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Retail has always been a highly dynamic industry, intensely competitive and fighting for a share of the wider consumer spending pot. This is an industry used to dealing with a constant diet of change. However, the change we are seeing today is far more profound than anything the past has thrown up. We are now seeing by far the most challenging period in retail history. A reshaping of the industry’s structure and economics is unfolding, and most of the real change is yet to happen.

Richardtalksretail is focused on analysing this change, anticipating the implications, and mapping how the key players across the various sectors are dealing with it. The regular Blogs in this public section of the site are a taster of the much more detailed analysis and forecasts in the premium section, reserved for subscribers.

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Monthly Archives: June 2020

The future of retail

The future of retail is now. Survival and prosperity will be governed by whether, and how well, retail engages with these critical issues. Business models need rebuilding. Cost cutting alone is buying time. Retailers will have to invest to be fit for purpose, so costs will need to increase. Those without the vision and courage to meet these challenges head on are living on borrowed time.

I got together with Kalpesh Tanna, specialist retail and hospitality lawyer, to map out the critical issues. We will be arranging a small closed forum for a detailed discussion of these themes in due course.

**  I support retailers and stakeholders with strategic advice. If you think I can help, drop me a line – richard@richardtalksretail.co.uk

Locked down and pent up

The big day in retail has finally arrived. For an industry which relies on the numbers generated from daily trading to inform actions, today will have been full of mixed messages. But the overriding one will be that this will be a long and painful road back to anything that might resemble equilibrium.

Experiences of lockdown have varied hugely, and so too will be recovery. Some have been desperate to go leisure shopping while others will take lots of coaxing and reassurance before entering the fray. A consensus of the CEOs I have spoken to were expecting c50% of normal footfall today. My feeling is that few will have achieved that. Many of the stores I have checked out had far more staff than shoppers, and queues were extremely rare.

Clearly, the industry is desperate to reopen and there is certainly a feeling today that a major step forward has been taken. However, no one should be in any doubt about the economic consequences of Covid-19 which will only now begin to unfold. Even at 50% footfall, no apparel retailer can make any money at all and are likely to generate very material losses. While transaction values are likely to be higher, that will not compensate for fewer transactions.

Moving to 1 metre distancing would certainly shift the economic dial but modestly, and not enough to turn those losses into profits. This is especially so when much higher returns are factored in, the result of limited access to changing rooms. On the cost side, delivering staff and customer safety will have increased costs. The end of the “cost holiday” enjoyed triggered by opening (having to pay staff, landlords and suppliers) sets a return to normal costs alongside a return of materially less than normal footfall.

Anyone relying on consumers to rescue our economy must be living on a different planet. The public has survived several months going without all sorts of non-essential products and services. Persuading them back, with growing uncertainty around employment and remaining uncertainty around health, will be a monumental task.

Accelerated retail

As we edge towards reopening much of UK non-food retailing it is worth preparing some warnings. The first few days will feature queues of people flocking to stores up and down the country. Talk of sales records will abound. And the relief will be palpable. We all desperately need to feel that normality is around the corner.  But no one should mistake relaxation with a return to where we were. Nor mistake early behaviour with anything that might be sustainable.

While social distancing remains central to staff and customer welfare it will be virtually impossible to trade non-food stores profitably. There will be much lower footfall. Even if average spend rises, it will be unable to compensate for fewer transactions. Costs will be higher from the need to manage footfall inside and externally, and installing safeguarding equipment, screens, sanitisers, cleaning etc instore. The reality of these new trading economics will be set against the gradual end of the very significant “cost holiday” over the recent past. Once retailers have to pay their staff, landlords and suppliers again, viability going forward needs to be judged against lower revenues, a very painful prospect.

The coming 12-18 months will be very hard to read. Against the background of a deep recession, UK retail is set to become much more polarised. Online will be much bigger than it was, growing share from 30% pre-Covid to a little over 40%. This will itself massively increase physical cost of sales and the need to shut physical capacity (already chronic pre-crisis) will be greatly magnified. A much bigger online market will make retail as a whole even more price driven than it already is. And it will act to push margins down further.

This rather apocalyptic outlook will certainly spell the end for many retailers no longer fit for purpose. But it certainly does not mean the end of successful retail businesses. Those retailers who came into this crisis strong will be the winners longer term. Those with clear offers and focused leadership, able to be self-challenging and truly embrace change, not just talk about it, will make good returns.

Much of what happens over the coming months will be misleading. Reading between the lines will be essential. Covid-19 has removed lots of seats around the table and when the music stops, many will be left standing. A leaner, fitter for purpose retail industry will emerge with more room for the winners to thrive.

**  I support retailers and stakeholders with strategic advice. If you think I can help, drop me a line – richard@richardtalksretail.co.uk

 

 

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