Post-Pandemic Retail

Despite significant growth in recent years, forecasts do not expect e-commerce to overtake traditional retail completely. Several pure-play e-commerce operations, facing an array of operational cost increases on top of expensive returns policies, have seen their already-squeezed margins hit. Genuine omnichannel retailers, those with both online and in-store facilities, are faring significantly better.

The message is a simple one: people are returning to shops and brands are expanding on prime high streets, as brands and customers seek real connections.

People want the connection, community, and social experiences that physical retail spaces provide, and this is driving them back to the high street. Brands and pure-play online retailers recognise this and are looking to leverage foot traffic in popular locations. They are also expanding to local high streets close to affluent areas, to ensure people who work from home still shop with them.

The value of physical stores is well understood. They are key to communicating philosophies, brand values, and concepts. Only in a physical store can brands create immersive experiences and engage directly with customers. This interaction fosters brand loyalty and generates both online and offline sales.

According to Savills Impacts, physical retail is regaining its purpose. In many markets, brands are moving back into core retail locations and vacancy rates are falling. At the luxury end, several retailers are even pushing their physical retail presence into new and novel areas.

Sam Foyle, Director and Co-Head of Prime Global Retail at Savills, says many brands are expanding their physical retail presence. "Globally, brands never left their prime locations, and some have used recent rent reductions as opportunities to expand into other high-end or tourist-rich areas or move from great shopping streets to iconic ones. Others have expanded into affluent suburbs."

Signs of retail recovery are now apparent in city centres. Vacancy rates in core retail streets are falling, and brands are taking advantage of rent corrections during the pandemic to move back into high-footfall locations. Affordability is allowing retailers to move up the footfall ladder, from secondary into primary pitches and from tertiary into secondary. There is a flight to prime.

Prime retail rents are still below pre-pandemic levels in several premier high streets across the world, down at least -10% on 2019 levels in Toronto, London, Sydney and Hong Kong. In the past two years, however, prime luxury rents have increased by an average of 7%.

Tourism revival will spur retail recovery. Tourist spending drives prime physical retail and may drive expansion. According to Foyle, before the pandemic, tourists delivered a significant proportion of the revenue at several prime retail stores; in 2019, in Hong Kong, they had as much as 80% of sales. Therefore, the tourism recovery will stimulate traditional retail, particularly in central shopping areas where brands, restaurants, and entertainment amenities concentrate.

Changing with the Times

Given the rise in experiential retail, brands like Amazon are using physical stores to engage with their customers. Amazon has opened more than 100 physical stores worldwide, and Netflix opened a pop-up store at the end of 2022. Often, these stores are exquisitely built with customised services, cafés, and event rooms and function as destinations rather than merely shops. Many luxury firms also utilise their brick-and-mortar stores to build brand awareness for their online channels.

Even though online retail has grown rapidly in Viet Nam, the value of physical storefronts remains.

"Physical and digital retail are like complementary instruments in an orchestra that must play together," said Hoang Dieu Trang, Senior Manager, Commercial Leasing, Savills Ha Noi. "Although online stores can reflect products, brands, and values, even the best digital experiences are transactional and price led. However, physical stores have intrinsic value because they can truly showcase craftsmanship while building relationships and curating personal experiences.”

Physical stores will continue to be important for brands that want to create a sense of community and build relationships with their customers. Physical stores offer a unique opportunity for brands to connect with their customers on a more personal level.

Of course, the future of physical retail will not be the same as it was before the pandemic. Brands will need to adapt their strategies to the new reality, however, there will always be a place for physical stores in the retail landscape.

Trang emphasised, “To optimise revenue, retailers must leverage the strengths and advantages of all modes of retail.

Conclusion

To avoid risks when deciding on the next operating plan, businesses should use professional consultants. Savills is a reputable commercial retail leasing consultant with vast market expertise, connections, and skilled experts. Contact Trang, Senior Manager, Commercial Leasing, Savills Ha Noi for tailored solutions.

See more:

• Why Luxury Brands are Keen on Southeast Asia
• See How Retail Premises Must Adapt to Improve Occupancy