So far, 2017 is delivering everything I expected, and more. Trade is tough, and getting more so. Price inflation is filtering through but nothing like enough to suggest that consumers will be picking up most of the tab for a devalued sterling. And how are our retailers responding? Badly, I would say. The common thread is a tendency to forget what their true raison d’etre is – serving customers by adding value.
There is a growing short termism that will be coming back to bite in the next few years. Take staff for instance. The rise of the internet means that a steadily growing proportion of retail sales is made with little or no human role. Not surprisingly, this is diluting margins because most added value in this industry is delivered by people. The growing response to margin dilution across multi-channel retailers is to cut staff. This will lead to store sales dilution. Look at department stores for example – the area they all seem to be doing best in is highly serviced beauty, where trained staff (invariable employed by the brand owner) actually sell. They are doing less well in areas where there are fewer staff on the sales floor. Retail is above everything else about selling. If you diminish the main means to achieve this, the consequences are obvious.
Another key area is product. It’s fundamental – lowering your bought-in costs has to be less important than optimising the relevance/attractiveness of your product. M&S clearly thinks renewing the Lindsay’s sourcing contract (where the imperative is cost reduction) is more important than restoring some of the quality and appeal to make the offer more relevant.
I have talked about whether retail is good enough at retailing for a while. During this period, the industry has become progressively less good and is more vulnerable as a consequence.
** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details firstname.lastname@example.org