We are at the beginning of the crunch period in retail history. The critical indicators are all there.
Retail has been losing share of total consumer spending for decades – 50% in 1980 to below 33% today.
Today non-food retail sales online are worth nearly £50bn, or 25% of the total. Fifteen years ago it was zero.
Over that time the number of stores and floorspace have remained pretty much the same. Widespread discounting reflects an industry creaking under the weight of an unsustainable cost base.
“Survival requires retailers to invest in customers, staff and their brand – the exact opposite of what is happening”
I would argue that by and large, the response to this has been weak and full of denial. Most leadership teams are reaching for the cost levers.
I totally understand that in a high fixed-cost business, getting rid of staff really is often the easiest option to go for. So too is cutting prices.
However, both come at a very high price. So what do you do?
A clear strategy
The prerequisite of coherent management through this turbulence is understanding what is about to happen. Then to communicate this to key stakeholders with a clear strategy. Their support will be essential for survival.
Survival requires retailers to invest in customers, staff and their brand – the exact opposite of what is happening.
Customers are critical, but some are much more critical than others.
“Catering for someone who visits your store two, three, four times a year is ruinous”
In the headlong pursuit of growth at almost any price, much of retail has sought to widen its appeal, to attract peripheral customers for incremental business.
This will prove to be the kiss of impending death for many. It has led to opening too many stores, usually with too much space, that in turn has led to assortments that are too wide.
Catering for someone who visits your store two, three, four times a year is ruinous – it slows stock turn, hits availability and hits trading economics.
Know your customer
Truly understanding your core customer will tell you exactly what they want, and what they don’t. This understanding needs to drive everything.
Everyone focuses on Zara’s vertical integration as its secret but without the best customer understanding in the market, it would not be able to leverage its factories.
“Customer service is everything. Generally, it involves people and the higher their calibre, the more they will sell”
Customer service is everything. Generally, it involves people and the higher their calibre, the more they will sell. I advocate more staff, trained better and paid better.
And invest in your brand. Being too frequently on Sale dilutes trust. My promotional tracker shows 63% of non-food retailers have been on Sale every week in 2017 to date.
Very few are actually structured to be discounting on this scale and it’s a drug habit that’s very difficult to kick. But it must happen if brand integrity is to have any chance of being restored.
“The change we have seen in recent years will be dwarfed by what happens over the next five years or so”
The change we have seen in recent years will be dwarfed by what happens over the next five years or so.
Virtual reality will allow the shopping trip to take place at home. Lots of real estate in balance sheets will switch from assets to liabilities.
Those coming out of this period intact will not be the ones that are great at cost cutting, but those backing their retail judgement.