I have been giving a lot of thought to the implications of Brexit for retail and the strategic options available to retailers.
The most obvious options are to batten the down the hatches – put your head in the sand; play the holding game – wait and see what happens; hold your nerve on prices – maintain margins; aggressively seek to increase market share.
The recent dip in consumer confidence suggests that it could lead to suppressed demand in the domestic market. For those retailers playing the holding game, this will reinforce their approach of waiting to see what happens.
But history tells us that retailers and brands that adopt a wait-and-see attitude are often the ones to suffer a sometimes rapid decline.
“History tells us that retailers and brands that adopt a wait-and-see attitude are often the ones to suffer a sometimes rapid decline”
Martin Newman, Practicology
Think Nokia, Woolworths, HMV, Blockbuster, Kodak, Borders, BHS, Comet, Game or Clinton Cards.
Of course, some of these brands have been revived by reinventing their customer value propositions and operating models. But I worry that retailers who take the wait-and-see approach now could be next on the casualty list.
Brexit brings some significant challenges in the short term. Those fashion retailers who didn’t hedge currency will be taking a hit on increased costs because of the weakened pound, and a slowdown in big-ticket purchases is likely in the near future. However, standing still will only exacerbate these issues.
While I wasn’t in favour of Brexit, and didn’t see it as an opportunity, I do believe retailers who adopt an aggressive strategy can come out of this positively.
The weak pound offers tourists a more affordable break in the UK. Marketing campaigns can be leveraged to encourage this and drive incremental tourist spend. For some retailers this could be a whole new customer segment to pursue.
There is also the potential for retailers to drive a spike in demand online from international customers who seek to take advantage of the weak pound.
Luxury is another sector likely to benefit, albeit there will be margin implications.
Some retailers may succumb to a perceived requirement to discount.
However, in the last recession Next adopted a full-price approach and came out of the period ahead on EBIT.
“Maintaining margins in a heavily discounted retail environment runs the risk of losing market share, but profit is sanity”
Martin Newman, Practicology
Maintaining margins in a heavily discounted retail environment runs the risk of losing market share, but profit is sanity.
The concern over the implications of Brexit are likely to lead to short-term reluctance among retailers to make significant capital investments and may also lead to a slowdown in hiring.
The projects that could be affected in the short term include large investments in system, new store rollouts, store upgrade programmes, business transformation projects, marketing activity and head office investment.
I believe the best way to stay ahead and maintain momentum is to invest. The best sports teams do it and the best businesses do it. Invest when you’re on top, not when it’s too late.
For many the focus will undoubtedly turn to cost savings. However, this shouldn’t get in the way of driving opportunities.
Retailers who succeed through Brexit will be those who stick to their plans, stabilise performance and potentially even grow in the short term by looking for low-hanging fruit.
- Martin Newman is chief executive and founder of Practicology