As retailers Aldi and Hotel Chocolat have shown, smaller retailers can create challenges for large businesses by focusing on customer needs.

It is easy to focus on the challenges facing retailers such as the low growth in personal incomes, the crazy business rates system and the high costs of creating integrated multichannel systems.

However, since I retired as chief executive of N Brown last year to take on non-executive roles I have had the opportunity to stand back and see first-hand how the retail sector continually regenerates itself.

Wherever you look there are challenges emerging to the established players – look at the food sector where the discounters have put the brakes on Tesco. But for every retail failure you can find a smaller successful business thriving.

So how can smaller businesses compete with their larger rivals? There are two key factors in my opinion. The first one is the absolute focus on the customer’s needs. These emerging companies are able to concentrate their whole organisation on meeting specific customer needs, being more nimble in reacting to changes in fashion and technology.

For example, Hotter, where I am chairman, has grown its revenues strongly over the last few years, utilising its factory in Skelmersdale to add more flexibility into the supply chain and developing the online and retail store channels to complement its catalogue heritage.

Similarly, Amazon might be seen as the all conquering global marketplace but as the recent Retail Week article (‘The global etailers taking on Amazon’, September 26) showed there are many other players such as Jumia and Flipkart. I’m an investor in Fruugo, which is focusing on cross-border opportunities with a platform which allows customers to trade in their own language and currency.

The second factor is the level of operating costs. Larger businesses can get bloated while well-run smaller companies can have a lean cost base.

This is perhaps best exemplified in the online pure-play sector. It has never been easier to set up a retail business as long as you have a compelling customer proposition.

I had the privilege of attending the finals of Pitch @ Palace, an event fronted by the Duke of York to encourage entrepreneurship, and the bulk of the businesses were customer-facing (such as Blocks and Skin) or helping those companies compete (such as Simpl). They are all small but demonstrate that the next generation of retail businesses are on the conveyor belt, and I suspect that because of the low start-up costs it will be stronger than ever.

Funding and help for start-ups is still an issue. There are more incubator facilities such as The Sharp Project in Manchester, but funding can still be hit or miss, and good businesses can flounder unless they are lucky enough to find some angel investors who believe in their opportunity. Once a business can demonstrate growth the private equity sector will fund the next stage of growth.

So retail’s new generation is alive and kicking. Just as Asos challenged established fashion retailers around the globe it now has competition from, Missguided and others. Hotel Chocolat came from nowhere to challenge Thorntons and succeeded where Comet failed. This regeneration is set to continue and accelerate.

The message is clear. New entrants can succeed against established competitors who in turn need to keep innovating to stay one step ahead. The customer as ever will be the judge.

  • Alan White is chairman of Hotter and former chief executive of N Brown