23 July 2020
Retail and Tourism: a special relationship under strain
By Gwyn Davis
Are people going away, staying, will there be tourists and how might that affect retail this summer and beyond?
I worked in travel for over a decade before segueing into retail to develop destination propositions and marketing strategies for international and domestic visitors at Westfield’s UK and US flagship portfolio. Shopping these days is largely a leisure pastime and to me the world of tourism and retail are inextricably linked.
So, seeing as the traditional holiday season is upon us, how is COVID-19’s impact on tourism going to affect retail this summer and beyond? I have been discussing this at length with friends and ex-colleagues in the travel industry and whilst it looks pretty gloomy for tourism right now, there may be a few glimmers of opportunity for some facets of retail.
Flights grounded; departure delayed
Travel has historically been one of the most resilient sectors and fastest to recover from a crisis, but not this time. Any activity that requires people to visit to create value, or depends on interaction between people for trade will have to change dramatically. This will sound all too familiar to the bricks and mortar retail world as it is an industry built on interaction, experience, and ultimately, transaction. Thinking of recovery in terms of things returning to the way they were is to miss the point: they won’t. Possibly not ever, and certainly not in the foreseeable future.
Traditionally, swathes of Brits leave in the summer for sunnier climes, but nearly two thirds of the public (64%) would not feel safe travelling by plane currently, up from 40% on 8 June (YouGov, July 2020). So, despite air bridges with popular holiday destinations this poll suggests it is now less likely people will go away. For most, this is due to fear and uncertainty, and/or financial concerns. There is also a small percentage of us, me included, who can’t for another reason. Even if I wanted to, I can’t. My wife and I had a “lockdown baby” and 8 weeks later he still isn’t official due to the backlog in registering births. No birth certificate, no passport. I will, to resurrect a decade-old phrase from the financial crisis, be having a “staycation” this year.
So, is the opportunity with the domestic travel market? Well yes and no. The problem here is around volume. If, like me, you try and find a hotel room in the UK this summer, you might struggle (particularly countryside and coastal destinations) so you might feel suitably reassured that hordes of domestic destination shoppers will come and spend big with you. The problem is that hotels can only open a limited amount of rooms, restaurants can only take a limited amount of covers, etc. so some may be “fully booked” but to the maximum allowed capacity, which may only half their rooms. And only being able to sell half your bed stock, serve half your diners, or keep middle seats free on flights is inevitably going to drive up prices, at a time where price sensitivity driven by job (in)security is a major issue. Therefore, domestic travel is not as rosy as we think. This view is backed up by a Visit Britain forecast that domestic tourism spend will drop by 48% in 2020 compared to 2019.
The next question, for those of you currently or wanting to attract high value international shoppers such as from China, is will they be here this summer? In short, no. Pre-pandemic, 52.3% of trips by Chinese tourists were international, but that has now shrunk to 0.7% (75.9% of trips are now short haul domestic). This is partly due to the inverse relationship between distance and propensity to travel. Further and unknown is unappealing. Local and familiar gives security. In the case of China, recent political activity has also severely damaged the chances of inbound travel to the UK any time soon. It isn’t just China though. Visit Britain is forecasting a 59% decline in international visits in 2020 and a 63% drop in spend.
Look for the potential closer to home
So where is the opportunity?
First and foremost, it is on your doorstep. People were initially unable and are now unwilling to move far beyond their homes to spend money. Shopping local is going to be an important factor. If you don’t already have an engaged local market you need to think about that sharpish.
Secondly, out of town and suburban schemes should fare better than their urban counterparts. Some domestic tourists will travel – high-spending urbanites wanting to get out of the big smoke, and staycationers who have found a countryside bolthole to call home for a few days – and these hardy souls will favour places with plenty of space, not overcrowded hotspots. They will be looking for a natural environment over city breaks, the great outdoors over indoor attractions. This also goes for regional shopper visits. We are already seeing with a client in Brussels that urban populations are travelling across the city to their part open air, naturally ventilated, scheme neighbouring the royal park to shop as the environment and proposition is more appealing.
Thirdly, price sensitivity will be a key driver. Job security is a huge issue, furlough is edging closer to its conclusion and job cuts are a daily news story. The everyday low prices offered by outlets should therefore be appealing, and the fact that most outlets are out of town significantly increase their chances of not only weathering the storm, but dare I say it, potentially getting some pretty good results.
In conclusion, retail can expect slim pickings from both the international and domestic tourist markets this year, and tourism-reliant urban destinations are undoubtedly going to have a tough time over the next few months. But for retailers boasting a strong local following, a social distancing-friendly layout or compelling value proposition, opportunities remain.