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Update on the retail sector

The Deloitte Consumer Tracker Q1 2021

Consumer confidence saw its highest jump for ten years following the announcement of a road map for lifting COVID-19 restrictions, the chancellor’s renewed support for workers and the vaccination programme remaining on track. The Deloitte Consumer Confidence Index rose by six percentage points quarter on quarter to – 11%, representing the highest rate of growth in the ten-year history of the Deloitte Consumer Tracker.

Retail performance in Q1 2021

For most consumers the first three months of 2021 have been spent in lockdown with non-essential retail stores remaining closed. As a result, retail sales by volume were down 0.5% in Q1 2021 compared to the same period a year ago and by -5.8% compared to last quarter of 2020, according to the Office for National Statistics (ONS). However, following the gradual easing of the restrictions, there was a strong uplift in March’s retail sales compared to February (+5.4% by volume). These results are encouraging and point to the pent-up demand for buying goods and services which drove consumers to shop online to improve their homes and gardens ahead of the relaxation of outdoor socialising rules and Easter celebrations.




As expected, consumers continued to shop online for new purchases in the absence of physical stores, with online sales accounting for 34.7% of all retail sales in March, slightly down from the previous month but still considerably higher than March 2020. After an exceptional year for the industry, replete with its own challenges, this could be an indication of the store coming back. Many retailers have increased their investments in their online capacity and capabilities making the online channel working better and more profitably for them as a result. Whether the level of online spending will be sustained over the coming months remains to be seen but, for many consumers, online shopping has become as convenient as the physical store experience.

Online grocery continues to gain market share from the stores

As a result of the latest lockdown, our research shows that the number of people using large supermarket stores as their main channel for grocery shopping declined by five percentage points (to 55%) in Q1 compared to the same period a year ago. The percentage of people choosing the high street or town centre supermarkets as destinations for their main grocery shop was down by three percentage points (to 16%) compared to Q1 2020. Meanwhile, with demand still exceeding supply, the use of online as the main channel for grocery shopping has increased by seven percentage points from 19% in Q1 2020 to 26% in Q1 this year. However, the reopening of restaurants and other food outlets will impact food demand for the grocers especially if indoor facilities reopen in mid-May as scheduled in England. As a result, the grocery sector will go through a gradual normalisation of shopping patterns, and it remains to be seen what proportion of food sales continues to go to the online channel. With the reopening of the physical stores, the grocers will also naturally loose some of the share they took from non-essential stores that were unable to trade during the pandemic.


Most non-food categories continue to move online

According to our Tracker, on average 68% of consumers made their last purchase online across all non-food categories, representing a significant ten percentage point increase compared to the same period a year ago. The categories that saw the largest yearly increase include major household appliances (+24 percentage points), children and baby products (+21 percentage points) and beauty and personal care (+22 percentage points). The clothing and footwear category experienced the fastest quarterly rate of growth with an 11 percentage point jump in Q1 2021 compared to the previous quarter. According to ONS data, the online channel represented 39.5% of non-food sales in March compared to 42.4% the previous month however, it remains significantly higher than the 14.9% reported for the same period two years ago.


What is the lasting impact of the pandemic on shopping behaviours?

Although April 12th marked what many hope will be the permanent reopening of non-essential retail stores, businesses in the sector accept that even when the pandemic is over, they will not be returning to business as usual. While hopes are pinned firmly on a successful vaccination programme, many people will continue to work from home impacting footfall in city centres, and social distancing and mask wearing continue to be required in shops. And, after a year of disruption, changes in shopping behaviours developed during the pandemic are expected to continue beyond COVID-19.

Online shopping experiences have grown in importance. In the last year, many consumers shopped online for the first time and the experience increased their awareness of the convenience and choice offered by online shopping. Retailers should now be asking how they can retain these new customers. At the same time, more experienced online shoppers have increased their expectations. Those businesses that have responded by delivering a flawless online path to purchase have been able to build a strong customer base that will likely remain loyal despite physical stores having reopened.

Online has been able to offer better services than physical stores in some areas including levels of convenience and choice. Of course, some categories lend themselves to online sales better than others. For example, the shift to online will continue beyond the end of the pandemic for the clothing and beauty categories, while for other categories such as the grocery sector, a more hybrid approach with a mix of online and in-store shopping could well become the norm. According to Google, among experienced online shoppers 81% expect to always or mostly shop online in the beauty category in the next six months. Perhaps more interesting is that 34% of consumers who made their first online purchase in the beauty category during the pandemic also intend to always or mostly continue to shop online in the next six months.1

Over the last decade it became clear that online played a role in the exploratory phase of a shopper’s path to purchase. This trend has accelerated during the pandemic, and with the availability of more and more platforms on which to exchange views and research products and services, consumers turned to online to find inspiration. This means that consumers are also more open to trying new brands – driving increased competition as a result.

While online will never totally replace the customer experience of visiting a store, cross-channel shopping will continue to grow in importance. This reflects a wider debate in the industry about how much physical space retailers will need after the pandemic. Many retailers are considering the role the store plays in the shopping journey and how it needs to evolve. Online may offer a better experience on some aspects of shopping such as the ability to read other customers’ reviews – the physical store offers other benefits difficult to replicate online such as being able to see the size or colour of a product as well as receiving advice from store sales assistants. While the role of the physical store will remain important, the wider retail landscape will likely see reinvention. A new era of ‘hyper-localisation’ and ‘fast fail’ shops could herald a revived and more relevant local high street in the longer term.


Outlook

As we move into the next phase of the government’s road map to reopening the economy, retailers will be closely examining consumer behaviours during the pandemic to predict which are likely to stay. For some consumers, the move to remote working has enabled them both to save and pay down debts. For others lockdown periods provided an opportunity to experiment, for example shopping online, exploring new products at home or even trying out new looks. With greater consumer interest in buying locally, the question for retailers is where to focus their efforts in a post-pandemic world.

When all restrictions are finally lifted, pent-up demand should see shoppers out in force, as we saw last summer at the end of the first lockdown. What is crucial, however, is that the reopening of the high street will be linked to the continued containment of the virus, as only this will boost consumer confidence and a return to stores.

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1The Shift in Shopping


The Deloitte Consumer Tracker Q1 2021

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