Five challenges for bricks-and-mortar retailers in 2023
For bricks-and-mortar retailers, the coming year could prove tricky to navigate.
A significant number are already upending their businesses. A recent survey of 500 UK retailers from Dutch payment company Adyen showed that 46% are re-evaluating their strategies for physical stores. Many reported that they’re moving out of business parks and shopping centres to be closer to residential areas. And critically, when asked whether physical stories would remain important to their business post-pandemic, 27% said they would not.
However, there seems to be enduring appeal for the format. Adyen also spoke to 2,000 UK consumers and discovered that nearly half (49%) still prefer to shop at a physical store, particularly where technology is being used to improve the customer experience.
As bricks-and-mortar retailers try to maintain a lean and effective physical presence over the tricky 12 months ahead, here are five key challenges they must navigate if they want to survive.
1. Using stores as ecommerce hubs
As the largest sporting goods retailer in the world, with almost 1,670 stores in 60 countries and regions, Decathlon understands the significance of bricks-and-mortar retail. For Oksana Dambrauskaite, Decathlon UK’s ecommerce operations leader, the key task ahead is finding new ways for the physical and online presence to coexist.
The likes of click and collect and in-store returns offer the “perfect balance of encouraging customers to visit our stores while building on the convenience of online shopping”, she explains. But she warns that such integration can be disjointed if designed around manual processes for in-store staff. This increases queueing time, frustrates customers and prevents additional browsing.
To modernise the customer experience, Decathlon has focused on streamlining the click and collect and returns processes. It uses smart parcel lockers from Parcel Pending by Quadient as a safe and secure way for customers to pick up or return items, Dambrauskaite says.
“The lockers are automated, only open to customers with the right passcode and can even record who left or took an item,” she says. “To date, 98% of customers who used the lockers were satisfied, and our security and accessibility have improved significantly.”
2. Soaring rents and leasehold changes
Commercial landlords have a huge role to play within bricks-and-mortar retail. Economic headwinds could see rents increase, prompt contract changes (with rent being paid monthly rather than quarterly, for instance), or force adaptations to meet incoming regulations.
Paul Davies is head of commercial property at solicitors Harper James. He thinks that in 2023, retailers that proactively manage their leasehold interests will “fare far better than those who are less savvy”.
This could involve some difficult but necessary conversations. “Rents based on turnover are starting to creep in more often as landlords find that headline rents are becoming challenging for retailers,” he says.
Davies also predicts that retail tenants will more often request the power to share spaces (sub-let) more easily, without needing complex and formal landlord consent. This would best fit their business models, without needing permission for elements such as alterations and signage. “Adapting to changing consumer demand means that greater flexibility will be desirable and should be considered in advance,” Davies advises.
What’s more, new regulations are on the horizon as part of the government’s target to reduce emissions to net zero by 2050. “Those looking to renew or take on a new lease could find shrewd landlords including clauses which pass on the cost of compliance to tenants,” Davies warns.
3. Expansion pressures
As big-name retailers face issues with keeping their bricks-and-mortar stores open, some SMEs face the opposite struggle. Kirsty Gale, founder of prom dress company Red Carpet Ready, wants to expand by adding more showrooms to the five she currently operates. The company is bricks-and-mortar only, and Gale wants to add a wholesale arm.
However, she cites a whole series of physical retail challenges that are holding back this expansion: for example, not being able to recruit enough people, energy prices, and supply chain and logistics issues.
Gale’s success over the past nine years has been built on in-person shopping experiences for customers. “We are a shopping destination which is open seven days a week,” she explains. She believes the value of bricks and mortar lies in bringing “customer service and a unique customer experience to the forefront… no online business can compete with that.”
Providing that level of personalised service in difficult times will rely on some savvy business practices, particularly as prices increase everywhere. “As a proactive business owner, it’s forcing me to analyse every aspect of my supply chain,” Gale says. “Be sharp in identifying opportunities, look at better ways of buying your product, who to buy from and what country to buy from, to keep prices down.”
4. Maximising inventory without overburdening cashflow
Bricks-and-mortar retailers must pay more attention to ensuring the right stock is in the right place at the right time, says Stuart Higgins, a former head of logistics at Halfords. This must be achieved without excess inventory, he says, which diminishes working capital.
Higgins is now a partner at independent management consultancy BearingPoint. He says retailers are “having to take a punt” on which stock will sell where and in what quantities, because of the need to bring large, seasonal buys into the business before a season launch.
This can be countered by better forecasting, suggests Higgins. There can be differing rates of sale across stores, he notes, some in line with forecast, but most outside it. This leads to significant issues with items going out of stock and lost sales in parts of the retail estate. Conversely, in other stores, there are significant levels of overstocking that require mark-downs at discounts of 30-70%.
“The answer is turning the conventional seasonal replenishment model on its head. Initial allocations should cover display stock and only two or three weeks of forward sales,” he says. “This enables stores to fulfil the initial sales demand, but then it requires stock to be replenished rapidly to replace stock that has sold. This ensures stock is directed to stores that are actually selling, while avoiding overstocking in those that are not.”
5. Balancing sustainability and value-based purchase habits
According to a global study of nearly 13,000 consumers by Mood Media, people want more sustainable products and practices in their shopping journeys. The offer of a repair service was the top choice that would positively influence any decision to visit a physical store, chosen by nearly two-thirds of consumers (63%).
What’s more, 55% of UK consumers said they would be more likely to visit a store which provided a recycling point for used packaging or clothing.
This chimes with Elissa Quinby, a former Amazon product manager who is now senior director of retail marketing at analytics company Quantum Metric. She says the ever-increasing focus on the environment, combined with the current economic climate, means many consumers are moving away from unsustainable products and practices.
“Shoppers, especially those in Gen Z, are voting with their money,” she says. “Rather than buying on a whim, this influential group of consumers wants to support brands that align with their values.”
This means retailers must not just provide high-quality goods at the best price, but also offer a knockout customer experience. “Mission-driven brands with commitments to social issues like sustainability will undoubtedly win.”