Over the last decade the retail industry has seen a significant shift towards online shopping.

Over the last decade the retail industry has seen a significant shift towards online shopping. Online retailing now accounts for a quarter of all retail sales and it’s easy to see why.  Convenience of 24/7 shopping, better prices, more variety, easy price comparisons, exclusive online sales, free shipping – the list goes on.

However, the knock-on effect, combined with other factors including rising costs and stronger digital platforms has had a catastrophic effect on Britain’s high streets. The pandemic compounded matters.

Online sales have soared while thousands of shops and national chain stores have disappeared from our high streets, shopping centres and retail parks forever – or so we thought.

In a surprising turn of events, UK online retail sales are reported to have fallen by 10.5% in 2022 and December online sales, traditionally one of the busiest months of the retail calendar, slipped by 12%. What’s more of a shock perhaps is that latest figures have revealed that physical stores are significantly outperforming online shops.

Next, which has a strong online offering as well as many stores on the ground, has reported that sales from their stores have markedly exceeded online sales while online stock market high flyers such as ASOS and Boohoo experienced poor Christmas trading.

Online retail giant Amazon, whose sales figures in the UK declined last year, is another example. Despite its positive growth of 5.2% in sterling terms during 2022, this was reportedly its lowest ever annual growth rate in the UK.

So why the dip in online sales and are bricks and mortar stores fighting back?

According to some retail experts, this flattening out of the online shopping figures, particularly after the boom of the pandemic, was always on the cards.

After years of rapid growth, online retailing cannot continue to grow as it has and has arguably reached its peak, at least in the case of the online clothing market, according to Primark boss, John Bason.

The hype is now giving way to a more mature sector which, for the first time, has seen some retraction. A new equilibrium needs to be established.

The financial viability of the model has also been called into question. Many online retailers are now introducing charges and subscription schemes which shoppers don’t want to pay, in an attempt to curb their own costs. Regulatory frameworks are also closing down on tax and other loopholes which previously gave online retailers an advantage over their bricks and mortar counterparts.

Interestingly the UK e-commerce trade association, IMRG, predicts another year of difficulty for the online retail market which it anticipates will see a decline of anything between -3% and -7% year-on-year in 2023.

But for others this recent trend is nothing more than a temporary blip in consumer shopping habits in an otherwise unsettled economic climate.

According to the Office for National Statistics, overall retail sales volumes (and not just online sales) fell by 3% in 2022, compared with a 5.2% rise in 2021. Rising energy costs and the cost-of-living crisis has forced people to cut back on spending, particularly in the run up to Christmas.

Moreover, December 2022 was our first “normal” Christmas since 2019, without lockdowns or restrictions, and shoppers were keen to “get back out there” again. The wave of postal strikes and uncertainty around deliveries may also have led to a shift to more in-store purchases.

So, what impact (if any) have recent retailing trends had on the retail property market and what does it mean for the future of physical retail?

According to Ryden’s latest Property Review, the physical retail market is still in a period of contraction. This is due in part to the significant growth of online shopping. While data released by the British Retail Consortium for the last quarter tell us that total sales are up, this is largely as a result of goods costing more. The volume of goods being bought is much less when compared with same period in 2021.

One in every six shops in Scotland is now lying vacant. Notable store closures include Paperchase (now in administration), and M & Co (closing 170 UK stores).

On the flip side however, Ryden maintain that occupier demand within the retail sector remains strong and the outlook for 2023 is similar. Zara’s relocation at Glasgow Fort to create a 37,000 sq ft store in the space previously occupied by Topshop and Topman is a good example.  Marks & Spencer also have plans to open eight new full line stores in the UK as well as 12 food halls.

In addition, value retailers such as Lidl, Aldi, Home Bargains, Poundstretcher and B&M are continuing to expand their physical footprints.

Poundstretcher opened 30 new stores across the UK last year. It also announced plans at the start of the year to open a further 50 over the next 12 months, starting with a new Galashiels store back in January.  The valuer retailer currently operates over 350 shops nationwide. Profitability has grown since 2020 and it expects a future of increased sales and profits and the growth of new stores.

South of the border, Aldi plans to double its 60-store-strong London portfolio as part of a UK expansion drive that will see it target empty office blocks and new housing locations.

Ikea, in its drive to bring itself closer to where “customers live, shop and socialise”, is also boosting its presence in London and surrounding suburbs with its new flagship store on Oxford Street and other newly formatted stores.

The long-term project involving the transformation of Glasgow City Centre’s Buchanan Galleries and St Enoch’s Shopping Centre into mixed use neighbourhood centres is expected to create similar opportunities for physical retail in the west of Scotland.

Regardless of the continued tensions between online shopping and physical retailing, there is no denying that online sales are a significant component of the retail market. Online shopping is a retail option that’s here to stay and is unlikely to change according to retail experts.

It would be naïve to think that the recent dip in online sales or welcome uptick in physical retailing will set the tone for what’s to come in retail, at least on any permanent basis, particularly in the current economic climate.

However, even with recent news of multiple corporate closures and collapses on the high street, one thing is clear: people are shopping in person again. Occupier demand, particularly within the discount sector, remains strong. There are retailers out there who are expanding their physical footprint and have plans to do more; for those retailers at least, physical retail is enjoying a moment in the sun. That is good news.

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