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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.

If you want to know more, please get in touch.

What you get

A marginal Christmas

First Black Friday. Now the pandemic. It’s getting much harder to work out what Christmas trading will look like.

History is less relevant today but everyone still thinks in year-on-year numbers. At first sight, December 2019 non-food sales look good – +4.2% by value year-on-year. They start to look less good when you factor in November which fell 1.9%. So Black Friday last year bombed. The trend of Black Friday clawing forward Christmas spend into November was actually reversed last year and December won back some business.

Clearly, Covid restrictions will be the overriding influence on Christmas 2020. Constant shifts in the regime make it very hard to be sure how it will look but everything points to it being severely constrained. Certainly, enough to adversely impact spending.

A key factor driving underlying trading economics this Christmas will be online. I predict online sales will break the 50% barrier for the first time. Last year’s number was 31% so it is likely that those retailers who have failed to significantly invest in expanding capacity here will struggle to fulfil demand. The critical trading impact will be around margins.

While I expect Christmas spend to be depressed, it may well not look so bad at headline level. Government support and lockdowns have made household balance sheets appear quite healthy but looks can be deceptive. By Christmas the unwinding of the generous furlough scheme will have begun, and some erosion in confidence too. It is the underlying picture which is of greatest concern.

Christmas trading statements almost never take returns into account. Years ago when online was embryonic this was less significant. With half of all spend this Christmas online, those trading statements will effectively report gross sales. A very significant slice of those sales will be returned to customers, not just taking a large slice off revenues but wiping out margins too.

If anything here resonates and you would like to know more, do get in touch for an informal chat richard.hyman@tpc-group.com

 

Interim new normal

Whatever tomorrow may bring, we know it will definitely not look like today, or yesterday. Retail is a granular business where planning relies largely on the past, by the week and by the day. Perhaps the greatest challenge of all facing leadership teams right now is the rearview mirror becoming almost irrelevant. What will demand look like and therefore, what stock in what quantities should you buy? And as it percolates through the supply chain, how should you allocate between stores and online, and then by store type and location?

Retail leadership has always been a combination of art and science, and it isn’t either or – the latter needs to inform the former, allowing better outcomes based on decision-critical insight and intel. And steady state retail management, based largely on repeating past year’s trading stance, is finished. It simply won’t work because everything is topsy turvy.

Data is not and cannot ever be power on its own. Retail businesses generate vast mountains of data but turning this into actionable intelligence to directly drive the operating and trading model requires customised tools. Data science and AI allow complex relationships to be identified to facilitate optimisation in critical areas like range planning, full price architecture, mark down management, stock allocation and availability.

We all know that demand patterns have changed dramatically, not merely as a whole but by product type. So too has the relationship between channels. And so too has it shifted by location. Reacting to this effectively requires levels of agility few retailers had pre-pandemic.

We are supporting retailers in all these areas daily. You cannot save to success – cost cutting misses the point. It’s your top line that needs to be driven more effectively with the necessary tools to ensure maximum returns from those sales. Leveraging your data isn’t a nice to have – it will increasingly be the difference between life and death.

If anything here resonates and you would like to know more, do get in touch for an informal chat richard.hyman@tpc-group.com

 

DTC and private label

There is nothing new about either private label, or brand owners missing out retailers and selling direct. But both are very much on the rise and these two trends say much about the underlying shift in retail trading economics. Vertical integration was not invented by Inditex and Zara. In fact many apparel and footwear retailers in the UK started out as manufacturers, they bolted on a few stores and over time, the retailing became more core than the making.

As retail evolved, the skills required to make it successful diverged increasingly from manufacturing and helped by the growing need to find low cost production, the two tended to part. Some brands have long wanted to miss out retail for reasons of economics and control. Nike have always had a clear view of how their products should be retailed and that view has not always been shared by their retail partners – their “difficult” relationship with Sports Direct here is a case in point. Consumer electronics is a market that continues to be dominated by brands and Apple is a spectacular example of going direct.

DTC clearly has a radically different economic model in which the retail end of the chain will often be part of the marketing spend. No longer sharing the margin with a third party retailer is a massive attraction. However, a retail operating model is needed irrespective of who owns the brand. You still need to manage inventory, forecast demand and manage price and mark down effectively. To a large extent, you still need to think and act like a retailer.

On the other side of the fence, I believe making money retailing other people’s products will become progressively more challenging. Shrinking trading economics are driving progressive growth in grocery sector private label. Clearly, when a market is dominated by the same brands, retailer differentiation becomes more challenging. Putting your own stamp on your offer helps set you apart and own brands in food are currently at record highs, and rising.

In fashion, private label has long been a big part of our market. But it will get bigger. Squeezed margins make it very difficult for the numbers to work – this is a major factor driving the existential threat to department stores on both side of the Atlantic. There are always exceptions to almost any retail rule – Selfridges has the skills to truly add value and do for brands what they cannot do for themselves. But most others are fighting a rising tide.

Owning the product is clearly a very different model. You need to be exercising control all the way up the supply chain. And, of course, you have to get much better at retailing. Managing inventory becomes much easier if you have the skills to determine the nature of that stock and match it precisely to what your customers want. With so many more moving parts, operating model optimisation is essential. Too many retailers make do with a jigsaw of bits which do not talk to each other, held together by sticky tape. In a world of progressively diminishing returns, this will be increasingly life-threatening.

DTC and private label are two sides of a very similar coin. Both retailers and brands need greater control of their destinies and are increasingly bypassing each other. Nevertheless, they are ultimately both focusing on the need to better engage with consumers. Leveraging digital assets to maximise squeezed trading economics will be fundamental to both.

If you want to discuss this content or think a conversation might be helpful, do reach out to Richard.hyman@tpc-group.com

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.

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