I have never known such uncertainty permeating the industry in more than 30 years. It makes for short-termism and muddy thinking.
It is also symptomatic of leaders losing control.
This turbulence was underlined recently when in the same week we had apparently upbeat retail sales stats from the ONS, but profit warnings and then disappointing trading updates from three of our best retailers.
”The trading turbulence we are seeing has been on the cards for years. Demand is flat at best, and capacity is growing relentlessly”
And this has nothing at all to do with Brexit. We have had the referendum result but as yet there has been no economic impact on the consumer economy.
We are not doing well post-Brexit because it hasn’t happened yet.
The trading turbulence we are seeing has been on the cards for years. Demand is flat at best, and capacity is growing relentlessly.
We have now had two years of price deflation in every sector but volumes are falling sharply. So lowering prices is not shifting product, but it will be hitting margins.
Underlying cost growth is materially outstripping sales, so margins are under growing pressure. Very few retailers will be able to deliver performance anything like as good as their own past records – the expectations of all stakeholders need to be managed accordingly. And I reiterate, this has nothing to do with Brexit…yet.
Worse to come
If you think this is tough, wait until next year when currency hedging runs out. This will be the first material Brexit impact.
Right now, many in the trade think they can mitigate the impact of a devalued currency by passing higher prices on to customers and squeezing suppliers. They are wrong on both counts.
First, the last two years shows the vast majority have failed to pass higher prices on, and maintain sales. Next year will be no different.
As for suppliers, after 15 years of being squeezed I forecast there will be significant pushback.
In a globalised supply business, most UK retailers are average-scale players placing average-scale orders. Suppliers have to make a living too.
“Chasing peripheral sales risks diluting the relationship with core customers and ruins trading economics. Retailers should concentrate on what they are good at – and get better at it”
So what should retailers do? This is a market in which survival can only be achieved through trading – through driving sales.
This needs better product quality, more relevance and better value than rivals’. Retailers should focus on addressing their core market and edit their ranges.
Chasing peripheral sales risks diluting the relationship with core customers and ruins trading economics. Retailers should concentrate on what they are good at – and get better at it.
Cutting costs is not the answer. A well-managed business should already have optimised costs.
The winners will be able to embrace change, and have the resources and courage to invest in driving the top line.
Invest in staff to deliver a great shopping experience. Invest in product – it’s central. Get prices right first time – discounting dilutes trust as well as margins.
Being good at retailing is critical – but too many retailers aren’t.
- Richard Hyman is founder of Richardtalksretail.com