News reports on the state of British high streets rarely go without mentioning what’s often considered to be the biggest threat to bricks and mortar retailers: online shopping. So, how have two years and three lockdowns changed our shopping habits, and what does this mean for the future of our city and town centres?
Yes, since Covid-19 hit, a greater proportion of all spending has moved online
The pandemic undeniably accelerated an existing shift: between March 2020 and September 2021, the share of all spending made online by city residents went up by four percentage points, compared with two percentage points in the year before the pandemic. By September 2021, 29 pence in every pound spent was spent online.
This shift was seen in all 62 cities- albeit not at the same pace or scale everywhere (Figure 1).
Figure 1: Online spending rose but then plateaued or fell in most cities
Share of spending made online in UK cities, 2019 – 2021
Internet shopping peaked during lockdowns – hardly a surprise given that most shops were closed to the public. As Figure 1 shows, there was a jump in the share of spend made online between September 2019 and September 2020. Then between September 2020 and September 2021 it stabilised or fell in most places, but never quite back to 2019 levels- a sign of stickiness of behaviours as people became more acquainted with online shopping.
This does not necessarily mean online shopping is killing city centres.
This is for three reasons.
First, online shopping doesn’t necessarily always happen at the expense of offline spending. While it is true that in April 2020 internet shopping went up as offline shopping plummeted, in recovery times, both went up simultaneously (compared with their respective baselines) and ‘physical’ spending bounced back fully in many places even as online spending kept rising. By September 2021, in-store spending was back at baseline levels in 52 out of 62 cities.
Second, not all the extra spending that was made online would have been made on high streets anyway. Groceries, for instance, experienced a massive shift online: likely a move from large out-of-town supermarket spending to online delivery; not quite the typical high street retailer. General retail also saw a big shift online: about 60 per cent of all sales in that sector (which includes electronics and appliances, hardware, discount retailers) are now made online. But the impact of this on city centre high streets is likely to be small due to this category accounting for only 10 per cent of all sales- here again likely to be more of a threat for out-of-town retail parks.
Third, more online shopping does not mean more empty shops: it is not the places with the most online shopping that have the least vibrant high streets. Quite the opposite. This was true before Covid hit, and still is now (Figure 2). The affluence of the local economy (e.g. the total amount of money that people are willing to spend on non-essentials) is likely to be the determining factor- and this is driven by the strength of the local labour market.
Figure 2: Places with higher spending online also have fewer high street vacancies in their centres
Online shopping and vacancy rates on the high street, 2021
What’s true though is that online shopping may be changing the nature of spending on our high streets, and places will have to adapt
Take fashion for instance, which, before Covid-19 accounted for about a fifth of all offline sales in city centres on average. Around 38 per cent of urban spend in this sector was already made online pre-pandemic. While that share has not increased that much since then (it is now 40 per cent) it remains pretty high. Bricks and mortar fashion has struggled to recover in many city centres, which suggests that those places where fashion takes up a larger share of all spending are more vulnerable to further increases in online shopping.
Other sectors, like hospitality, are much more sheltered: more spend is made on online orders than before (18 per cent vs 11 per cent), but this doesn’t seem to be at the expense of bars and restaurants: before Omicron hit, spending in them was above the levels seen in 2019.
None of this means that fashion has no future on our high streets, nor that online shopping is the only driver behind the struggles of some retailers. But it suggests that the high streets which tend to shift away from over-reliance on retail and offer a wider range and diversity of amenities are more likely to thrive in the future. However, this will only work if it’s underpinned by sufficient levels of demand. From a policy perspective, this means that the focus should not be on “cosmetic” interventions which change the physical design of the high street, but on boosting consumer spending power. The priority is to address the underlying economics behind the lack of demand, and improve the strength of the local economy by creating jobs which put money into people’s pockets.