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Physical retail is dead – but only the way we once knew it

by | Aug 16, 2018

The retail sector is in a transformational period. Online and offline are converging, soon to be indistinguishable from one another. So what role does the physical store now play?

With the recent bout of retailer CVAs and administrations, supposedly resulting from increasing business rates, wage costs, and ecommerce, one could be forgiven for assuming that the physical store was being resigned to history, in favour of a purely online experience. What is actually happening is merely a transitionary period, during which the necessary restructuring of an industry is required to bring it up to date with the modern shopper.

The role of the store is evolving

The combination of physical and online retailing will drive future growth in the sector. ‘Halo effect’ is the term used to define the positive impact that a physical store has on the surrounding area – whether sales within that store or the increase in online sales from people living or working nearby. It is therefore vital for retailers to maximise and optimise the impact both channels have on each other, and is the key feature in the CBRE Retail Property Perspective for H1 2018.

The role of the store is simply evolving to allow retailers to benefit from the omni-channel environment. The collaboration between online and offline is, however, making it increasingly difficult to understand the true value of a physical store.

The positive impact of a new opening

The Halo effect will be greater for retailers with fewer stores, as each additional store will impact a lower number of people. Retailers with smaller store portfolios will see a significant improvement in brand awareness and online traffic from a new opening. This is most prevalent when a retailer opens in a country for the first time, such as with Canada Goose, Arket and Sonos, all of whom opened their first UK stores in November 2017, just in time for Christmas shopping. The Canada Goose graph below (indexed to show the week with the most searches during the timespan), shows how the introduction of a physical store increases online traffic. For Canada Goose, the week of 19-25 November, when the store opened, resulted in online traffic for that week outstripping searches at Christmas of 2017 – the first year Christmas had not topped the chart.

A defining point of a store’s success will be the positive long-term impact it can have on online activity. The more stores a retailer has, the less beneficial a new opening will be. However, the store will remain important for the other component of the Halo effect, which is to develop brand image and awareness. Every store provides a retailer the unique opportunity to customise to suit those most likely to shop there. Unlike an online interface, which is generic for all users, each store can focus on the purchasing and shopping habits of the local people.

The high street is very much alive and kicking. It is merely what, and who, is in these shops that will change dramatically.

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