There have rarely been so many mixed messages about what really is going on with the economy and what 2014 will look like. It seems we are enjoying rapid economic recovery.
There have rarely been so many mixed messages about what really is going on with the economy and what 2014 will look like. It seems we are enjoying rapid economic recovery. We must be - the IMF says so.
I wouldn’t dream of challenging the IMF but it does strike me as a little odd that the consumer, whose spending accounts for two thirds of our economy, seems to have been passed by. We are told average wages are going up and ‘real’ employment is being created. But households seem to need to dip into savings to maintain the very modest spending growth that is percolating through.
“We have never before seen such differences between the winners and the losers”
And on a corporate front there are equally mixed signals. This is easier to explain. There is clearly nowhere near enough growth to go around and the strong are winning at the expense of the also-rans. We have never before seen such differences between the winners and the losers and I expect this to continue in 2014. There will be very modest growth in total retail spend and market share will continue to be a critical metric for most players.
Price will continue to be a dominant theme. This is a symptom of a very tight market, where the weakness of volume sales is impacting cash flows and retailers are forced to act. The big downside of so much of this is that it does not take long for customers to get hooked. Seeing an item they bought at full price marked down soon after sends a clear message. This is a very dangerous cycle to get into and makes returning to full-price extremely difficult.
The outlook for margins overall is not great. Retail is becoming a less profitable business. This is because there are too many mouths to feed, demand continues to be weak, there is too much capacity, and online is rising inexorably.
Online retailing is less profitable than physical and, as it takes a bigger slice, it helps to drive margins down. At a corporate level online can generate sales growth, but overall it will dilute margins once fulfilment, returns and reverse logistic costs are taken into account.
It is already clear that 2014 will be the year of the IPO. The queue seems to lengthen every day. However, once the City works out that retail spending is not booming, it will surely understand there must be winners and losers in the flotation market too. I just cannot imagine that there will be enough investment money to go around.
I think another topic that will be to the fore this year will be management. Leadership is critical, but central to great leadership is management of the team. And this does not stop at the boardroom - it’s about store managers just as much as directors. This year will make or break some retail leaders.
Most importantly, this is the year of the customer. Every year should be the year of the customer in retail. This is very much a buyers’ market where supply easily exceeds demand. Customers have never before had so much choice and so little reason to stay loyal.
The common thread among the many genuine winners in today’s market is they are all markedly more customer-driven than their closest rivals. This will continue to be the single most important success factor.