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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What you get

Looking forward to 2017?

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.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details

Discounting Christmas

With just a few days left the retail die is cast. Christmas this year will have been far from a disaster, but not far enough to provide much if any comfort to the industry. I spend much of my time talking to CEOs and leadership teams. The consensus view is that 2016 was the toughest year they have ever known. There are a whole range of reasons why but a fundamental factor is the effect that a constant diet of discounting is having. This is the most price-driven market Britain has ever seen.

Promotions are not being driven by customers but by retailers. I have written at length about overcapacity but the industry is not simply devaluing prices but its proposition. Most of what we buy we do not need. We are inspired and persuaded to want and to reward ourselves through buying. When the price of the item in question is lowered, so too is its value.

This is happening throughout the year but never more so than in the “Golden Quarter”. And here, the industry has been guilty of a failure to understand the consequences of its actions. Black Friday sucks business from December into November, at discounted prices. December has been losing share of the total year sales pie since 2013, and I expect it to record its lowest yet at 12% for this year. Had the industry managed to hit the levels of 2013 this year it would have added £2.4bn to Christmas sales revenues.

Managing promotions more effectively in 2017 will be a major influence on retailers’ performance. A number are biting the bullet. Some of the food majors, fashion businesses like Jigsaw and Fat Face, while M&S and Debenhams are trying to reduce discount days. We are planning to launch some services in due course around tracking, benchmarking and optimisation. Get in touch for more information.

** We advise retailers on strategy, analytics and track promotional activity across the UK’s key retailers. Get in touch for details

The ONS retail boom

What is happening with the ONS Retail data? If the numbers are to be believed, the industry is enjoying a boom. In fact pure play online retailers enjoyed a 28% yoy sales hike in November! Most retailers seeing these numbers will be seriously worried because their own companies have seen nothing remotely like this level of growth. Indeed few will be seeing any growth at all.

The ONS methodology is opaque, hiding behind confidentiality and any sliver of detail which might give the vaguest of clues as to which company is classified in which category. The dominant retailer in the pure play category is obviously Amazon who may indeed be growing this fast. However, in the first 6 months of 2016 this same data set recorded average yoy growth of 10.6%. What has caused the rate of growth to almost triple? The last three months registered 20.1%, then 24.7% and finally November at 28.2%. And by the way, zero growth was recorded for December last year!

We are talking here of a pure play category with annualised sales running at around £30 billion. It is of growing importance to the industry as a whole and there is a pressing need for reliable data.

Retailing is critical to our national economy. These data influence the thinking of Government, the Bank of England and of course, the leadership teams of our major retail companies. We need an explanation of just how these numbers were arrived at in order to understand how and why they bear no resemblance whatsoever to every other piece of evidence about the industry – BRC data, promotional discounting (forced by weak trading) and anecdotal evidence from the leading CEOs across the industry.

** We advise retailers on strategy, analytics and track promotional activity across the UK’s key retailers. Get in touch for details

Black Friday … arriving later

Black Friday first arrived in any meaningful scale in 2014. It had a massive, generally negative, impact. Two years is an awfully long time in retail. Today’s market is already quite different. Back then, promotional activity was still something retailers engaged in sometimes, to boost sales, shift stock, and reach out to customers with a special offer. Since then, we have had wall-to-wall price promotions and negative inflation virtually every month in almost every sector.

Last year Black Friday was more muted. The strongest opted out altogether. Many sought to better manage their exposure. Nevertheless, a combination of wet weather and shopper fatigue kept the crowds away from stores and business shifted online. There was a cost hit, partly due to higher staffing in shops that turned out to be unnecessary and partly online, which struggled to meet demand.

I expect this year will be an even damper squib. The main reason is even greater fatigue. After 2 years of discounts, are shoppers really going to rush to buy, knowing there will be more discounts around the corner? My analysis suggests that at the beginning of this week around 25% fewer retailers had launched Black Friday versus last year. And as this week has unfolded, there has been a steady but slow uptake. Each day more are launching but with only a day to go a significant number remain on the sidelines.

Promotions are a key indicator of current trading. Many don’t just hit margins, but brand equity too. Of course if you are concerned the guy next door will discount and capture your customers, what choice do you have? And this is the underlying reality of today’s oversupplied market. Against this background it will be interesting to see who is able to make next year’s price rises stick – will customer buy it?

** We advise retailers on strategy, analytics and track promotional activity across the UK’s key retailers. Get in touch for details

Black Friday … just another promotion

Two years ago we were about to experience Black Friday for the first time. A handful of retailers had already dipped their toes in the water the previous year, but 2014 was when most of the industry dived in. And what a disaster it proved to be. Aside from appalling PR with National TV news coverage of fist fights and mass scrums in leading stores, it was financially damaging to most of the industry.

The idea of offering huge discounts just as most UK retailers traditionally launch their full margin Christmas offers was crazy. In 2014, Black Friday-fuelled November sales volumes soared and although the industry still managed to drive Christmas spending up, it had to discount prices (and therefore margins) to do so.

Last year the impact was much more muted. While pure plays still managed a Black Friday boost to November, mainstream non-food retailers saw only modest spend increases. And even so, Christmas was the weakest we have seen in 25 years and spending was down 2.5%.

I’m expecting last year’s trading pattern to be repeated this year. The key change over these two years is that discounting has now become a permanent feature of every retail sector. Back in 2014 Black Friday was a novelty and we were only just beginning this unprecedented cut-price market. As we approach the big day, our data show that on average, 64% of non-food retailers have been on sale so far this calendar year. Black Friday 2016 will be just yet another price promotion – the novelty value has been discounted.

** We advise retailers on strategy, analytics and track promotional activity across the UK’s key retailers. Get in touch for details

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