Why bricks and mortar retailers are still fertile ground for investors

One of the long-lasting effects of 2020 will be the vastly accelerated uptake of online shopping. For example, in the 12 weeks to 4 April 2021, the number of UK consumers buying fashion items online grew 39% year on year to 28.3 million, with just over 80% of the population having bought clothing online over the previous 12 months. For retailers, the days of segmenting consumers into groups of ‘in-store’, ‘online’ or ‘multichannel’ shoppers are over; the reality is now that most of us buy across multiple channels.

This dramatic increase in online spend has led to suggestions from some analysts that physical retail has had its day. But, if you look deeper, the reality is less simple. For example, while fashion retailers – and those offering products that are more suited to being purchased in person, like garden centres and DIY stores – faced challenges last year, during the period when retailers did reopen over the summer, consumers flocked back to them, and spend has once again strongly picked up as the restrictions of the third lockdown are gradually lifted. In the week to 7 June 2021, 35% of all spend in the UK was online, compared with 60% during the week to 31 December 2020.

The reason that shoppers haven’t rejected stores outright is simply that they provide some things that websites cannot. They give an opportunity to look at and touch products, to get items ‘there and then’ and a reason to get out of the house – something that may prove an even more important factor now the full lifting of restrictions has been delayed.

Every trip counts

But shoppers are purchasing less frequently, and buying more per trip, a trend seen across multiple markets over the past year. So going forward every trip will have to count, whether online or offline. Throughout 2021, online retailers who ‘rode the wave’ of growth will need to ensure they have a clear strategy for retaining the new customers they gained during the disruption of the pandemic. Those with a bricks and mortar presence will need to challenge themselves to offer an exceptional in-store experience. Gone are the days of shoppers ‘coming back to check tomorrow’; they will expect perfection, first time, every time.

What does this mean for investors?

We should expect category and market spend to continue to fluctuate. Shopper behaviour will be very reactive to circumstances and depend on factors like the weather. If the sun comes out again, for example, we might rush to buy a barbeque or a new pair of shorts to make the most of the rest of summer, but it’s unlikely we’d do so at this point in the season otherwise.

With restrictions easing, consumers will divert spend to channels and stores that have been forced to close for much of the past year. But while opportunities for spending are opening up, the disposable income in our wallets will not increase. Some retailers that have benefited from reduced competition in 2020 will experience challenges as the nation reopens once again.

Most likely, there will be appeal in the short term for those sectors that were inaccessible for long periods throughout the pandemic, such as hospitality and non-essential retail. However, there are questions over how long this spike in demand will be sustained. A sector experiencing growth in one month may not see growth the next, and whilst some retailers and brands performed strongly in 2020, this is not necessarily an indicator of how we can expect them to perform in 2021.

Evaluating retailer performance more accurately

Understanding which brands and retailers are a sound investment requires consistent consumer insight, which allows for retailers’ performance to be compared directly against each other.

Kantar’s daily, weekly and monthly data feeds give up-to-the-day information about where consumers are spending, in which sectors and with which retailers, allowing investors to cut through the noise and assess the true picture of performance.

Contact us to find out how Kantar can help investors to make better financial decisions with City Research.