Covid-19 accelerates the key trends already reshaping retail

Changes in consumer behavior will determine the future of retail strategies. Flight to value, focus on essential and meaningful shopping and the rise of e-commerce have emerged as the most common ones across Europe. Factors such as increased home working have altered shopping patterns and created new challenges to retail brands’ supply chain process. According to Savills European Research the trends are reducing our need for retail and the advent of Covid-19 may well have moved us forwards 5 years in the trend advancements. Things are not fundamentally changed, but the ”new normal” is here and may be irreversible. With the need for retail space in decline an urgent review is required by landlords, asset managers and town planners in rethinking retail space.

The profound impact of the crisis on consumer behavior, the way retail places are changing and the challenges this presents to retailers and landlords are surprisingly consistent in all European countries. E-commerce has surged during the lockdown, as it became the safest way of shopping and the only channel for buying non-essential goods. The digital disruption has been transforming retail well before the crisis but the lockdown was pushing up online shopping further forcing retailers to improve their e-commerce platforms and delivery models.

Retail sales have bounced back strongly following the gradual reopening of non-essential stores across Europe. The pent-up demand is being unleashed. Retail spending in June was even above pre-crisis levels in some countries including Finland. Customer flows have been on the rise in shopping centers which were the most affected retail format during the lockdown. Activity has normalised faster in open air and convenience retail formats, such as retail parks and neighborhood stores. Fashion sector suffered the most, although it already faced challenges pre-crisis. Sports, Electronics, DIY, Furniture and Homeware have performed better, as people had the opportunity to spend more time on hobbies and home improvements during the lockdown. The pace of the rebound will undoubtedly slow as the economy gets closer to a “normal” level.

Turnover losses and the impact on retailers to pay rent have triggered lease negotiations between landlords and tenants across Europe. Retailers are facing difficulties to meet their financial obligations requesting some form of rental relief from their landlords. Even if retail trade gradually recovers, albeit with a larger proportion of trade moving online, the consequences to landlord income and the subsequent reduced values of their assets is likely to be felt for many years, if not permanently. The topic of turnover rents has come under the spotlight again. The trend towards shorter lease lengths is also expected to accelerate. Lease lengths have reduced significantly in recent years. In the next two years in UK, even 90% of new leases are anticipated to be shorter than 5 years. There is a threefold increase in leases less than 2yrs in 2018 – 2020.

Please, open the link to see more in detail information: Spotlight Impact of Covid-19 on European retail, Sep 2020/Savills

Irma Jokinen, researcher