What Just Happened?
Arcadia Group, the parent company of retail stores such as Topshop, Miss Guided and Dorothy Perkins, officially went into administration on 30th November 2020, affecting 13,000 jobs [1]. Ian Grabiner, the chief executive of Arcadia Group, cited the pandemic as being the main reason for the group’s collapse, stating that “the impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands” [2].
What does this mean?
As lockdown restrictions are extended, more high street stores inevitably continue to suffer. Debenhams has become the latest victim of a financial slump as a result of COVID-19, going into liquidation in early December 2020 [3]. Irish-based retailer Primark is predicted to follow suit this year, as their self-proclaimed cost-effective measures, such as a lack of an online presence [4], resulted in an estimated £430 million decline in turnover during the second government-imposed lockdown [5]. This raises the question of the future of retail real estate, and the impact this could have on the legal industry.
How does this impact the legal sector?
With COVID-19 continuing to have a devastating impact on the turnover of high street stores, many retailers are now scrambling to create (or expand on) their online presence, in order to continue generating profit throughout the pandemic.
According to IMRG, e-commerce saw its highest growth in 13 years, with sales increasing by 36% in 2020 [6]. This growth in online shopping has not only been attributed to the efficiency and convenience it creates for the shopper, but a digitalised version of retail shopping also allows buyers to avoid the risk of contracting COVID [7]. Contrarily, the figures for in-person retail shopping looked bleak in comparison; sales fell by 0.13% in 2020, the worst figures in 25 years [8]. The e-commerce giant Amazon is often cited as an example of online retail success; in the UK, Amazon saw an increase in sales of around 26% last year [9], despite the insurgency of COVID-19.
Consequently, while some retailers will be reluctant to operate digitally due to the cost of door delivery potentially outweighing profits generated from the sale of inexpensive items [10], a growing number of retail stores will want to explore their options of slowly tailing off their use of premises, in favour of establishing a strong, online presence.
In this race to assert dominance within e-commerce, it is predicted that the leasing of commercial property for the purposes of retail will only continue to stagger in 2021; it has been stated that the retail real estate transactions had decreased by 36% last year, primarily due to the pandemic [11]. In essence, it is thought that retailers will become more apprehensive about signing commercial leases, while in turn, landlords will find it difficult to convince retailers to occupy their premises. This creates a double-pronged dilemma for commercial law firms, as this shift in perception of retail real estate may cause a dwindling of clients in the form of retailers and landlords alike. The US-based real estate law firm Nishad Khan is facing foreclosure this year based on this alone [12], as more firms opt to “go digital”.
However, not all is doom and gloom. While some commercially-focused law firms are expected to take a financial hit due to the precarious future of retail real estate, other firms have already begun adapting to this rapidly approaching change. For example, the international law firm Addleshaw Goddard, who advised on Primark’s real estate expansion of their flagship store in Birmingham [13], have now started to shift some of their resources into advising retail stores on how to increase their online presence, such as using augmented reality to allow customers to digitally try on garments before purchasing them, or using artificial intelligence to track a customer’s ‘footsteps’ on their website [14]. Not only does this create a more personalised experience for the customer, but it also allows buyers to reduce the risk of contracting COVID.
While COVID-19 may not completely result in the death of the high street, retail shopping as we currently know it may never be exactly the same, even post-pandemic. The convenience and safety of online shopping will only persist; shoppers have now become quite comfortable with the ease of doing some late night shopping, and receiving the order at their doorstop the very next day (sans COVID). Law firms will have no choice but to adapt to this change, focusing their efforts on online retail, and implementing innovative measures in order to ensure that their clients stand out on the online market amidst the competition.
Written by Anisabela Cristóvão
Assessing firms
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References:
[1] Press Association, ‘Arcadia in administration: here's what comes next for the retailer and its staff’ The Telegraph (1 December 2020) https://bit.ly/39gF4j7
[2] Sean Morrison, ‘Thousands of Arcadia Group staff face uncertainty after business collapses into administration’ Evening Standard (1 December 2020) https://bit.ly/3a2J7yU
[3] Sarah Butler, ‘UK high street left reeling as Debenhams goes into liquidation’ The Guardian (1 December 2020) https://bit.ly/3chLFf5
[4] Lisa Jack and Regina Frei, ‘Here’s why Primark is right not to embrace online sales’ Independent (25 January 2021) https://bit.ly/3opgdOh
[5] Huw Hughes, ‘Primark takes 430 million pound sales hit from lockdowns’ Fashion United (4 December 2020) https://bit.ly/3iMQBKa
[6] Nikki Gillilland, ‘Covid-19 impact on retail: What trends are emerging in 2021?’ Econsultancy (20 January 2021) https://bit.ly/39iCQje
[7] ibid.
[8] ibid.
[9] ‘Amazon pays £290m in UK tax as sales surge to £14bn’ BBC News (9 September 2020) https://bbc.in/39i96TA
[10] Jack and Frei (n 4)
[11] Jim Berry and Kathy Feucht, ‘2021 commercial real estate outlook’ (Deloitte, 3 December 2020) https://bit.ly/3iQg5X9 accessed 25 January 2020
[12] Jack Witthaus, ‘Orlando real estate law firm Nishad Khan PL faces foreclosure on its downtown-area office’ Orlando Business Journal (26 January 2020) https://bit.ly/36i1vmi
[13] ‘Real Estate – Retail’ (Addleshaw Goddard) https://bit.ly/3iP8jN6 accessed 25 January 2020
[14] ibid.
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.