The end of the recession?

Could the global economic crisis end sooner than expected? That was the big talking point among the 800 retailers at the World Retail Congress in Barcelona last week. And while talking about green shoots might still be considered off-limits in the UK, there was no such stigma in the Catalan capital.

That’s not to say there was a consensus – nor that all parts of the world are reacting to the recession at a similar pace. But there was certainly a willingness to entertain the notion that the corner might have been turned and recovery might be reached more quickly than anyone had dared anticipate.

The confidence was derived primarily from encouraging signs emerging from the two powerhouses of the new world order, the US and China.
In a keynote debate that kicked off the congress, Mirae Asset chief global and Asia strategist Ajay Kapur forecast that the recession would end in the
US in the next “few months”, followed by China.

Deloitte director of global research Dr Ira Kalish said that recovery is “all about the US and China”, which have shared a “symbiotic relationship” over the past decade. “By the end of the year or early next year we will see the US economy growing again,” he said.

Kalish said he was encouraged by the number of housing transactions and refinancings now taking place in the US, indicating that the wheels of the economy were finally starting to move again. He added that as a result of the downturn the focus of the US economy will shift from consumer spending to exports, investments and government spending, whereas Asia will shift away from exports towards consumer spending.

Kalish praised countries that had taken strong fiscal policy measures including quantitative easing to boost confidence, pointing out that in the US, UK and China, these measures appear to be working. However, he criticised some European nations for their “insufficient” policy response to the crisis, and lack of strong fiscal stimulus.

But while there might be positive signs in the US economy, other speakers argued that there still remain fundamental structural issues in the country’s retail sector that need addressing. “We’re still overbranded, still overstored and still overpriced,” said Financo chairman Gilbert Harrison, pointing out that in the past 10 years sales had grown 12 per cent but retail space had grown 50 per cent.

And not everyone was convinced the sector is over the worst. Famed former Bloomingdale’s president and chief executive Marvin Traub described today’s market conditions as “the most difficult and challenging time our industry has ever faced”. “We live in an atmosphere of ongoing pessimism,” he told the congress, saying that “our customer is turned off”.

Traub said that retailers need to reach out to shoppers by working harder to ensure the products and experiences they offer do more to persuade them to get back into the mindset of spending.

Caution on expansion

This was the third World Retail Congress and while previous gatherings had been characterised by great enthusiasm for emerging markets, the conversations at this year’s event struck a more cautious tone.

There appeared to have been a particular dampening of enthusiasm for India. “I don’t think anyone is making any money in India,” said Kingfisher chief executive Ian Cheshire, who said the company is focusing on developing its existing base of countries rather
than entering new ones. “I’d be hyper-selective about where you go,” he told the congress.

Indian retailers speaking at the event said that the country did still represent an attractive opportunity, but that Western retailers made the mistake of treating the country as one homogenous unit. “There is no one view of India and it cannot be approached from one brand strategy,” said Reliance Lifestyle chief executive Bijou Kurien.

Cheshire agreed, emphasising the need not to generalise about regions such as Eastern Europe – where there is huge disparity between countries
such as Ukraine and Romania, which are struggling, and Poland, which is proving resilient. The key to successfully doing this, he said, is to conduct proper research, including going into customers’ homes.

In China too, overseas retailers wanting to enter the booming retail market were advised to focus on regional expansion and not attempt a national launch. “I would advise any retailer to start in a specific region and build from there,” said Spar International managing director Gordon Campbell, echoing Spar’s own strategy, through which it has opened in five provinces with four local partners.

But there was enthusiasm for the Chinese market. “The potential in China is enormous and the consumer has hardly changed during the global downturn, which has not really affected our operations there,” he said, in comments that echoed those of Tesco international director Phil Clarke.

However, Christopher Lee, adviser to US fashion retailer Forever 21, warned that retailers should not be dazzled by the huge populations of provincial cities, as many of them have not yet developed sufficiently for Western retailers to prosper.

There were mixed views on Russia too, which has suffered badly in the global downturn. Svarog Capital Advisors managing partner Oleg Tzarkov said that it was not a good time for international retailers to enter Russia. However, the downturn has led to more space becoming available, and he added that he expects more retail bankruptcies and consolidation in the country. “If a retailer has an efficient business model they could grow organically” by buying a small company, he added.

How retailers are evolving their multichannel offers

The development of e-commerce is shifting the balance of power between consumers and retailers, the World Retail Congress heard.

Retailers must increasingly find new ways of communicating with shoppers to take account of changed behaviour and the growth of social networking, and find new ways of marrying in-store and online operations.

Traub, who is credited with turning Bloomingdale’s into a world-leading store, said establishing an effective multichannel strategy is essential.
He expected commerce conducted
over mobile phones, along with social networking, to play an increasingly important role.

Estée Lauder Group of Companies global president John Demsey said that the increasing adoption of technology and social networking has “created more unique opportunities to explore how a product is developed and sold
to market”.

Borders Group chief executive Ron Marshall said he was operating in what has become a commodity market, but that multichannel had enabled him to establish a point of difference by developing an “editorial voice” online to guide readers.

As well as utilising networking sites such as Facebook and Twitter, Borders provides “a tremendous amount” of content on its site, such as book clubs and author interviews. “This is about having a rich and textured conversation with customers,” Marshall said.

The rapid rise of social networking and multichannel commerce was reflected in all three Retail Futures Challenge entries by retail students from Hong Kong, the UK and the US, who all came up with digital businesses for the competition. The ability to share information and opinion with friends was a central plank of each entry.

Despite the growth of e-commerce, retailers still face many challenges in making their multichannel operations truly complementary.

IBM retail and consumer industry products leader for Northwest Europe Andy Park cited research showing that half of UK shoppers – and almost the same proportion in the US – switch retailers when they move between
buying channels.

A consumer might, for instance, go to a shop to look at an item of clothing, but subsequently buy it from another retailer online.

Park said: “You’re going to get more and more touch points. Cross-channel shopping will grow in significance. Companies have to find answers to how to enable shoppers to complete the shopping experience. When they switch channels, how do you keep them in the brand?”

US retailer Sears has, for instance, installed terminals in stores allowing shoppers to do instant online comparison shopping. Evidence so far indicates that many shoppers will then conclude the transaction in-store because, for example, even if something is available elsewhere for less, the size of the price difference does not make up for the inconvenience of an extra journey or lack of instant gratification.

Park said that “new facilities and experiences” would be essential to address shoppers’ promiscuous channel switching. “Without alignment
of customer experience and operating model, brand promises fall short,”
he maintained.

Dr Wu Jianzhong, chairman of Chinese store group Wumart, said that e-commerce in China was “in its infancy” compared with countries
such as the US. However, he observed: “Over 300 million Chinese people
have access to the internet and sales
are increasing.”

Transparency and collaboration vital

Retailers and industry experts called for an environment of transparency and increased collaboration to ensure that businesses remain afloat in the downturn.

Clarity and openness should be ensured at every stage in the retail process – from securing funding, through the supply chain and down to staff on the shopfloor.

Both retailers and investors agreed that the equity markets are still open for business if all parties are willing to collaborate. All Saints chief executive Stephen Craig said: “I sense a change of mood in the British banks,” he said. “In the last three or four weeks they are open for business.”

Felipe Merry Del Val, managing director of private equity group Bain Capital Europe, said: “Gradually we are seeing credit flowing again but it is much more selective.” He added that options are available for retailers to secure deals with more flexible structures if banks and retailers are prepared to negotiate and collaborate.

Craig also called for “transparency” in the supply chain to enable businesses with strong balance sheets looking for new working capital to keep trading in spite of nervousness in the market. “Do we really need credit insurance if there is transparency?” he asked.

New Look non-executive chairman Phil Wrigley also urged retailers and landlords to “talk and listen better”, to ensure a robust future for both parties.

Marshall agreed that encouraging open relationships with suppliers is key to reducing uncertainty and negative knee-jerk reactions by parties involved. “In today’s world you need to be as concerned about your suppliers’ P&L as your own,” the Borders chief said. “You both need to be more open with each other.”

Dan Murphy, director of business advisory firm AlixPartners, encouraged retailers to “open up the doors and share trading forecasts”. “Retailers haven’t felt comfortable in sharing data and sharing future forecasts, so suppliers had no idea whether they would come back for a repeat,” he said.

Argos head of supply operations Duncan Kendal said that collaboration with the supply base can not only reduce costs but help retailers become more sustainable.

World Retail Awards 2009:

The Winners

  • Retailer of the Year
  • Multi-market Retailer of the Year
  • Emerging Market Retailer of the Year
    Wumart, China
  • Responsible Retailer of the Year
    Migros, Switzerland
  • Retail Design of the Year
    Nike Town, London
  • E-tailer of the Year
  • Retail Innovation of the Year
  • Outstanding Leadership Award
    Ron Johnson, Apple

    Retail Advertising Awards
  • Traditional Media 
    Macy’s: “Believe”
  • In-store
    Saks Fifth Avenue:“Holiday 2008”
  • Digital
    JC Penney: “Beware of the Doghouse”
  • Direct Marketing
  • Saks Fifth Avenue:
     “Holiday 2008”