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Will shopping ever be the same?

A shopper

Will shopping ever be the same? 

Although I am not a shopper (and my wife tells me I am a nightmare to go shopping with), I came across two interesting articles about shopping last week.

The first was by Tom Witherow from the Daily Mail. I usually read the Daily Mail only when I need an antidote to the doom and gloom put out by our old friends the BBC, so it must have been one of those days.

The second was by Suzanne Moore, a Guardian journalist. This is a real anomaly because I never read the Guardian! However, I came across Suzanne’s article somewhere.

The articles

Tom Witherow’s article was about the here and now. He was explaining the retailing statistics for September 2020 published by the CBI. Suzanne Moore’s article was more about the future. She ponders whether attitudes to shopping will change forever because of the Covid-19 pandemic.  Or maybe she hopes they will change?  Anyway, more on them later.

The retail facts

Before I commented on the articles, I thought I would get the bald facts if I could.

It is widely reported that the effects of the various Covid-19 lockdowns on many high street retail outlets have been largely negative. But, leaving aside the more alarmist stories in the media, what is the true picture? How is retail doing? How has it been affected by the pandemic?

To find out I went to the Government website: https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/august2020.

The statistics

Unfortunately, dry statistics are often dry, and a bit boring. Please ignore this section is you find them indigestible. Anyway, this is what I gathered:

  • In August 2020, the value of retail sales increased by 0.7% and volume sales by 0.8% compared with July 2020.
  • When compared with February 2020’s pre-pandemic level, total retail sales were 2.5% and 4.0% higher in value and volume terms, respectively.
  • When compared with the previous three months, a stronger rate of growth was seen in the three months to August, at 16.4% and 16.7% for value and volume sales, respectively.
  • The only measure to show a decline was value sales in the three months to August when compared with the same three months a year ago, at negative 0.6%.
  •  Comparing the change in year to date sales volumes in 2020 (January to August) with the same period a year earlier, we see:
  •  Total retail sales volumes decreased by 4.8% up to August 2020. All sectors, except for food and non-store retailing, saw a fall in sales.
  • Food stores increased by 4.4% and non-store (online) retailing showed strong growth at 28.6% when compared with January to August 2019.
  • From March 2020, consumers shifted to spending in essential food stores and online retailers as many stores within non-food retailing faced temporary closures.
  • Total non-food stores fell by 18.2%, with a strong decline of 30.1% for clothing stores.
  • While many fuel stations remained open during lockdown, movement restrictions, including homeworking, had reduced travel and volume sales fell by 24.3% in 2020 as a result.
  • Looking at the volume of retail sales for each store type from March to August when compared with February’s pre-pandemic levels we see:
  • In August, total retail sales volumes were 4.0% higher than February. Sectors above February’s pre-pandemic level were food stores, other non-food retailing, household goods and non-store retailing.
  • All other sectors have shown a slower rate of growth since lockdown and continued to recover.
  •  Volume sales within non-store retailing increased sharply in April and May, and sales in August were 38.9% higher than February 2020. This was driven by a shift to online orders during lockdown because of temporary store closures for non-essential stores.
  • As a result, all non-food stores experienced a sharp decline in April, with signs of recovery from May to August 2020. Clothing stores were the worst hit during this time as sales in August were 15.9% lower than February 2020.

Phew!

A short summary

The overall conclusion to be drawn from these rather bewildering figures is that the picture is mixed. Since June (when the first lockdown restrictions were introduced), on-line sales (also called “non-store” sales) generally are booming, while the high street is still suffering. Petrol and in-store clothing sales have declined sharply. However, in-store (high street) sales of food and home essentials are growing strongly.

Tom Witherow’ article

Tom Witherow’s article helped to explain what is going on. He considered the findings of the retail sales figures to September 2020, which can be found in the CBI Distributive Trades Survey at: https://www.cbi.org.uk/economic-surveys/distributive-trades-survey/.  

Tom neatly summarised the facts and cited some specific trading results of household names in the retail sector. I further summarise his facts as follows:

  • Compared with a “normal September” the biggest in-store retail winners (besides food) were household furniture, DIY, pets and hardware. Their sales were up an average of 35%.
  • Clothing and department stores were the biggest losers, down 40% and 23%, respectively. Also, these stores are still struggling and there seems to be no immediate prospect of recovery.
  • DFS (the furniture store) is booming. It explains its success as due to “the nesting instinct” brought about by the pandemic. It recorded an increase in sales of £226 million over a ten-week period to September 2020.
  • Pets at Home is also doing well, cashing in on the desire by pet owners to spend more on their pets. It has recorded double digit growth to September.  

So, again the picture is very mixed, with in store clothing being the big loser. What these results don’t tell us, however, is how much clothing is being sold on-line.

Suzanne Moore’s article

Suzanne’s focus is on the future and she wonders whether the pandemic has changed forever our attitudes towards shopping. She wonders whether we will ever return to “the normal”. I quote her at length because she puts it very well:

“We don’t need to endlessly renew our wardrobe and our look. However, consumer logic says the opposite: that you can never have enough. If only you buy one more thing, everything will be better …

The pandemic has changed all that…  It is no use (the politicians) telling us to go back to sandwich chains or high-street stores out of patriotic duty when we have found small local shops that suit us better. Many of us have also discovered we do not need all the things we once thought we did…

The mutation of shopping from buying necessary stuff to being a leisure activity – “retail therapy” – has been one of the most miserable cons of modern life. Do people in these big out-of-town malls look happy, ever? …

If the idea of getting back to normal means going back to mindless shopping instead of picking up on more sustainable trends – repurposing, DIY, buying second hand, supporting small shops – then I don’t want to go back to normal. The homogenised high streets of our cities needed repurposing long before the coronavirus.

“What consumerism really is, at its worst, is getting people to buy things that don’t actually improve their lives.” Who said this? Some French Marxist in the early 70s? No, Jeff Bezos.

What improves your life is entirely personal. You may indeed find it online. Or you may find it at the bottom of a pile of clothes. If anything good has come out of this awful time, it is this. A reconnection with our material lives, a pause in mindless consumption. “When the going gets tough, the tough go shopping,” they used to say. Well, it’s no longer true, if it ever was.

The tough find, if we’re lucky, we actually already have a lot of what we need. We don’t need to add to the pile.”

“Things will never be the same again”

The “Things will never be the same again” argument that Suzanne raises rages on. Some say the effect of Covid-19 is purely short term (whether your short term is 6 months or 12). Others believe that it will cause a fundamental change to the way we live, especially in how we travel and how we shop.

I am on the side of the short termists believing most things will soon return to normal. But then I never was a shopper. But, what about you? Do you think we will soon return to “the normal”. or have things changed fundamentally?

See also https://www.freeforumofideas.com/articles/covid-19-and-commercial-property-sector/

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The long term impact of Covid-19

Covid-19 has adversely affected business
The Corona virus

The long term impact of Covid-19

The Covid-19 virus has had a dramatic impact on national economies. It has forced many business to close and completely changed the way others can operate. It has turned once busy centres into ghost towns; brought international travel to an almost complete standstill and has caused stock markets to crash. It has changed the business world completely and a strong view prevails that “things will never be the same again (TWNBTSA)” But, is this really true? What is the long term impact of Covid-19?

Lessons of the past

The world has faced many economic shocks over the last 100 years or so. These include two World Wars, the Spanish Flu, the 1930’s Dust Bowl, followed by the Wall Street Crash and Great Depression in the US. Not to mention the 1970’s Oil Crisis, the International Financial Crisis of 2008. There have of course, been many others.

During and after all these crises many experts felt that the economic and business world had changed irrevocably and TWNBTSA. What happened, in reality, was that although many things did change, at their core, things remained pretty much the same. In fact, the economic world is in constant change whether there are external shocks or not.  

Business models

When we say “TWNBTSA” one of the things we are referring to is the way businesses will be set up and run. We ponder what will be the typical successful business model of the future?

Looking at the aftermath of previous financial shocks, we discover that basic business models have not really changed in any fundamental way. For example:

  1. Customers still buy from those who supply superior, cheaper, more innovative goods and services.
  2. Efficient, customer-friendly businesses are still more successful than inefficient, old-fashioned ones.
  3. Commercial success is still achieved through superior technology and management.
  4. Those with an entrepreneurial mindset are more still successful than those without, and so on.

Changes

This is not to say that things haven’t changed. Of course they have! But as I said earlier, the business world is always changing. Consider, for example, the industrial revolution, the railways, the motor car, the telephone and the computer. All these brought about profound change to the way people did business and how fortunes were won and lost.

So what do we expect will change post-Covid-19? What has happened in the last six months will give us some clues.

The most obvious changes have been in shopping, working from home, international travel and investing. Let’s look at each of them in turn.

Shopping

In imposing a lock down, Government effectively closed all bricks and mortar shops, excluding essential food outlets. Most shopping was, subsequently, done online. Is this the future of shopping and has the change been brought about by Covid-19?

It’s common knowledge that high street shopping has been declining for years with out of town and online shopping replacing it. The virus closed out of town shops too, so online shopping has increased even more sharply at the expense of the traditional ways. But, the virus is not responsible for the long term decline in high street shopping. It has merely accelerated what was an established trend. 

I expect this trend to continue. However, bricks and mortar shops will adapt and still have an important part to play in the shopping experience of the future.

Working from home

The lock down imposed by Governments all over the world resulted in a huge increase in the number of people who previously worked in offices now working from home. Will this be a permanent situation once Covid-19 has passed. If so will this reduce the demand for and value of office space?

Covid-19 has had a devastating effect on business
The world-wide influence of Covid-19

Property expert

When considering the long term impact of Covid-19 on property, a well known property expert based in Sydney, said the following:

“In recent history there’s been a trend towards higher density occupancy in modern offices. This has resulted the reduction of office space footprint for most large organisations, by basically fitting more people into less space. However, economic growth over the last decade has resulted in more companies requiring commercial real estate, albeit on a smaller footprint, but net demand has increased.

However, social distancing and hygiene vigilance off the back of COVID-19 may buck the trend of higher occupancy densities resulting in each staff member requiring more space m2. If hot-desking is a victim of COVID-19 then this will also kill ‘Dynamic Densities’ should staff demand having the same workspace every day. This on its own would mean large organisations would require more office space, but I suspect one driver for the long-term adoption of working from home will be opportunity for large organisations to offset the need for more office space but adopting working from home permanently if efficiency gains aren’t compromised.

Future workplaces

Then there’s the issue of how future workplaces will need to be modified to accommodate the privacy and noise issues of constant Zoom or Teams style meetings if some people are working in an office and some people are working from home – this too could have an impact on occupancy densities for the need to incorporate a larger quantum of break out spaces or the creation of a greater number of smaller meetings rooms further lowering occupancy densities.”

So, the prognosis is that probably space requirements will not fall in he long term, which means the value of prime office property will hold its trend.

See more on this in the forums at:  https://www.freeforumofideas.com/forums/topic/changes-to-business-models-after-covid-19/

International travel

There are three major issues effecting international travel at the moment:

1. The need for social distancing.

2. Quarantines enforced by Governments.

3. Passenger fear of infection.

It is difficult to see how these issues will be resolved unless and until a Civid-19 vaccine is produced. Numbers 1 & 2 above could be removed when it is felt the virus has been contained. But passengers will still be fearful of being cooped up in a confined space with strangers for a long period. So, it is also difficult to see how airlines can change their business model short of drastically reducing seat numbers and isolating passengers from each other. This would certainly be the death of low cost airlines and, perhaps, all airlines for at least the mid-term.

Investments

The short term effect of the onslaught of the virus was to reduce share the price indices of the major Stock Exchanges by 40% or more. Commercial property and retail values also fell substantially, while house prices were marginally depressed. However, the government reduced bank rates (interest rates) further from a low base and, in some countries, to a minus interest rate. This factor that usually increases the prices of assets. All this is very dramatic and a tad confusing, but will Covid-19 change the long term nature of investment?

In the case of shares, world stock markets, although still volatile, have recovered most of their losses. In the case of the NASDAQ, more than all its losses. Shares in certain sectors (such as travel and entertainment) have not recovered and could remain depressed for a long time. I expect that difference in industry performance will continue as will the old problem for investors of what to buy. But I can’t see any long term change to the fundamental principles of investment.

It is probable that high street property prices to continue to fall, unless they can be converted to residential use. However prime commercial property prices will probably remain unaffected in the long term. House prices will probably continue to go up at their long term trend rate.

Conclusion

So, what is the long term impact of Covid-19 likely to be? Will things will never be the same again? Will the way we do business change irrevocably? Not in my opinion.

I think in a very short time most businesses will be operating fundamentally as before, but that change will continue for the reasons it has always done. The rate of change will accelerate, but due more to Silicon Valley than Covid-19.

Further reading

Please refer to FAQ 3.37:  https://www.freeforumofideas.com/faq/37-what-is-the-survival-rate-of-small-businesses/

And John’s Blog: https://www.freeforumofideas.com/blog/will-shopping-ever-be-the-same/

Also see: https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business#