The UK retail sector was one of the worst performing sectors during the COVID-19 (coronavirus) pandemic, faced with a total of 18 weeks of forced closures over 2020. As high-street foot traffic fell, sales followed suit and the number of retail firms entering into insolvency proceedings increased, despite the implementation of The Corporate Insolvency and Governance Act 2020 (Coronavirus).
According to the Office for National Statistics’ (ONS) Retail Sales Index, total non-food store retail sales fell by 12.5% in 2020. Meanwhile, data from the Centre of Retail Research indicates that 54 retail enterprises disappeared over 2020, affecting 5,214 shops and over 100,000 employees. In this article, IBISWorld looks at the top five worst performing retail categories of 2020.
5. Cosmetic and toiletry articles
YOY change: -15.5%
IBISWorld risk score: 5.63
Cosmetic and toiletry articles were the fifth worst performing retail category of 2020, with sales falling by 15.5% over the year, according to the ONS, although demand has varied between product segments.
National lockdowns, working from home and fewer social gatherings have expediated the shift in consumer attitudes and spending from colour cosmetics to skincare. Demand for products considered an essential part of daily beauty routines, such as such as foundation and lipstick, has tumbled, simply because consumers are wearing less make up.
Compulsory face covering orders have wiped out the traditional lipstick effect, a term coined by Estee Lauder to a describe an uptick in sales of low-cost luxury goods such as lipstick during times of consumer uncertainty due to individual’s viewing them as affordable. The fact that lockdown restrictions have meant outings are limited to trips to the supermarket and walks in the park has furthered this trend.
The future of cosmetics and toiletries retailers will depend on how well they can adapt to changing consumer habits. Make-up lines are expected to shrink while multipurpose products, such as tinted moisturisers and lip balms, are anticipated to move in the opposite direction.
At the same time, social distancing and contamination concerns mean it is no longer possible to sample products in store. This is expected to make virtual tutorials, augmented reality try-on apps and discovery sets containing smaller version of full-size products a top priority for industry operators over the coming months.
4. Audio and video equipment
YOY change: -16.1%
IBISWorld risk score: 6.33
The onset of the pandemic has accelerated the long-term decline of audio and video equipment retailers. In 2020, music and video recordings equipment sales declined by 16.1%.
The Audio and Video Equipment Retailers industry has historically struggled in an environment characterised by rising competition from department stores, supermarkets and online counterparts. Arguably, however, the largest threat has been the boom in smartphones, video streaming and music streaming rendering traditional audio and video equipment redundant.
Total TV and online viewing hours increased to an average of 6 hours and 25 minutes per day during the first lockdown in April 2020, almost a third higher than in 2019 according to Ofcom. Despite this, demand for new equipment has stagnated, largely as a result of constrained disposable income. Additionally, audio and video equipment prices have continued on a downward trend as retailers have discounted products in an attempt to stimulate demand.
3. Second-hand goods
YOY change: -16.3%
IBISWorld risk score: 5.30
Like many others on the British high street, second-hand goods stores have buckled under forced store closures. According to the ONS retail sales index, in 2020, second-hand goods sales declined by 16.3%.
Second-hand goods stores are largely operated by charities with little or no online presence. While some have ramped up online operations via sites such as eBay, efforts have not been enough to offset declining in-store sales. For instance, over the 2020 Christmas period, Oxfam reported a 50% decline in year-on-year sales. Reduced opening hours to accommodate for social distancing and additional cleaning requirements have also adversely affected store footfall and revenue.
In response to a challenging environment, charities have announced store closures and reduced working hours and pay in a drive to make savings. For instance, Sue Ryder has permanently closed 39 branches since the start of the pandemic, and Cancer Research announced it would be cutting hours and wages by 20%. The future of second-hand goods stores largely depends on the ability to reopen and charitable donations from consumers.
2. Watches and jewellery
YOY change: -25.1%
IBISWorld risk score: 5.06
Watch and jewellery retailers were the second worst performing category of 2020. According to the ONS Retail Sales Index, the value of watch and jewellery sales fell by 25.1% over 2020, including a year-on-year decline of 78.6% in May.
Similar to clothing and footwear, industry operators have succumbed to the inability to inspect and try on goods in person. Due to the high price tag of most products, the inability to see and try items is a key deterrent to purchasing watches and jewellery online, with the risk of counterfeit products and absence of the shopping experience being key consumer concerns.
Poorly timed lockdown measures coinciding with spring and summer wedding seasons have further decimated demand for high-end jewellery. After several months of lockdown forced store closures in the spring of 2020, a surge of infections prompted further restrictions across the United Kingdom ahead of the lucrative festive season, which typically generates one-third of annual sales in the luxury retail segment.
Watch and jewellery retailers have also contended with declining consumer confidence, job security concerns and falling household disposable income encouraging consumers to withhold elaborate, discretionary purchases.
The pandemic is anticipated to accelerate the shift from physical to digital retailing for watch and jewellery retailers. A growing focus on e-commerce means that brands are having to invent new forms of customer service, and digital initiatives are expected to play a vital role. For instance, introducing a program to enable clients to video-call local sales associates, virtually try on goods and offer the option of purchasing.
1. Clothing, footwear and leather goods
YOY change: -25.8%
IBISWorld risk score: Clothing retailers: 5.65; Footwear retailers: 5.26
Clothing, footwear and leather goods was the worst performing retail category of 2020, with sales dropping by 26% over the year, according to the ONS Retail Sales Index.
Clothing and footwear retailers have long battled with competition from their online-only counterparts, which has been exacerbated by the pandemic. The sharp drop-in high-street sales can be attributed to store closures, the inability to try on goods – a key advantage bricks-and-mortar stores have against online rivals – and a shift in consumer attitudes.
Restrictions on travel and social distancing measures have reduced opportunities to flaunt new purchases and demand for new clothing, footwear and leather goods has tumbled as a result. Additionally, unfortunately for the Clothing Retailing and Footwear Retailers industries, the first lockdown coincided with the peak retail months of April and May, where retailers swap out winter ranges for spring-summer collections and consumers splurge on holiday and wedding attire.
While stores have responded by ramping up online operations, it has not been enough to offset declining in-store sales and former high-street titans have succumb to mounting operating pressures and been snapped up by online rivals. For instance, in February 2021, ASOS agreed to buy Arcadia’s Topshop, Topman, Miss Selfridge and HIIT brands for £330 million, with fast-fashion retailer Boohoo purchasing the remaining Wallis, Dorothy Perkins and Burton names.
The future of the industry relies on operators’ ability to expand online and click-and-collect services and adapt to consumer preferences, as the pandemic has also intensified focus on ethical consumerism and sustainable fashion.
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