The Retail Industry

Bruno Schenk and Akima Media, January 2024

What’s in store – is high-street shopping over?

The end of brick-and-mortar retail has been predicted since the dawn of internet shopping. Yet the moment that some people point to as “Game Over!” was in the twelve-month period ending June 2021 when Amazon, the world’s largest online retailer, finally outsold Walmart - the world’s largest supermarket chain with $610 billion versus $566 billion in sales.

 Although the pandemic had accelerated the growth of Amazon and other online retailers, this marks a tipping point that highlights the extent of the ongoing shift in retailing. So will traditional retail survive, or are we witnessing its end?

Show me the money!

Defining retail is sometimes challenging. Everything from fruit and vegetables to Ikea furniture is lumped together into the statistics. Looking at the Swiss market, in 2021, the sales volume of retail was CHF 108 billion, of which just over half – CHF 57 billion – was food and grocery purchases. Of which, the top two chains Coop and Migros accounted for 70 percent of this market. According to data from the International Trade Administration, Switzerland is one of the top five European countries in the proportion of online purchases. In 2021, the online share of retail sales in Switzerland was 11.8 percent.

In the areas of media, home electronics, and fashion, the share of sales generated on the internet is significantly above this average with home, do-it-yourself, and sports being the fastest-growing areas. In 2021, Swiss online retail sales continued to grow faster than those of their foreign counterparts. In total, Swiss residents spent CHF 13 billion in local online shops in 2021 and around CHF 2.1 billion ($2.16 billion) in foreign online shops. In addition, according to the Federal Statistics Office, there are 34,000 retailers that employ 340,000 people – making it the second largest field of work after “Human Health and Social Assistance”.

Pandemic changes

The pandemic has been a major shift for retailers in Switzerland. For obvious reasons, online shopping grew by around 45 percent between 2019 and 2021. However, even with the pandemic over, many consumers have not gone back to traditional retail, instead preferring the convenience of online shopping. Some of the innovations that emerged strongly during that time, such as click-and-collect, home delivery of groceries and smartphone apps that allowed shoppers to scan in store and pay without having to queue – all pandemic inspired innovations – have also remained. Some have even improved, with same-day delivery becoming increasingly common in larger cities like Zurich and Lucerne.

According to the annual RetailX Switzerland E-commerce Report, in 2017 only one in ten Swiss consumers preferred shopping online, by 2022 this had risen to one in five and the report expects – with continual growth for the foreseeable future.

Sustainability

Although there are undoubtedly persuasive arguments for online shopping, there are some sustainability issues that need to be considered. That said, this is by no means a clear-cut debate. On one side, the wasted packaging of home deliveries along with more vehicles on the road is problematic. However, this argument is countered by the efficiency of home deliveries. Consider Amazon; although numbers vary between country – in the US, a typical driver makes 200 deliveries a day. This potentially reduces hundreds of individual journeys, parking challenges and wasted aggregate miles. Many online retailers have also pledged to go fully electric for delivery vehicles. Amazon aims to deploy 10,000 fully electric vehicles in Europe alone by 2025 and already has over 3,000 onthe road. At a social level, for people without the means to own a car or with limited mobility, such as the elderly, home delivery is a godsend.

High street 2.0

As online sales grow with no signs of slowing down, we should not forget to ask the tough question: What is happening to the traditional high street? Well, according to the latest CBRE Retail Switzerland Report, “In prime locations in city centers, the slightly increased vacancy rate has returned to pre-pandemic levels, averaging at only 1.7 percent. In some cities like Zurich and Geneva, it is now even below the pre-covid level and rents are increasing.”

Another interesting point from the report is that according to Wüest Partner 2022*, “the number of passers-by on Zurich’s Limmatquai Street, for which pre-pandemic figures are available, was only four percent lower in November 2022 compared to the same month in 2019, so it can be assumed that footfall figures as seen before the pandemic can be expected again in 2023.” The subtext of this is that even as more people buy online, they still want to go to places like Limmatquai Street with its backdrop of the Limmat River, picturesque churches, quaint shops, and restaurants as part of a retail experience. As such, all signs show that shopping for luxury brands is where the in-store retail experience is heading.

This shows traditional retail is not dead after all, but certainly changing. Smart retailers have quickly adopted a multi-channel approach that welcomes shoppers online, in-store and with hybrid options. Now the real innovators are looking at how to make it better through technology. There are several projects underway, including using powerful computers and AI to better optimize every facet of the retail experience, from smarter delivery routing to the testing of drones to deliver items like medication to rural areas. Other innovations, like smart shopping carts that use cameras and scales to detect items in your basket for rapid check-out without queuing, have been tested in recent years and are likely to spread.

Expanding on the concept introduced by Genie's Car pop-up stories, and similar in-store experiences offered by Apple and others, we delve into the dynamics of consumer behavior and pricing. Despite receiving value-added services or free consultancy, many consumers refrain from paying a premium. This reluctance often stems from the ability to purchase the same products online, frequently at lower prices, with the convenience of same-day delivery. Interestingly, this trend extends to high-value purchases like cars. If a customer likes a car at a pop-up store but decides to order it later, they can avoid revisiting the store. Everything, including maintenance, is delivered to their doorstep. It’s essential to recognize that such premium services incur costs, distinct from more easily replicable products like mobile phones or laptops. The blend of pop-up stories and the evolving walk-in experience isn't novel, but from my perspective, it represents a smarter approach to balance the digital and physical retail realms. 

Cornerstone heroes

Yet, I would argue that we should all try to support the smaller stores that provide great service and make up the backbone of local communities. Although the big supermarkets will clearly dominate, it is good for our society to ensure that smaller and often family-run stores still get our business, or, unfortunately, they will simply close, and we all lose a valuable community facility.

So that’s my view – what do you think? Is in-store purchasing a dying industry, or do you still enjoy a spot of retail therapy? Will only high-end items be purchased in store, with all groceries available via home delivery?

Sources:

See https://lnkd.in/e2r27xV7 - all links are listed and also you gain access to my other 6 article out of this series