UK retailers have inevitably been on a roller-coaster ride this year with the most recent BRC data showing another steep drop in footfall (down 75% since the introduction of the new wave of restrictions were introduced). The closure of non-essential retail at a time when most shoppers are gearing up for Christmas combined with the deep discounts likely to be on offer for Black Friday will mean that, even once stores open again in December, we’ll see an incredibly challenging peak trading period for most bricks and mortar retailers.
However, if the short-term impacts are clear, what about the longer-term structural changes that are likely to occur in the way we shop? Much has been written about whether the we have seen a structural shift towards buying online. However, there has been less focus on the indirect impacts that many retailers are likely to experience over the coming months.
Hidden away in the P&L of many of our most established retailers has been the growing importance of travel retail outlets, an environment where scarcity of choice can help drive both resilient footfall and higher margins. Bastions of the 1980’s high street such as M&S, WH Smith and Boots have all struggled to maintain relevance as established mid-market retailers. However, their brands remain instantly recognisable and therefore still feel like an obvious destination when travellers are faced with limited time but are looking to pick something up before catching that train or plane.
WH Smith now operates in nearly 130 airports worldwide with 280 travel stores in the US alone. Whilst overall trading performance has been sluggish recently, travel retail (including hospitals) continues to shine, seeing a 4% increase before the pandemic hit in the six months to February 2020. However, results since the pandemic show the dramatic impact of falling passenger numbers – total travel revenues were down 39% to £344m for the full year with like for like revenues down 48% in airport outlets and 40% in rail.
WH Smith is by no means alone in the increasing importance of travel outlets. Whilst Walgreen Boots Alliance have chosen not to break out travel retail sales in their latest trading announcements, the segment is specifically referenced as being a significant driver behind their 48% and 29.2% decline in retail sales in the third and fourth quarters of this year respectively. To complete the hat-trick, long-time beleaguered retailer Marks & Spencer recorded its first ever loss earlier this month. Whilst travel outlets may only contribute 5% of total revenue, they have been one of the few bright sparks of growth compared to more established business units. Indeed, in their August trading update, they revealed that the 2.5% increase in food sales would have been as high as 10.6% if the adverse impact of travel franchise units had been excluded. Whilst even city centre stores saw a 29% fall in trade for the six months to September, travel units saw an incredible 75% drop.
The challenge all three of these brands face is that falling passenger numbers are entirely out of their control. Whilst a vaccine may drive a longer-term recovery in leisure passenger numbers once next summer comes around, underlying shifts in working patterns are likely to be more permanent. Personally, I remain deeply sceptical of anyone who claims that ‘there’s no need for an office anymore’. However, a more moderate scenario where a mixed pattern of working (part home/ part office) or video conferences increasingly eats into both domestic and international business travel seems entirely likely. The employer after all has as much to gain from these changes as the employee with CFO's up and down the land rubbing their hands with glee at falling travel budgets and reductions in costly office space.
Data from mobility specialist, Huq reveals how commuting patterns in our capital in particular have been structurally impacted by the recent crisis. At the end of April, passenger numbers in London’s stations and airports were 82% lower than their January average*, understandable given we were at the peak of lockdown. However, even at the middle of September (two months after BoJo’s impassioned plea for us all to get back to work), passenger numbers were still c. 70% lower than January. What little gains had been made over the summer period have been all but lost since with the number of people in the Capital's stations back down to 19% of the January norm by mid-November.
Whilst London is at the extreme end of the spectrum, this picture is replicated across the country. Even at their peak, regions like the North West and Yorkshire where passenger numbers have recovered more rapidly than in the Capital have shown numbers falling by over 20% from their January average.
So, whilst the recent headlines on vaccine efficacy have undoubtedly been good news on which to end the year, even this literal shot in the arm might not be enough to restore the travel sector to its former glories. Quite what that means for some of our most famous high street names remains to be seen…
*Huq uses a daily count of unique panelists present across 59 airports and 2,563 rail stations in the UK between 2020-01-01 and 2020-11-11. The daily value is indexed to the mean daily value for the month of January 2020, and displayed using a 7 day rolling average.