The performance of physical and online apparel retailers post-pandemic has raised the question as to whether the sector has gone full circle, and if brick-and-mortar is once again the consumers preferred shopping channel.
Rewind to the pandemic, and a lot of the discourse at the time seemed to centre on Covid being the death of physical stores while giving birth to the rise of online players.
At the time, online shopping was the only option available, and the popular belief was that the convenience of internet browsing and buying would replace the experience of going out and shopping post-pandemic.
Fast forward to today, and physical stores are very much part of how people shop and the high streets and retail parks have welcomed shoppers back with open arms.
On the flip side, online players, namely Asos and boohoo, have come crashing from pandemic highs, issuing several profit warnings which have resulted in tumbling share prices.
As such, the chat around retail has shifted to whether brick-and-mortar locations are once again the favoured shopping channel for consumers, leaving pure online players behind.
Multichannel is king
Well, the situation isn’t that black and white, at least according to John Stevenson, a retail analyst at Peel Hunt.
While going out and shopping is very much a way of how people like to shop, this has not been achieved at the expense of online sales in the post-pandemic world, the decline of which is somewhat exaggerated against Covid comparatives.
In fact, when measured to pre-pandemic levels, online penetration for omnichannel retailers is by and large significantly higher.
Take FTSE 100 giant Next, for example.
In the half year to July 2022, the group reported online sales of £1.4bn, down on the same period a year earlier by 5%, but 42% up on the first half of 2019, the last pre-pandemic trading year.
Consumers, therefore, have come out of the pandemic favoured retailers with an omnichannel offering, with both a store and online presence to satisfy their needs for convenience and the experience of shopping.
This is something that the retailers have picked up on, too.
Primark, which was notorious for refusing to build an online presence during the pandemic, is trialling a click-and-collect service to build its omnichannel offering which, if successful, will likely be expanded.
So, if online sales have remained strong, so much in fact that purely physical stores are dipping their toes into the internet space, then why have Asos and boohoo been performing so badly?
Well, much of their problems come from being a solely online business, the flaws of which have been exacerbated by the current macro-environment as well as the end of the pandemic.
One issue which is specific to online retailers has been a high rate of customer returns, bought on by a change of shopping habits.
As restaurants and offices re-opened, consumers ditched tracksuits and hoodies for trousers and shirts.
Formalwear was once again the flavour of the month and is a category of product where returns are naturally higher because how it fits is much more important compared to leisure clothing.
Return rates aren’t cheap, especially at a time when fuel was at record highs, which ultimately ate into bottom lines.
Now, these additional costs would have not inflicted as much pain on Next, for example, where customers have the option to try before buying or returning unwanted items themselves in-store.
With that being said, don’t hold your breath for an Asos or boohoo shop on Oxford Street.
“Most pure plays will continue to be pure plays,” said Stevenson.
While they might come to market with occasional pop-up stores or through wholesale opportunities akin to what Asos has with Nordstrom, they are “absolutely not” going to start opening stores.
Physical stores are back in favour, but the importance of online sales has not diminished post-pandemic.
Retail hasn’t gone full circle. Instead, it’s started a new course.