While many cynics may look to the ONS for a positive view of the UK retail sector, it was quite the opposite this morning.

While many cynics may look to the ONS for a positive view of the UK retail sector, it was quite the opposite this morning.

Even the most optimistic onlooker will struggle to find the silver lining in today’s stats, with retail sales down 1.3% from last month and, notably, food sales down 4.1% to its lowest point since May 2011. Why is it all so gloomy?

One immediate conclusion may be that the retailers need to work harder to attract customers. But if you take a look across retailers’ shelves and their online offerings, it’s not as if they aren’t trying. The real answer lies with the consumer, who is being squeezed from all angles; unemployment continues to creep up, as do gas and electricity bills. While, in another of their measures, the ONS showed that real wages are now down by nearly 9% since 2009.

In a bid to keep hold of the customer, retailers have been placing an increased emphasis on sale items. But with many consumers now taught only to buy on offer, the standard sales reductions are no longer enough to really shift products.  

We’ve now reached the point where discounted goods are the standard. In terms of price, the industry is being forced into a race to the bottom.

Poundland dropping its prices to 97p was not just a savvy publicity stunt, it was a shrewd move which confirmed that, in today’s brutal economic reality, a three pence price drop really does make a difference.

This relentless squeeze on margins is pushing retailers to the limit. There is little they can do about the current malaise other than embrace it. If it means dropping the price by three pence, then that is what’s needed.

Of course, if retailers are to accept such a hit on margins, they will need to make sure that the business can cope with the knock-on effects. This means searching for every opportunity inside the business to improve operational efficiency and reduce costs.

Retailers must get back to the very basics of running a business effectively. A common complaint of many high street stores is when the most popular item is out of stock, people are tired of going into their local shoe shop and finding that their favourite model is out of stock in size nine. In reality, that product should be one of the most well-stocked items in the building.

The likes of WH Smith and Next have led the way with this, showing that a focus on operational excellence, cost control and cash management can offset their wider economic struggles.

The retailers that thrive will need to remain relevant. This doesn’t just mean building your online presence to take full advantage of digital sales, it means remain conscious of your everyday store visitors and their needs.

In many cases this may mean reducing prices, so all the while you must be tightening the screws elsewhere.

As this becomes a race to the bottom, retailers will have to make sure they’ve done their training to keep up.

  • Dan Murphy is a managing director at Alvarez & Marsal

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