What’s next for the retail sector?

So what needs to be done to ensure the retail recovery does not stall? And what does tomorrow’s high street look like? Deepa Deb, partner and head of UK real estate at Dentons, joined Property Week  editor Liz Hamson for a conversation on what the future holds for this fast-changing sector.

LH: What pandemic innovations will endure over the next few years?

DD: I would say the demand for same-day retail delivery, the implementation of digital tools in onsite shops – such as virtual reality or augmented reality shopping experiences – and checkout-free stores. As well as that, there is social commerce, which is the use of social media apps such as TikTok, Instagram and Facebook, which retailers are now using as a new form of marketing. We have also seen increased use of technology to personalise recommendations for customer needs. Essentially, we are looking at omnichannel tools to create more meaningful shopping experiences.

LH: Tell me a bit more about the metaverse. What impact will it have on retail?

DD: What is really interesting is that the metaverse is a 3D virtual world focused on social connection. It is science fiction meets shopping, and we have seen some real examples of this. It is about taking the everyday shopping experience and infusing a 3D virtual reality with it to give customers the ability to ‘try before you buy’, if you like.

LH: What other types of innovation will come through over the next few years?

DD: We are going to see much more use of technology to make the retail experience easy for us all. We are also going to continue to see the partnership between retailers and other industries – you can see this with mixed-use concepts, such as restaurants selling branded merchandise. In addition, we will also continue to see retailers investing in their local communities, wanting to partner with other local businesses.

LH: What pandemic innovations will not last, as they only worked for the purposes of the pandemic?

DD: It is a difficult one to answer at this stage. Although in the UK we like to think of ourselves as post-pandemic, the reality is that there is still a level of fear in communities. We are seeing numbers rising, so there is still a reluctance among a lot of us to be among crowds.

Ecommerce has already really challenged the way traditional retail functions and those changes were just accelerated by the pandemic. What we are now going to see is a period where we are all adjusting to this new normal, where we all know the convenience of being able to sit at home and shop for pretty much whatever we like. It is the question of whether we actually want to continue to do that or whether we feel we are missing something and how retailers respond to that.

LH: What is the future for shopping centres in out-of-town locations?

DD: I think those locations are going to be more challenged and the challenge is going to come on a number of fronts. First, on household expenditure and the cost of living. We are all aware of how much that is rising, and one of the biggest rising costs is petrol and diesel. As shoppers, we are having to think about whether we want to drive out.

For somebody who lives in London visiting Lakeside or Bluewater, do you really want to drive out there, pay the cost of petrol and the cost of parking just so you can shop, when there are much more local places that you could travel to by bus or Tube? People can even have their shopping delivered back to them – the big shopping centres are offering that as a service.

There is also the ESG agenda. We are all very aware of our carbon footprints. So, should we all be getting into cars to drive out? Certainly, the Generation Z shopper will not want to go and shop somewhere if that means they are increasing their footprints. Out-of-town retail centres are also challenged because of the decisions that are going to be imposed upon us as shoppers. Having to get into a car to drive to a shopping centre is currently being actively discouraged in various ways by the government.

LH: What role could build-to-rent (BTR) play in the reinvention of the high street?

DD: We know we still have a housing crisis in the UK; for those traditional retailers that already have access to land, BTR seems a bit of a no-brainer in terms of strategy because they have already passed the hardest hurdle, which is that they have got the land. It is then a question of thinking about whether they want to go for affordable housing, the mid-market or the high-end of the BTR product that is available, rather than whether they should or should not be doing it at all. At Dentons, we are currently working with some significant UK retailers that are considering just that. To them, BTR is a bit of a no-brainer, but it is a question of which sections of the BTR market they want to target.

There is a lot of talk about how much longer the logistics bubble will be sustained because of some of the challenges with logistics and because of inflation impacting margins and returns. Yet, the one theme that came across for me quite strongly at Mipim was the recognition that residential remains a very sound sector for investment.

LH: What about the scope for collaboration on ESG? What do you see coming through from landlords and how they can promote ESG credentials?

DD: This is a headwind that is obviously not unique to retail. It is a huge agenda item, because landlords are feeling pressure from every angle in terms of complying with the sustainability agenda. You are not going to get funding for your building unless it is sustainable, and that is clear. You are not going to attract the right occupiers unless, again, you are able to demonstrate your sustainability credentials.

The new generation of shoppers prioritise the social and environmental values of how they shop, and we have seen the recent scandals over some of the pure online providers with their supply chains and how they have been boycotted by that young generation of shoppers as a result.

At this stage, how to collaborate on that remains a little bit open because we do not yet have industry standards as to what one should aspire to. There is not yet a set established standard. So I still see the ESG agenda in retail being more of a pressure point to drive decision-making, rather than something that will be collaborative. Landlords and retailers are absolutely going to have to demonstrate sustainability; otherwise, they just will not be able to attract consumers.

LH: What do you hope to see happen on the high street in these old redundant department stores and big shopping centres?

DD: We will see retail being used as a platform; an increased focus on minimising the steps a person needs to take to get to the products they need; as well as data taking prominence and brands strengthening their first-party data collection so they will have a wealth of data they can then use to deliver personalised communications and marketing.

We are definitely seeing a trend towards more of that social media selling: chat-box to text message and check-out links; QR codes to enter into shops; more of that Amazon Fresh concept going into more stores. It is all about the retail store of the future and the human experience, driven very much by digital. It is about ecommerce meeting bricks and mortar.