It’s only March and we can already see the pressure mounting across retail. The list of distress is already long enough – Mothercare, New Look, Toys R Us, Maplin.
There are many more waiting on the edge and it’s hard to see either growth or lower costs suddenly emerging to rescue them.
With demand flat and underlying cost growth circa 3.5-4%, it is inevitable that margins are under continuous pressure.
I have been warning for some time now that retail is becoming a progressively less profitable industry. A direct consequence uppermost in the industry narrative and thinking is around the cost line.
Most retailers have far too many stores, and their stores are too big. Next is putting a car showroom in its Manchester store. Debenhams is talking to WeWork about letting some of its Oxford Street flagship. Neither is a new idea.
“Against this background of uncertainty, selling is rarely mentioned. This is the hard bit – driving the revenue line in a zero-growth market”
There have been many acquisitions, JVs and similar, all done to solve an issue rather than because of the merits of the idea and with predictably poor outcomes. Others are going the CVA route or similar, trying to lower costs.
The other response is to cut headcount. In a high-fixed-cost business, lowering the wage bill is bound to be a candidate for action.
Against this background of uncertainty, selling is rarely mentioned. This is the hard bit – driving the revenue line in a zero-growth market. When leadership teams talk about “experience” and improving service, it rarely involves staff.
Years of rising costs and squeezed margins have reduced headcount on the sales floor of the industry. It really shows. Stores of whatever kind are increasingly relying on consumers to find what they want. Retail is surely a people business. If you strip people out, what’s left?
UK retail is a £360bn business. It varies greatly by sector, but roughly 50% of that spend is wants-driven. Consumers are persuaded to want to buy through selling, in the broadest sense of the term. And sales staff are central to this.
Meanwhile, there is price. Only one player can be cheapest in any market. Chasing prices down is foolish and unsustainable. Retail is a stratified market with players occupying different price positions. You support your price position through branding, service, experience etc.
So many retailers are demonstrating a lack of confidence in their own brand’s ability to justify a price premium. Of course, if you have already cut your ability to defend your price position, this diminished confidence is probably justified. But this is the tail wagging the dog.
“Retail is about selling – everything else comes second. The 50% or so of wants-driven spend depends on true retail skills, added value and retailer confidence”
Retail body language says everything. If you don’t have confidence in your brands, why should your customers? Chasing someone else’s agenda (price, digital, delivery, etc) is the kiss of death. The customer decides, and there is a diminishing market for me-toos.
The past five years in retail have been characterised by progressively tougher trading conditions. Last year was much tougher than 2016, and this year is seeing the ante raised still further.
Retail is about selling – everything else comes second. The 50% or so of wants-driven spend depends on true retail skills, added value and retailer confidence.
Customers want relevance and inspiration, not a lower price on an item that’s irrelevant. They want service too, beyond the mechanical needs-driven shop.
Delivering this comes at a premium and customers understand this if it’s “sold” to them.