Online retail giants set to dominate in a post-pandemic world

Hello, and welcome to This Week in Retail. When speculating about the future of retail last year many, if not most, predictions (including ours here at This Week in Retail and in the Invent 2021 Retail predictions) had consolidation and the dominance of online retail down as two of the most dominant trends we’ll see in 2021.

Only a few weeks into the year, and its already looking likely that these predictions will ring true. The multiple lockdowns have magnified the advantages and disadvantages which already existed among retail industry players. And as the pandemic wears on, the lockdowns across Europe appear to also be accelerating consolidation and the shift online across retail – which were already in full swing well before Covid-19! Unlike, their high street counterparts, online retail experienced a staggering H2 2020 – according to the IMRG Capgemini Online Retail Index online retail sales growth in December came out at +37% YOY.

ASOS this week became the frontrunner to buy the Topshop, Topman, and Miss Selfridge brands out of administration, setting another twist into the Arcadia saga which began when the group fell into administration last November. The ongoing Debenhams situation also turned a corner this week as Boohoo announced that it would purchase the brand and online business for £55m.

These flagship deals kick off a theme of consolidation in retail as two online retail giants are set to absorb what were once two of the biggest, most promising high street retailers. This is likely to continue into 2021 and may just be a taster of what’s to come. The deals also lay bare the stark contrast between the non-essential retail pandemic ‘winners’ – which have strong online presence (if not digital pure-play), digital store-fronts, and flexible sourcing, logistics and distribution networks – and pandemic ‘losers’ which have large store footprints, little to no online presence, and less flexible supply-chains.

It seems that in the age of Covid-19, and likely in the post-pandemic world, ecommerce is king. In recognising this, both ASOS and Boohoo have said that they are only interested in buying the brands in these two deals and not the store estates. Other more traditional retailers such as Next, Frasers Group, and JD Sports were in the running to buy Debenhams and Arcadia’s stable of brands and keep at least part of the store estate open. But the mixture of uncertainty around business rates and whether the rates holiday will continue, and with ongoing non-essential retail closures, prevented these retailers from making more competitive bids.

For pure-online retailers, slotting well-known brands into their existing infrastructure is a relatively lower-risk punt and could even generate some efficiencies since these online giants are already so well integrated into the brand landscape – ASOS is already one of the biggest wholesalers for Topshop, Topman, and Miss Selfridge so gaining full ownership over its relationships with these brands will allow ASOS to structure the set-up to best suit its sales and growth strategy.

The Covid-19 pandemic has so far turbocharged the retail industry’s shift online and once the dust begins to settle the retail landscape is likely indeed to look very different to the pre-pandemic one. Restructuring of the industry and consolidation also looks set to be a central theme of retail in 2021 as online retail behemoths which have done well out of the pandemic swoop in on the remnants of high street lockdown casualties. Hopefully these buyers will see the value of at least some of their targets’ store estates as complimentary to their digital operations and key to customer experience – saving jobs in the process.

Thanks very much for reading and have a great weekend!

Lucy Herriot

Consultant