Savills outlines retailers’ blueprint to survive and thrive in age of digitalisation

The rise of online sales in Europe does not mean the end of the physical store, Savills argues in a new research report, insisting the focus should turn to restructuring the product range with e-sports, virtual reality and wellness becoming increasingly popular, especially among younger generations.

E-commerce, which has become one of the biggest challenges the retail sector has faced, is fast gaining momentum and according to current estimates 28.5% of fashion sales in Western Europe will take place on the internet by 2023; a growth rate of 87%.

Nevertheless, online retailers recognise the great advantage of a physical store. A US study by the International Council of Shopping Centres in 2018 showed that the number of visitors to a website in a catchment area increases by 37% when a brand opens a new shop.

In addition to the costs of shipping and marketing in pure online trading, there are other reasons for a physical presence. Furthermore, according to GlobalData estimates, 29% of online sales in the UK come into contact with a store, either through Click & Collect or when the customer first inspects the product in the store.

Marie Hickey, Savills Research Director, explains:

“Across Europe, prime retail destinations and strong convenience-led locations with robust footfall will be less exposed to the challenges facing retailing, however they will not be totally immune. A greater focus on experience, both in terms of occupier profile and of place, as well as an intensification of uses that help to boost footfall will be the key to mitigating some of these challenges. For the really innovative landlords, adopting a mindset that is more service orientated and flexible may also offer a point of difference.”

Germany stands out as following in the footsteps of the UK.

Jörg Krechky, Head of Retail Investment Services Germany at Savills, explains:

“There are some indications that our market will develop similarly to that in the UK. Our online trading growth rate is rising steadily but that’s nothing new. What’s more important is that customer preferences, namely those of the core target groups ‘millennials’ and ‘baby boomers’ are changing. We are facing the biggest change of the century in the strategic development of retail real estate.

“Retailers are already restructuring their space concepts and portfolios. Demand for premium locations is increasing as investors seek to secure strategically important locations. At the same time, demand for secondary and tertiary locations is declining: they will be less lucrative in the future and may have to be restructured and revitalised by other uses.” 

As well as millennials and baby boomers, the future of retailing is strongly influenced by Generation Z (those born between 1997 and 2012). They are so-called ‘digital natives‘ who grew up with the Internet and network quickly and everywhere. Environmental awareness, personal health and social responsibility play a central role in their world view. According to a recent survey by Eventbrite, 78% of respondents stated that they prefer to spend their money on experiences rather than on material things. 

The selection of the brands represented in the city centre locations should also include local, independent retail stores of good quality, helping to make a decisive difference to the competition. Another aspect is the combination of different uses, where viable. According to Savills, the integration of coworking and coliving concepts in combination with retail is a promising synergy, offering the customer multiple uses in the immediate environment as well as improving footfall for the retail and leisure offer.

Krechky added:

“Retail is experiencing the greatest change within a generation. We don’t see the end of the physical store, rather the industry is experiencing an evolution of its offering. The exciting task for investors, portfolio holders and operators is to anticipate the consequences of these developments and to invest accordingly.” 

james.wallace@realassetmedia.com