As the market grows ever more challenging, the retail industry needs more leaders with strategies focused on driving sales.

Two years ago in this column I wrote about the coming year (2014) and what I thought it would bring. One of the key things I highlighted was changes at the top. This topic leads my 2016 list too. After the recent changes at Waitrose and Debenhams, I predict we will be seeing many more.

It’s always reassuring to get a prediction right and this year has already seen lots of comings and goings right across the sector. The reasons are simple: the revolution we are seeing in the fundamental economics of the sector has ramped up competitive pressure and the scrutiny leaders face.

”In 35 years of analysing and advising this is by far the most challenging market I have ever seen”

Richard Hyman, Richardtalksretail.co.uk

 

In 35 years of analysing and advising this is by far the most challenging market I have ever seen.

Let’s be clear about the key drivers here. The wider economy is only part of the story – and the smaller part at that. The fundamental factor at play is structural change.

Shifts in supply and demand

UK retail has gone from being physically immature with demand exceeding supply to the exact opposite, all in a very short space of time. We have far too much capacity and far too many players chasing far too little demand.

The shift in the relationship between supply and demand is why we have had more than 12 consecutive months of price deflation in every sector of the trade. Everyone is running much faster to stand still. And a heavy price is being paid to generate the volumes to compensate for deflation. That price is erosion of brand equity, a slow burning corrosion that takes time to become clear.

“We have far too much capacity and far too many players chasing far too little demand”

Richard Hyman, Richardtalksretail.co.uk

Most of today’s retail leaders have grown up and learnt their trade in a totally different market. Most of the skills needed were around management of the cost line. The combination of cheap credit, a very strong pound and relentless economic expansion allowed lots of new store openings and delivered profitable company growth.

Being really good at driving sales mattered less because if you got the cost management right, the top line pretty much took care of itself. That’s all history.

New strategies

The skill set needed today is totally different. Driving sales is the single most important factor. Managing costs is the easy bit.

There is a tremendous dearth of merchants and traders in retail these days. This is not about being a great negotiator – that’s a given – but really understanding what your customer wants and working backwards from there.

“A growth strategy needs to demonstrate how profitable sales will be delivered and maintained”

Richard Hyman, Richardtalksretail.co.uk

A winning growth strategy is not about international or digital – these are directions of travel, not strategies. A growth strategy needs to demonstrate how profitable sales will be delivered and maintained. Who will buy, at what price, in what quantities, and who you are going to capture that business from – the market isn’t really growing any more so it’s about taking business from the guy next door.

Adapting to this new competitive reality is extremely difficult and right now, many retailers have become much more reactive and much less proactive.

I do not see many retail leaders around that are able to get on to the front foot and stay there. The industry needs many more leaders plus strategies built around driving sales.

The revolving door of retail will be spinning well into next year.

  • Richard Hyman, founder, Richardtalksretail.co.uk