With Christmas just over a fortnight away and the die seemingly cast, it is time to look ahead and see what is in store for the sector next year. 

With Christmas just over a fortnight away and the die seemingly cast, it is time to look ahead and see what is in store for the sector next year. 

I’d love to write a bullish, upbeat column about light at the end of the tunnel. Unfortunately, I see many retailers with too much stock and not enough customers. The outlook for 2012 remains gloomy.

There are still many who cling to the idea that if the media were more positive, confidence would rise and spending would increase. If only it was just about sentiment.

The full force of the Government’s austerity measures are still to be felt, while the turmoil in the eurozone will add further instability to our already fragile economy.

Although raw material price inflation seems to have peaked and petrol prices have eased, I still see the consumer spending pot getting smaller in 2012.

I think retail spending will fall year on year and there will be an increase in corporate distress. As Christmas 2011 gets closer, many retailers have got more stock than planned.

This is because demand has been softer than hoped, partly because mild weather has been an additional kick in the teeth but also because consumers are feeling the pinch more with every passing month.

Too much stock results in pressure on working capital. This pressure is pretty democratic, affecting virtually everyone. Most of today’s key strategic issues have an impact on most players. The difference is in the capability to deal with them.

So where are the key pinch-points in the sector? A major issue is the end of the volume-driven market. After more than 20 years of consumers buying more and more items, this trend is in reverse.

Consumers are now buying fewer items year on year. Many retail models are wedded to the volume-driven demand cycle and changing this is very challenging.

The impact of falling volumes is magnified in retailers with low average ticket prices.

The economics of such a retail business can be transformed overnight when it is suddenly driving materially lower volumes at each price point.

A second challenge is that almost every established retailer has too many stores. In some cases, a significant chunk of that space has been acquired relatively recently with attractive terms such as rent-free periods. When these deals unwind and suddenly retailers have to pay the going rate, the shortfall in revenue can be extremely painful.

In what is a relatively high fixed-cost business, it is difficult to cope with a shortfall in revenues. There will undoubtedly be an increase in casualties but this does not mean an end to retail success. While spending may show a decline, it will still be worth very close to £300bn.

However, those retailers that succeed will need to capture business from their rivals. This climate is much more about winning market share, much more about being demand-led and much more about managing cash.

The industry has already been through an era focused on cash management but this time it is different. Cash management must find a way of coexisting with investment in the top line, in a retailer’s ability to grow its revenues.

Those retailers able to be sensitive to exactly where and how to invest in top lines, and to manage costs tightly, will be the winners.

  • Richard Hyman, strategic retail adviser to Deloitte