No one will be sorry to see the back of 2017. It’s been the toughest year I have ever seen and I’ve yet to meet a senior retailer who would disagree.

I’d love to be full of hope and positivity for 2018 but I cannot see the New Year being any better.

Indeed, I am certain it will be worse.

As the headline cost increases of 2017 have their anniversaries, demand will remain weak, underlying cost growth will outstrip sales growth, and capacity (mainly online) will continue to expand.

It will be the year of casualties with more mouths to fill. Indeed, the shake-out has already begun.

If this sounds too gloomy for your taste, stop reading now.

“We don’t have the luxury of pretending that optimism will make things better. A fundamental prerequisite of successfully navigating through this is to recognise it for what it is”

We don’t have the luxury of pretending that optimism will make things better. A fundamental prerequisite of successfully navigating through this is to recognise it for what it is.

The good news is that by this time next year, there will be a little bit more room for the survivors to trade in.

Although picking the survivors is not as simple as it once was, there are two sets of criteria in my view.

The first questions are on the current state of a business.

To what extent is it able to set its own competitive agenda, as opposed to simply reacting? Does it have a material level of debt? How big is its store estate? What marks out of 10 does it get for brand and price integrity?

What is the quality and balance of its leadership team? What does the past five years of investment in the business look like; ie, balance between ecommerce, price, margin, staff, etc?

Then there is their current and future strategy:

How appropriate is it relative to the competition, market and economic outlook? What is the plan to drive revenues? How will costs be managed? How is it dealing with the huge question of oversupply in stores, space and product options?

Seeking answers

The answer to these questions is often highly nuanced.

Some retailers right now have pressing debt problems but strong brands, and with the right support they can survive and prosper.

Conversely, some may have no debt but no longer have a natural constituency to serve.

Supporting a business that has no plan to effectively put this right will end badly.

“The middle market faces an unprecedented squeeze and, with platform players like Amazon and Alibaba certain to get much bigger, trying to match them will be the kiss of death”

The post-shake-out era of retail will be quite different; the market will become increasingly polarised.

The middle market faces an unprecedented squeeze and, with platform players like Amazon and Alibaba certain to get much bigger, trying to match them will be the kiss of death.

Retail has been in a corner for much of 2017 and for the most part has responded weakly.

Cutting jobs (and reducing service) and cutting prices (devaluing your offer, both literally and metaphorically) are the obvious levers to pull when under pressure, but the cost of doing so is brand- and margin-threatening.

Success next year will require more vision and even more courage to back it.

This is the challenge; not just to retail leadership teams but to their stakeholders too – banks, Private Equity houses, etc.

Defending a retail brand in this market requires a counterintuitive response: investment.

If you don’t have confidence in your brand, why will your customer?

  • Richard Hyman is the founder of Richard Talks Retail

 

Richard Hyman