It’s difficult to know what’s going to happen next week, never mind next year. In this environment, can retail leaders work to five-year plans? Grace Bowden investigates.

  • Former Co-op boss Richard Pennycook says “making judgement calls will be tough” when it comes to predicting the future of city-centre retail in particular 
  • Having a long-term strategy is still essential for White Stuff’s Debbie Hewitt, who says “even in the roughest seas you still have to adjust the sail”
  • Hotel Chocolat’s Angus Thirlwell’s new five-year plan hinges on a further acceleration of the trends evident during the pandemic 

If one were to play a game of 2020 buzzword bingo, the word ‘unprecedented’ would no doubt feature heavily.

The retail sector has undergone an avalanche of change in just eight months, which has dealt a hammer blow to many retailers’ well-laid plans.

Before the pandemic, businesses ranging from John Lewis to Boots were betting on in-store experiences and city-centre store overhauls to drive their resurgence – plans which now seem out of step with how people are shopping right now.

There is currently no timeline for when this virus will be around, how quickly a vaccine once found will be widely available and when – if ever – consumer behaviours will return to anything resembling normality.

“We have speed learned-about omnichannel, online and agility this year. We have a different perspective on how we develop towards the future going forward”

 Jesper Brodin, Ikea

Against this backdrop, creating a long-term strategy has fallen out of vogue with some retailers.

Speaking at Ikea’s full-year results earlier this month, chief executive Jesper Brodin said: “We have speed learned-about omnichannel, online and agility this year. 

Jesper Brodin Ikea

Ikea boss Jesper Brodin: “The days of long-term budgets and plans are gone”

“The days of long-term budgets and plans are gone. We work with scenario-planners and have a different perspective on how we develop towards the future going forward.”

At at time when many retail bosses have talked about five years’ worth of change happening in five months, does the five-year strategy still have relevance?

Superdry chair Peter Williams says that the biggest challenge for retailers is not knowing what Covid-induced trends are here to stay.

“We have never ever lived through a time like this, and there is not a clear view of the future,” he says.

“If you are planning for the next three years of your business, do you presume the current conditions will continue for one year, or more?”

Peter Williams, Superdry

“Pre-Covid, etail was increasing share, retail overall was not growing a lot, a lot of traditional high streets wouldn’t survive or would need to be changed. There was a question mark over what retail parks would do, but big shopping malls were alright and there was a polarisation toward the big retail centres, urban or out of town. 

“Now performance in big urban centres and out-of-town locations is difficult, but the local high street has had a bit of a resurgence. Online has had a step-change at the expense of stores.

“What is difficult is knowing how much longer this lasts. If you are planning for the next three years of your business, do you presume the current conditions will continue for one year, or more?”

Former Co-op boss Richard Pennycook concurs: “When something as profound as Covid happens, it will trigger some fundamental changes, but in a lot of respects after the crisis human beings will revert to what they were doing before.

“We can probably speculate successfully that, in a post-Covid world, there will be less international business travel, for instance. People have become very comfortable with Zoom and Teams, so will be saying why do I need to travel to LA five times a year? 

“But what else? Are city centres dead? If they are going to revive themselves, how do they do that?

“The economics of city centres were driven by people coming to work five days a week. Businesses like Pret survive by being at the end of a tube line and people wanting coffee and breakfast five days a week. If people only do that two days a week, you turn the economics of Pret on its head. Figuring that out and making those judgement calls will be tough.”

Strategy more essential than ever

In the face of this level of uncertainty, abandoning a long-term strategy would be understandable. But The Restaurant Group and White Stuff chair Debbie Hewitt believes that developing such a strategy is more necessary now than ever – even if it doesn’t end up being followed to the letter.

“When things happen that are cataclysmic it is easy to say you are being buffeted and do nothing, but even in the roughest seas you still have to adjust the sail,” she says. 

“A long-term strategy is important to galvanise a business. The biggest mistake is believing that for a five-year plan to be successful it has to be right.

“Knowing your assumption was wrong is as important as the plan itself. What you don’t want is to be complacent and not work through the consequences”

Debbie Hewitt, The Restaurant Group and White Stuff

“The value for a business lies in the board regularly thinking about scenarios, planning what is most likely, staying agile and changing with new data that tells them when an assumption was wholly wrong.

”Knowing your assumption was wrong is as important as the plan itself. What you don’t want is to be complacent and not work through what the consequences are and what that means for your business going forward.”

Williams agrees that having a long-term vision is important to keep your workforce motivated, but believes that regular strategy pivots based on the rapidly changing retail landscape will be necessary for the foreseeable future.

Boston Consulting Group partner Khaled Tawfik says that, during crises such as coronavirus, a long-term plan can ensure that larger investments are not forgotten in favour of short-term fixes.

“It is easy to fall into the trap of making a lot of short-term tactical decisions, which means you aren’t investing in what is required for your long-term survival, which are things that will generally take longer than one year to deliver results.

“What retailers invest in tech and data now they do not get back overnight, and if you have a one-year horizon you will find things to get a faster turnaround now. With how consumers are changing the retailer can’t afford to miss these longer-term investments.”

“There are companies that utilise crises to fundamentally create advantage. There will be some retailers that either don’t have resources or bandwidth to go beyond managing status quo in terms of surviving, but there are many others that have gotten a handle on the immediate threats to their operations and are now spending focus and time on creating that advantage.”

However, one industry boss told Retail Week that creating a five-year plan in the current climate was unrealistic. “It’s extremely difficult to even form a 12-month strategy at the moment,” he says.

”There is still so much that’s unknown. Everyone is talking about the ‘new normal’, but the new normal is still being formed. How do you plan for that properly when the future is still so unclear?”

The retailers creating five-year plans now

Nevertheless, there are some retail bosses – both new to the sector and long-established – who have thrown themselves behind long-term plans in these uncertain times.

John Lewis Oxford Street

Earlier this month, John Lewis’ new chair Sharon White unveiled her five-year vision for the business.

The strategy hinges on diversifying the business offer while doubling down on areas of growth in retail.

By 2030 the Partnership aims to generate 40% of profits from new areas, such as repurposed excess space – it is pushing ahead with plans to convert half of its Oxford Street flagship to office space – as well as expanding the housing it provides and extending its financial services offer.  

The retailer also plans to invest £1bn to accelerate its online business and overhaul its shops to drive better customer experience, using funds saved from streamlining its head office and operations.

Hotel Chocolat has recently created a new five-year plan that hinges on what boss Angus Thirlwell views as a further acceleration of the trends evident during the pandemic that were already in motion.

Hotel Chocolat

“We’re probably more long-termist than the average retailer – we tend to think 10 years ahead, five years ahead and one week ahead, oscillating between those points,” he says.

“It’s perfectly possible to put the work in to plan five years ahead from where we are today.

Fundamentally, what has happened in consumer and retailer terms has just accelerated what would have happened anyway. From that point of view, it was more straightforward than expected to look at where we needed to focus our energy and investment.”

“The way our five-year strategy is different today is principally an acceleration of the opportunities and imperatives the pandemic has created”

Angust Thirlwell, Hotel Chocolat

Thirlwell says that the brand is lasering in on digital through continued investment in its online systems and distribution network.

The brand will also press ahead with store expansion in rapidly growing markets, such as the US and Japan, but put store openings in the UK on hold for the foreseeable. 

“The way our five-year strategy is different today is principally an acceleration of the opportunities and imperatives the pandemic has created,” he says.

“We slingshotted ourselves into absolutely putting both arms and legs around digital growth and are getting a lot of momentum from that part of our business, so we’ll be putting a lot of our focus and investment there.

”We are also in the fortunate position of having new markets, which are showing very good signs, and new business models like The Velvetiser [an own-brand hot-chocolate machine], which is a departure for us into selling and developing small machines. It’s an accelerated and more ambitious plan.”

Building agility into your strategy

Hewitt points out that retailers do not need to plan in granular detail, particularly in today’s environment when businesses do not know what’s going to happen next week, let alone next year.

“The reason to bother planning is to make sure you have a north star and make proactive choices as a business. I don’t think anyone says we don’t bother planning because we can’t guess, because inaction is a strategy in and of itself. 

“I’m a great believer in understanding the strategic assumptions you are making, so that as life plays out you know to what extent to course-correct.”

“The key element here is agility and adaptability. The fundamentals of where you play and how you win should be clear and not vary massively, but how you get there and the initiatives should”

Khaled Tawfik, Boston Consulting Group

 

Tawfik agrees that a regimented five-year plan is not realistic in the current climate. He says businesses should instead look at their long-term view as a guiding set of principles, which are repeatedly stress-tested and changed to ensure the board is thinking critically about whether the business is on the right course.

“The key element here is agility and adaptability. The fundamentals of where you play and how you win should be clear and not vary massively, but how you get there and the initiatives should,” he says.

“You need to be constantly scanning for weak signals in your strategy based on your competitors, consumers and other markets to keep refining what you are doing. Otherwise you run the risk of building something that doesn’t mean anything in five years’ time.”

Ann Summers boss Jacqueline Gold says having a broad strategy in place while being agile enough to divert resource and investment as needed has served the business well through the pandemic.

Ann Summers boss Jacqueline Gold has stuck to its strategy but flexed investment based on current trends.

Ann Summers boss Jacqueline Gold has stuck to the retailer’s strategy but flexed investment based on current trends

The lingerie and sex-toy retailer developed a new three-year strategy at the start of the year after a difficult 2019.

Some elements of the retailer’s strategy have changed over the course of the pandemic, such as giving increased resource to its burgeoning direct-selling division, which has tripled in size since March.

“Our party plan business has gone through the roof and evolved from old-fashioned Tupperware-style parties to social selling and virtual parties,” says Gold. 

“We saw our number of sellers grow from 4,000 to 23,000 in a three-month period as women uncertain about their futures flocked to supplement family income.

”We had to step up as a business to support this trajectory – investing in our core systems, building micro-sites for ambassadors, which aligned with our brand values, and making sure sellers had access to exclusive products with regular drops.” 

The business has also upped its investment in customer data insight amid the online surge.

But Gold stresses that other parts of the retailer’s strategy, which were put in place pre-Covid, have held true and helped the brand weather the pandemic, such as its commitment to investing in the brand’s reach and perception, particularly with younger shoppers.

“Fundamentally, the strategy today is the same but priorities have changed, and having that vision in place allowed us to bring forward key projects in line with new demands”

Jacqueline Gold, Ann Summers

She says: “We had a difficult year last year, so we were already on the journey of re-evaluating and making great progress, so to be hit with Covid just when you are making progress seemed like it would be soul-destroying.

“But, looking back, what it meant was we looked at our strategy and what needed to change and what we needed to do quickly. Fundamentally, the strategy today is the same but priorities have changed, and having that vision in place allowed us to bring forward key projects in line with new demands.”

The Very Group has also adapted its investment priorities since the coronavirus outbreak.

Chief executive Henry Birch says: “The last 12 months have had so many twists and turns, so we will looking internally into where we are headed, and some of that has changed based on Covid.

”Had you spoken to us a year ago, we would very much be talking about a focus on our core, highly engaged customers who shop across multiple categories and use our credit offer.

”That focus is still there, but we have loads of new people shopping with us and not using our credit offer, using us a pure retailer. Frankly, happy days.

“We welcome those customers, we are making money and growing from those customers as well, so making sure we are continuing to appeal to them is a priority alongside our core customer base.”

Keeping investors happy

One banking expert said that having a robust long-term strategy in place was crucial for listed retailers to secure investment.

“As a public company, you need to be talking around that language of five-year plans because you won’t be able to access any liquidity without one,” he says.

“Borrowing from a debt or equity perspective both work on five-year cycles, so any business that wants investment needs to have a strategy in place that runs the length of that proposed investment.” 

Indeed, Thirlwell says that investors have given greater scrutiny to the retailer’s long-term strategy since coronavirus took hold.

“What we see from investors is a harder view on what type of businesses will be worth backing and supporting in the long term, because they are looking for those that are on the right trajectory to benefit from shifts in consumer behaviour.

“Being able to demonstrate how you are and will remain a strong brand with differentiated product is more important than ever.”

By contrast, The Very Group’s Birch says that, as a private business, the etailer’s long-term vision is not under as intense a gaze from its bondholders.

“We talk to our bondholders about our strategy, but while PLC and equity-holders tend to be more interested in long-term strategy, bondholders are a little bit more focused on where cash is coming from in the next 12 months.”

Having a clear strategic vision continues to be vital for securing liquidity, but retailers and investors alike appreciate that being agile and responding to the rapidly changing retail landscape is more important than doggedly following a predetermined path.

The five-year strategy is still part of the retail playbook – but making one seems to be more important than sticking to it in the current climate.