This year’s Retail Week Conference showed how creatively UK retailers are tackling tough trading conditions. Charlotte Hardie and Rebecca Thomson report on the highlights.
Despite the recession being officially over, the overarching feel at this year’s Retail Week Conference was that retailers will be battling against a resolutely tough economy for the foreseeable future.
Alliance Boots chief executive Andy Hornby pointed out that consumers have “only just started the process of reducing their debt”, and that unemployment and rising mortgage costs, food prices, petrol prices and utility bills will all have an impact on retail spend. Former Asda chief executive Archie Norman agreed and said: “The sun’s not going to shine tomorrow. Retailers are trading on a new landscape and it will be tough.”
But retailers’ nervousness about the future of the economy may have been lessened a little by the views of Rob Templeman and Ian Cheshire, chief executives of Debenhams and Kingfisher respectively, and former chief executive of New Look Carl McPhail, who stepped down on Monday.
All three said there were ways to achieve - as Cheshire put it - “self-help”. Overseas opportunities, multichannel, product innovation and improved margin management were all identified.
Templeman said the price landscape is being transformed: “Deflation isn’t going to be there. The world has changed.” He said there were direct sourcing opportunities and ways to boost supply chain efficiency.
“The key is having elasticity in margin,” he said.
Understanding how the consumer will behave as spending is squeezed is critical. Tesco UK chief executive Richard Brasher said customer behaviour is a central focus for the grocer as it forges a path through uncertain times ahead. “I have a rule in this business,” he said. “Do everything as if the customer is looking over your shoulder.”
Brasher said the effects of the squeeze were evident in the way customers were reacting. “Even if it hasn’t affected them dramatically, it still defines the way they act. Young people are taking any job they can get,” he said.
He believes the answer is not to group customers together, but to treat them as individuals. Averages don’t work, he argued, and said Tesco would be focusing on targeting each customer, store and town according to their needs. “There is no single definition of how customers will react, whether they will trade up or down,” he said.
Brasher said despite the difficulties, consumers are still optimistic and want this year to be better than last, meaning small indulgences are important to them.
So while the coming year may well hold plenty of challenges for retailers, it’s possible to cope by working out exactly what consumers want and becoming the means of attaining that. “Dreams are still alive in the downturn. Retailers should focus on consumers’ aspirations and help them to realise them,” said Brasher.
Product remains king, Green says
Fickle consumers mean product innovation and sourcing are more important than ever. While Tesco focuses hard on its consumers, Arcadia owner Sir Philip Green was adamant that product also remains crucial. “Most retailers will tell you that product more than ever is king. I don’t think there is any substitute for that,” he said.
Kingfisher chief executive Ian Cheshire agreed, adding that selling stand-out products that are differentiated in the market will help boost sales and maintain loyal customers.
Green said the focus on product and rising costs in the Far East could lead to renewed interest in UK manufacturing, with geographically closer factories potentially improving agility on product line changes. “We source across 32 countries,” he said. “You have to have a debate on speed over price.”
He also added his support to UK fashion manufacturing, and said that more training to create the necessary skills, backed up by the repurposing of dormant factories, could allow UK production facilities to be opened in an intelligent way.
He said: “When the market is as it is, you want to manage as near home as you can. That’s why there’s some debate about UK manufacturing and people actually opening some new factories.”
While not committing to anything specific, Green said he was open to the idea of more UK manufacturing.
“Is all our production suddenly coming back here? No. Is there an opportunity to do some production here?Hopefully there is, and we’re going to try,” he said.
Don’t pull your punches, Norman advises
“The only reason I got the job at Asda was because I was in a queue of one. No one else wanted the job,” joked former Asda chief executive and now ITV chairman Archie Norman when relating his story about his famous turnaround of the grocer in the 1990s.
Modesty aside, Norman gave delegates an insight into his approach to reviving a business’s fortunes. First and foremost, he said, there is no formula. “If there’s a secret to turnarounds, I’m still looking for it. You never know what you will find until you look beneath the bonnet,” he said.
Listening to the views of everyone in the business and honesty about the state of the company is also key. “Asda then was dire, a pretty depressing place. Tell it like it is, then you can start to take people with you. Don’t pull your punches, because they know,” he said.
That is as true for shareholders as it is for colleagues. “Shareholders want to know that someone has at last come in who has recognised the scale of the problem,” he said.
The plethora of retail talent that emerged during Norman’s tenure had much to do with his recruitment strategy - which was defined in part by the fact that no one wanted to work for the grocer at the time. He said: “People don’t swim towards the Titanic.” The solution was to look for “very young, very smart people and give them an opportunity they wouldn’t have conceivably got elsewhere”.
Norman also poured scorn on the idea that the revival of Asda is attributed to the magical duo that was him and Allan Leighton. It was, he stressed, about the entire team. “It was more of a team than anywhere else I have worked,” he said.
Fox confident HMV’s stores have a future
There may have been much talk of lagging UK growth, fears for consumer spending and a continuation of soaring online sales, but retailers at this year’s conference remained resolutely upbeat about the future of the high street.
All eyes were on HMV chief executive Simon Fox when he was quizzed about the future of the entertainment business on the high street, which is facing relentless pressure from online music downloading. But he insisted that the retailer would “still have hundreds of stores on the high street in five years’ time”, and that shops were “absolutely at the heart of the offer”.
While Fox admitted the high street was “clearly under grave threat”, he believes it can thrive as long as stores are made “fun, entertaining and engaging in a way that off-street retailers can’t do”.
Alliance Boots health and beauty chief executive Alex Gourlay agreed “investing in the high street is what we must do” to combat the growing power of supermarkets, out-of-town shopping and online. Retailers must look deeper at what consumers want from the high street. “If you adapt to what they want, you can have a prosperous high street that goes hand in glove with a multichannel offer,” he added.
But much will depend on retailers’ willingness to focus on town centre management and their ability to work with local authorities. Fat Face chairman Alan Giles said that greater convenience was needed on the high street - be that infrastructure or good parking - and urged local authorities to “take into account the needs of consumers”.
He said Fat Face traded profitably in a number of locations that were off the beaten track. “You can’t have a blanket approach. You need to immerse yourself in the local demography,” he said.
Values make a difference, retailers agree
As retailers continue to fight for every pound spent - be it on the high street, out of town or online - one theme that emerged from the conference was the importance of core company values. The ability to adhere to them enables retailers to build a rapport with consumers and foster a loyal customer base.
The John Lewis Partnership is famed for its company values, and the group’s food chain Waitrose is no different. Managing director Mark Price said its inclusive business model gave partners a sense of “collective responsibility”, which in turn brought commercial benefits. “Today’s customers want to spend their money with companies that do the right thing,” said Price.
He said Waitrose put four values at the heart of its operation: championing British produce, “treading lightly”, treating people fairly and living well. Few retailers would admit to putting their staff’s happiness at the heart of their strategy, but Price said it is key to a strong business: “The Partnership’s ultimate purpose is the happiness of all its members.”
At a time when retailers can so easily lose their customers to competitors if they put a foot wrong, Starbucks UK managing director Darcy Willson-Rymer said: “You have to stay true to your values and stick to what you believe in.” When he joined the company at the height of the downturn, he fought off suggestions to add a small percentage of lesser-quality coffee to its blend, as well as a proposal to reduce its minimum staffing count to one person per store from two.
Seeking out ways to ensure local shoppers benefit from a retailer’s values will also reap rewards. Asda chiefexecutive Andy Clarke said supermarkets in particular needed to be clear about the role they play in local communities. He said stores needed to adopt the so-called “broken window” approach in their communities, whereby small things that lower the quality of life such as broken windows or graffiti are noticed and rectified, rather than left to blight the area.
The UK is tough, but there are global opportunities
Retailers are focusing hard on trading in the UK, but they are also looking further afield for opportunities. If there was one subject that couldn’t be avoided at the conference, it was international growth. It’s certainly not a quick fix for trading woes, but many speakers flagged up global opportunity as being there for the taking.
Former New Look chief executive Carl McPhail said he was “excited” about the potential for driving growth overseas, and Peacocks managing director Tim Bettley said international and multichannel would be the way forward. Meanwhile, Alliance Boots group chief executive Andy Hornby highlighted international as a growth driver.
But while the opportunities are there, expanding internationally is by no means easy. For every retailer highlighting the openings, another outlined the difficulties.
Halfords chief executive David Wild said the sheer number of challenges meant the route to success was littered with the skeletons of retailers. “International is really hard. There are a lot more stories of failure of British retailers going abroad than there are of success,” he said.
Aurora Fashions president Stewart Binnie said moving into international markets “never goes to plan”.
“You never know how it’s going to go until you get there. It’s surprising what works. Quintessentially English brands like Coast have worked quite well in China, and Karen Millen has been our biggest success.”
Both Binnie and Mothercare boss Ben Gordon had some tips for retailers planning an international move, and said it’s critical to find the right partner in a new market. Jeremy Seigal, chief executive of Superdrug owner AS Watson Health & Beauty UK, said it was important to exploit relationships with local suppliers when taking the first steps into a new region. “That’s the first stepping stone,” he said. “You should go with as many introductions as possible.”
Warehouse managing director Meg Lustman said that no one should expect a UK model to automatically work in a foreign market. “You need a local management team, and you need to make sure you listen and are prepared to change,” she said.
And, while there are some success stories - Mothercare expects its international business to be much bigger than its UK operation within 10 years - it will always require prolonged effort.
Customer service defines winners and losers
Surviving tough times depends greatly on retailers’ ability to deliver first-class customer service. Alliance Boots group chief executive Andy Hornby went one step further, saying customer service standards would need to be “genuinely legendary”.
Morrisons finance director Richard Pennycook said the grocer’s innovative customer service had helped it foster a loyal customer base. Being a food manufacturer also helps, he said, because the grocer’s workforce can build a better face-to-face rapport with customers through its butchers and bakers. “To grab a piece of market share you have to innovate,” he said.
Several speakers pointed out that achieving good customer service is impossible unless the workforce is engaged. Hornby said that even those retailers that think they have strong levels of colleague engagement would need to make sure it’s even better. “Colleague engagement is probably the biggest single issue if we are to get customer service right. The real winners over the next five years will be those who get colleague engagement to a top level sothey can re-engage with customers.”
Kingfisher chief executive Ian Cheshire said: “You cannot have good customer service without engaged colleagues. Winning through teams is the absolute basis for self-help.”
Whichever method retailers choose to stand out, what was clear throughout the conference was their determination to do so. The coming year may bring some high hurdles for retailers, but they are determined to rise to the challenge.