For years, reporting retail success has focused on like-for-likes, measuring who is up and down. But this is becoming less useful.
As we have seen recently where businesses have improved their sales – for example through aggressive discounting – they may be able to point to improved like-for-likes, but profits can suffer.
“Profit margins have never been tighter and price deflation has meant that like-for-like sales simply do not give the full picture”
Julie Carlyle, ICAEW
The Institute of Chartered Accountants in England and Wales (ICAEW) has released a report, ‘Like-for-like sales is not the only story’, compiled by retail auditors from the UK’s six largest audit firms, as a way of sharing insights into the real issues facing the retail sector today. And the story is that there are some significant challenges.
Profit margins have never been tighter and price deflation has meant that like-for-like sales simply do not give the full picture.
There are currently a number of changes to the retail landscape with the potential to have a real effect on retailers’ bottom lines.
One example is the living wage, which comes into force in April. Although there are reasons to welcome it, independent analysis shows retailers will bear the greatest impact.
This is not just because entry-level pay will rise – although in many cases it is likely. Due regard will also have to be paid to wage differentials throughout organisations, as this is a key part of motivating and retaining staff.
There will also, inevitably, be costs of compliance. Will businesses be able to increase productivity to meet these costs? What effect will that have on morale? How can they balance customer services against staff costs? How will new technology help?
Changing shopping habits
At the same time, the changing way consumers shop is forcing retailers to reassess their property portfolios.
Businesses are increasingly moving to multichannel operations with ecommerce and m-commerce, in addition to stores.
“It would be naïve to pretend that retailers are not under a lot of pressure as they adjust to the “new normal”. But for those that adapt and prepare, there are a lot of opportunities”
Julie Carlyle, ICAEW
Equally, some online operators are looking for a physical presence in order to allow them to showcase goods and increase sales.
Constantly evolving technology to meet demands for personal shopping experiences means an ever-present need for investment to keep up.
New ways of shopping, like click-and-collect, also need to be addressed.
Finally, there is the global landscape. Where retailers are importing, there are aspects like currency fluctuations to consider.
The recent slowdown in China showed conclusively that few businesses are insulated from what happens in large overseas markets, even if they don’t do direct business there.
It would be naïve to pretend that retailers are not under a lot of pressure as they adjust to the “new normal”. But for those that adapt and prepare, there are a lot of opportunities.
What consumers really want has not changed, only the ways in which it can be delivered.
There is no doubt online has been a game-changer, but it has opened up new routes to market for businesses that embrace it.
Retailers that remain agile are best placed to reap the rewards.
- Julie Carlyle is chair of the ICAEW audit insights: retail working group and head of retail at EY UK & Ireland