Interesting times for the retail sector

Things are destined to get pretty tough.

The expression “may you live in interesting times” is seen by the Chinese as a curse; interesting is not seen as a positive but, rather, is equated with disorder, problems and trouble. Such a sentiment will probably ring true with retailers next year: as fascinating as the market is from an analytical point of view, there is no denying that things are set to get pretty tough.

This view reflects several a numbers of current and upcoming challenges which are stacked against the retail sector.

Foremost among them will be a complete absence of overall real sales growth. While official headline figures may continue to profess to a market that is growing, albeit anaemically, all of that growth will likely be driven by inflation; by the time this is removed, retail volumes will shrink strongly. In other words, we will all be buying less which means the spoils of consumer spending will be spread more thinly.

In many ways retail sales will be a symptom of the underlying issues, they will reflect the fact that the whole economy will remain in stasis, that consumers will continue to lack the confidence to go out and spend, and that unemployment and poor wage growth will have left many household budgets more squeezed than they have been in decades.

In addition to the above, more specific factors like fuel prices - which have come down from their record high but are likely to remain elevated – will unhelpfully change the way we shop: reducing visit frequency and deterring some from driving long distances to out-of-town centres. Equally, it is difficult to foresee an uptick in the housing market which will likely continue to remain depressed, dampening demand for DIY, furnishings and floorcoverings.  As transient as these things may yet prove to be, they will remain decidedly unhelpful to a struggling retail sector in 2012.

As demand slows, the room retailers have for manoeuvre becomes narrower. For example, many would like to increase prices to make up for hikes in the cost of doing business, but most simply won’t for fear of losing custom and share in a market that will remain increasingly price sensitive.  As a result, quite a number of players will continue to report squeezed margins and profits.

While all of this makes for gloomy reading, the truth is that these austere circumstances will reshape the retail sector and the process of reconfiguration is a painful one. The current shape of the sector – the number of shops, the amount of space, the way retailers do business – is one that was created to reflect the demands and needs of the last ten years. Things have now changed and a more muted demand environment means a new shape is required. Some of the things retailers need to be thinking about, include:

  • Rebalancing and optimising their store portfolios for the multichannel world; thinking about how many stores are really needed to reach customer and what those stores are there to do (inspire, act as a point of transaction or collection, etc.) is critical.
  • Adding value to the retail offer to ensure that customers are given compelling reasons to buy; lacklustre offers will increasingly be forced to compete on price, which is a poor differentiator and will serve only to erode margins.
  • Keeping close to customers in order to engage them and win their loyalty; with many shoppers buying less frequently, it is important for retailers to keep themselves foremost of mind.
  • Marketing through emotion and excitement; it is increasingly important for retailers to connect with consumers on an emotional and not just a functional level – consumers need to be cajoled and convinced into buying things, and emotion sells.
  • Personalising the offer and the experience; this means that retailers really need to understand consumers’ needs and desires and then translate this into all aspects of their proposition, especially within the online selling environment.

So in many ways 2012 will be a year of evolution. And just like evolution, the process of change will create casualties – some retailers have already died out, others will follow – but, longer term, it creates winners too. Those that adapt will survive and could even come out of the process stronger as a result. Some retailers have already started on this journey which is why, among the gloomy trading updates, there are occasionally chinks of light.

What do these players do to stand out? Quite simply they think, they innovate and they respond. In other words, they have interesting responses to our interesting times.

Neil Saunders is Retail Director for Canadean and Managing Director of Conlumino.

Photograph: Getty Images

 Managing Director of Conlumino

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Leave campaigners are doing down Britain's influence in Europe

As the third biggest country, Britain has huge clout in the EU.

Last week the Leave campaign's Priti Patel took to the airwaves to bang on about the perils of EU regulation, claiming it is doing untold damage to small businesses in the UK. Let's put aside for one minute the fact that eight in ten small firms actually want to stay in the EU because of the huge benefits it brings in terms of trade and investment. Or the fact that the EU has cut red tape by around a quarter in recent years and is committed to doing more. Because the really startling thing Patel said was that these rules come to us "without the British government having a say." That might be forgivable coming from an obscure backbencher or UKIP activist. But as a government minister, Priti Patel knows full well that the UK has a major influence over all EU legislation. Indeed, she sits round the table when EU laws are being agreed.

Don't take it from me, take it from Patel herself. Last August, in an official letter to the House of Lords on upcoming EU employment legislation, the minister boasted she had "worked closely with MEPs to influence the proposal and successfully protected and advanced our interests." And just a few months ago in February she told MPs that the government is engaging in EU negotiations "to ensure that the proposals reflect UK priorities." So either she's been duping the Parliament by exaggerating how much influence she has in Brussels. Or, as is perhaps more likely, she's trying to pull the wool over the British people's eyes and perpetuate a favourite myth of the eurosceptics: that the UK has no say over EU rules.

As the third biggest country, Britain has huge clout in Europe. We have the most votes in the EU Council alongside France, Germany and Italy, where we are on the winning side 87 per cent of the time. The UK also has a tenth of all MEPs and the chairs of three influential European Parliament committees (although admittedly UKIP and Tory sceptics do their best to turn their belief the UK has no influence in Europe into a self-fulfilling prophecy). UKIP MEPs aside, the Brits are widely respected by European counterparts for their common sense and expertise in areas like diplomacy, finance and defence. And to the horror of the French, it is English that has become the accepted lingua franca in the corridors of power in Brussels.

So it's no surprise that the UK has been the driving force behind some of the biggest developments in Europe in recent decades, including the creation of the single market and the enlargement of the EU to Eastern Europe. The UK has also led the way on scrapping mobile roaming charges from next year, and is now setting the agenda on EU proposals that will make it easier to trade online and to access online streaming services like BBC iPlayer or Netflix when travelling abroad. The irony is that the Europe of today which Eurosceptics love to hate is very much a British creation.

The Leave campaign like to deride anyone who warns of the risks of leaving the EU as "talking down Britain." But by denying the obvious, that the UK has a major role in shaping EU decisions, they are the ones guilty of doing our country down. It's time we stood up to their defeatist narrative and made the case for Britain's role in Europe. I am a proud patriot who wants the best for my country, and that is why like many I will be passionately making the case to remain in the EU. Now is not the time to leave, it's time to lead.