So that was 2016. Most retail CEOs I talk to tell me this has been the toughest they have ever known. I wish I could offer some comfort about next year but overwhelming evidence says it will be even tougher. Cost pressures will be carried forward from 2016, fuelled by a full year of National Living Wage, Apprenticeship Levy and business rates increases. Then on top will come the impact from sterling depreciation, kicking in as currency hedging runs out.
The past 30 months have seen growing overcapacity. With costs growing and sales flat, oversupply has prevented retailers passing the pressure onto customers. Against that background, I can’t see shoppers paying the price of a cheaper pound in 2017. With everyone’s hedging being different, so too will be the pressure to raise prices. This will be a source of magnified competitive advantage, and disadvantage. When my hedging runs out and my costs rise 10/12/15%, of course I can put up my prices. However, if my rival is still protected, most of my customers will migrate next door. Making price rises stick will extraordinarily difficult. Especially after years of back to back discounting, teaching customers to shop on price.
Nor will the industry be helped by consumer spending growth. Demand is likely to be flat next year. Against this background I am forecasting a restructuring of the industry, with a growing number of failures. However, adversity always creates opportunities. This market will widen the gap between the strong and the also rans. Those with brand and price integrity will still make money, at the expense of the weak. Those without too many stores and with tightly managed SKU counts, focused on serving their defined core customers and not chasing peripheral sales will emerge in better shape. It might sound blinding obvious but those companies good at retailing will win. There are many who have forgotten how to retail, and they will struggle.
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