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Sector trends

Retail and leisure operators find cause for optimism in challenging times

Our retail and leisure specialists and industry players met recently to discuss the challenges and prospects in store for the industry.

At an event to mark the launch of the latest report by Retail Economics and NatWest into the outlook for UK retail and leisure, the panel (see below) agreed that, despite profound disruption within the sector, there is still cause for optimism.

The panel:
  • Sir Howard Davies, Chairman, NatWest Group

  • David Scott, Head of Retail and Leisure, NatWest Group 

  • Richard Lim, CEO, Retail Economics

  • Richard Pennycook, Chairman, Howdens, Boomin; former Chair of the British Retail Consortium

  • Lucy Stainton, Commercial Director, Local Data Company

  • Tim Keaveney, founder, Homethings

Key takeaways:
  • A spirit of co-operation, versus traditional competition, has emerged in the past two years. Building on trusted partnerships could help society’s transition to net zero

  • Businesses with purpose are being rewarded as consumer values evolve – the next generation of retail and leisure operators have ethical values embedded in their DNA

  • Technological advancements will offer opportunities as well as challenges

  • Recessionary behaviours could emerge in 2022 as inflation affects discretionary spending – consumers may have to decide between price and perceived quality

  • Attracting and retaining talent remains a concern for many operators, as expectations for wages grow, and the National Living Wage and Minimum Wage increase

  • Investor pressure is expected to grow on operators’ ESG credentials – businesses need a credible route to net zero, and organisations stand ready to help them

Key insights

How the pandemic has changed retail

Richard Pennycook cast his mind back to “the four Ps” retailers were certain of two years ago and highlighted what has changed.

1. Place 

In 2020, retailers knew there had been a shift from bricks and mortar to digital. In 2022, the shift is more nuanced. People are still working from home more, which changes the economy of traditionally high-footfall areas such as city centres. But we’ve seen that consumers still like to shop in store for certain goods such as groceries.

2. People

The private sector had anticipated the displacement of the retail workforce – from a sector employing 3.1 million people to 2.3 million by 2025 – which is likely to continue. There will be challenges around volumes of employment in leisure combined with a skills shortage.

3. Product

Retailers assumed there was an infinite variety of affordable product available and perhaps we had reached ‘peak stuff’. This year, the focus on leisure and experience may not be as profound as expected, and supply chain security has disappeared.

4. Price

Retailers understood that being serious about climate change and the circular economy would have an impact on prices. Now we know that as well as this expected price increase, retailers are dealing with a commodity-driven inflationary environment.

Leadership lessons for retail and leisure operators in 2022 and beyond

“When something happens, you’re grateful for great CEOs and great teams,” Richard said. “You can’t measure the strength of culture and values, but you know it when you see it. 

“A powerful lesson has been the extraordinary co-operation in our industry to help feed the nation. We can harness the power of co-operation as an industry to push forward the sustainable agenda. We shouldn’t be competing on saving the planet.

“The potential for three to five years of increasing prices presents an opportunity for the best businesses with leadership and culture to thrive, to take market share and come out of this as winners. It’s at times like this that the next great businesses are formed.”

The new forces influencing the move to a circular economy

Some consider the world to have entered a period of deglobalisation, with recent challenges such as Brexit and the pandemic contributing to a less connected world. 

Whether the frictionless flow of globalisation can continue is certainly being questioned, observed Sir Howard Davies, causing business leaders to think harder about the security of their supply chain. Although shorter and more diverse local supply chains are not the same as eliminating waste and recirculating resources, “this trend makes it more possible to think about the circular economy in that context,” he said.

What is the current health of the physical retail and leisure market?

Local Data Company’s team of field researchers visits over 680,000 consumer-facing businesses each year to collect data on opening and closure activity. This provides an accurate, real-time view of structural change taking place across the UK.

Commercial Director Lucy Stainton described the current market for physical retail and leisure operators as “incredibly difficult to analyse and synthesise”, but LDC data demonstrates cause for optimism.

  • Vacancy rates are a good barometer of the overall health of the physical retail market, and they have been steadily climbing since 2018. 

  • But last year, we saw a slight decline in vacancy rates across the UK for the first time since 2018.

  • Coming into the pandemic, vacancy rates were at 11.1% and they peaked last year at 14.5%.

  • We are seeing empty retail or leisure units across the market being repurposed for medical, office and residential use.

“We could be seeing the very early stages of a post-Covid recovery in terms of the physical retail and leisure market,” Lucy said.

Why purpose is fundamental to the retail and leisure sector

Homethings, a B Corp certified business, sells eco cleaning products that are vegan and cruelty-free. Founder Tim Keaveney said the retail and leisure sector had a fundamental part to play in progressing doing business in a more purposeful as well as profitable way. It can’t just be the consumer who leads us to a greener world.

Despite the squeeze on domestic budgets, it’s still critical to focus on the long-term move towards a greener future.

“One sentence in a recent IPCC [Intergovernmental Panel on Climate Change] report struck me: any further delay in global action will miss a brief and rapidly closing window to secure a liveable future,” Tim said.

“I’m encouraged by consumer preference data by Kantar that shows the proportion of UK households that are the most environmentally conscious – the ‘eco active’ – has risen to 29%, which outstrips the global average. They’re worth £37bn to the UK grocery market. 

“Now we need to educate consumers to move into that eco-active category quicker.”

Download the full report

NatWest Retail Report (PDF, 21,814KB)

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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