Utku Tansel LLB, MBA – Analyst
Founded in 1760, Hamleys has become famous worldwide for its brick-and-mortar stores, captivating experiences as well as eye-catching shop windows. However, it has faced an increasing struggle to survive in recent years failing to make a profit for some time in the UK. The company’s accounts for 2019 reported a loss of nearly £10m on revenue of around £48m. In August 2020, it also parted ways with its UK chief executive only after seven months in the role.
Like many stores deemed non-essential closed to curb the spread of COVID-19 around the world, its London flagship store was forced to close during lockdowns and even when trading, the lack of tourism and lower consumer footfall have made a big impact on sales while the big chunk of office workers have continued to stay away. In October 2020, the company made 60 (out of 208 staff) redundancies from its Regent Street flagship as a result of the negative effects caused by COVID-19. The ongoing pandemic has also delayed its plans to refurbish the seven-storey store which has become a key attraction in the West End for tourists.
Ecommerce offers a glimpse of hope
Despite the gloomy brick-and-mortar sales, it was reported that Hamleys’ online sales have been ‘through the roof’. The retailer was a relative latecomer to multichannel retailing, which means rivals have managed to bypass it with stronger cross-channel propositions. In December 2020, it was announced that the toy store was preparing to launch its entire range of products on eBay’s marketplace as it hopes to modernise and expand its online presence selling over 1,600 products via the online marketplace.
Office for National Statistics (ONS) data highlights that in January 2021, the proportion of online sales within total retailing reached a record high of 35.2% up from 19.5% a year ago, a true reflection of the impact the pandemic has had on British consumer behaviours. According to ONS, the proportion of online in non-food stores, which also includes toy specialists, jumped to 39.4%due largely to the imposed lockdown and the forced closure of non-essential shops in the UK.
UK Proportion (%) of Online Sales in Total Retail and Non-food Stores (incl toy specialists),Value, Jan 2019 – Jan 2021
The store experience is one of Hamleys’ USPs differentiating it from rivals making its outlets a destination in their own right. This approach also enables the company to command high prices. Considering the forced store closures, the restrictions on its signature in-store interactive toy demonstrations/puppet shows due to the pandemic, the retailer has a steep hill to climb when it tries to make up for the loss trade through online sales.
Sink or swim
As I also highlighted in my “Retail and E-commerce: The Impact of COVID-19 in the UK” Opinion pieces previously*, the COVID-19 pandemic has transformed shopping behaviour completely in the UK making a profound effect on the retail industry. One of the biggest outcomes is the accelerated shift to online which has resulted in booming e-commerce while traditional shopping experiences are challenged. For consumers, a shopping day out will continue to be a leisure activity and it will increasingly be a choice rather than a necessity. Overall, the retail landscape will be leaner, the battle for consumer attention will be fierce and even if the economy recovers, consumers will remain value conscious.
The future of retail requires an understanding of the new consumer. Going forward, like many other retailers, Hamleys will need to be much more agile, continue to invest in online services ensuring a seamless shopping experience for its customers. The company may also have to adopt a completely new pricing strategy to increase sales and be able to compete with Amazon and other online retailers.
These are undoubtedly transformative times and Hamleys UK will either adapt and become a viable/profitable business as a result of it or fail to address the shifting consumer priorities at its peril.
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