Why 2012 was Tough for Retail and 2013 could be Even Tougher
Richard Hyman, President of PatelMiller, a retail consultancy specialising in strategy and operational management, is one of the UK’s most influential retail analysts. He is founder of Verdict Research, the leading provider of analysis to the retail industry and has advised many leading retailers, including John Lewis, Sainsbury’s and Debenhams.
We’re delighted to have him share his thoughts on UK retailing in 2012, one of the toughest years experienced in modern times.
2012 is the year when the Government’s austerity measures kicked in fully and the consumer is bearing the brunt. Inevitably budgets are constrained and retail sales are the weakest in many generations. Meanwhile, retail operating costs are rising so margins are squeezed
.Last year was the most promotional market I have ever seen. I’d say only a minority of retailers kept to their promotional calendars. Most felt obliged to follow and, for much of the year, a good proportion of the high street was on sale. Many retailers are experiencing cash flow shortfalls and promotions have often been desperate moves to turn stock into money, almost always at the expense of profitability.
Retail winners have close relationship with customers
The winners all have one thing in common: a closer relationship with their customers than their leading competitors. That’s what allows them to win. With retail sales flat at very best, corporate growth depends on winning market share from the guy next door. When we lived in a growth economy you could lose share but still grow your business. Now you will gradually wither and die.
Beauty is non-negotiable for most women
Beauty has suffered less than most and I do think this will continue. That’s not to say the industry is immune –far from it. But everything is relative! Beauty is an area of relatively non-negotiable spend for women, though there is inevitably some trading down.
Consumer spend shifts to online
Online is still an area where, when properly accounted for, few people are really making money. Online has massively cannibalized physical shops.
Physical stores need to be more about aspiration, about selling the lifestyle story and the look. They are increasingly going to be physical advertisements. However, they need to be paid for and ultimately have to drive revenues.
There is some way to go in fully integrating the various channels. The vast majority of retailers operate channels which do not really talk to each other and do not offer the same level of service and experience. This is confusing and has the potential to be brand damaging too.
The future for UK retailing: no growth forecast
2013 will be tougher still. The Autumn Statement told us there would be further cuts and they would last longer. Consumer spending is likely to be slightly down year on year. And there will be more casualties. The industry has too many mouths to feed and an inability to grow share is not sustainable. Size is no longer an advantage as it once was. Some large retailers are not very fit for purpose and don’t have the leadership to change that.