority of non-food demand, albeit at a lower level than pre-pandemic, and there has been particular encouraging improvement in the fashion sector. Indeed in November store-based fashion retailers recorded growth on 2019 numbers for the first time. This is particularly impressive as this was done without Arcadia stores, and indicates that the store-based fashion sector may avoid the trend we have seen in other sectors. For example, Comet in electricals, where a major specialist failure has seen demand move away from the sector to non-specialists and online-only players.
The ASOS deal for Topshop was the highlight in a spurt of M&A activity in the non-food sector. Along with Boohoo, who took Debenhams, the online-only players showed their financial might by snapping up legacy names, and notably only the names leaving the brands’ store-based heritage behind. The battle at Boohoo with the beauty players has been most interesting, and one, if rumours are to be believed, suppliers have won – with Boohoo likely to be forced to put half a foot in the physical space for the first time.
This is important as with Local Data Company (LDC) reporting last month that just 13% of Arcadia sites are trading with new tenants, new blood and new ideas are required to accelerate the physical recovery. Here there has been encouragement, landlords are increasingly providing lower-cost space for smaller and local brands, such as the Legal and General scheme in Poole, while the continued investment into physical stores from former online D2C brands, from Castore to GymShark, also shows that there are those born in the online space which see the value in physical.
We are still in the woods but the trees are thinning
The clamour for control of Morrisons shows that physical UK retail remains an attractive bet, even in the post-pandemic landscape. 2022 may bring even greater M&A activity than 2021 and 2020, as those who have profited through the pandemic look to bolster, or further bolster, their position. Biggest of all would be the rumoured sale of Boots by Walgreens. Although most likely to move into private equity ownership, if rumoured in-sector suitors are indeed interested then this will be no doubt the biggest news of 2022 and a potential seismic shift in the landscape of UK retail.
2022 does not look quite the blank slate it did entering the Autumn of 2021. The first few months of the year are likely to be COVID-dominated once more as Omicron spreads, our latest COVID-19 tracker data (9-16 December) shows a notable tick-up in concern, and this will bring further opportunity for online. Staff absences and peaks in demand will also put further pressure on supply and ultimately inflation and jobs, making next year one where value will be high on the agenda.
The current price war in the grocery sector for festive sales is a bellwether for all retailers in how sharp pricing will need to be, particularly as spending in other areas further recovers. On this the expansion and success of Tesco Clubcard Prices deserves a special mention. The scheme is true market leadership in action – simple, aggressive and long-term brand building, and the fact it is present in every aspect of Tesco’s operations, from online to convenience, is truly remarkable.
Despite the pressures moving in 2022, there are many positives for the sector to look ahead to. Pre-Omicron, the Office for Budget Responsibility (OBR) was forecasting rapid household spending growth, as savings built during the pandemic are released, and even if the variant tempers economic growth a little there will still be much demand to be tapped into. It will not be the easy year many hoped for but it will be one where, hopefully, an even bigger step is taken toward a more certain future than 2021.
