Last week came the John Lewis results for the year ended January 2015. Thursday this week it will be the turn of Next and its prelims. Much was made of the lower JLP bonus announced. Next’s results will not be nearly as strong as those of recent years either. I predicted last year that 2015 would be a significantly tougher year for retail and these results from two of the industry’s winners will be far stronger than the majority which follow from their peers. Moreover, they really reflect much more 2014 than 2015. They underline the implications of a vastly tougher trading climate unfolding right now.
It is structural change which is making life so much tougher. I have analysed this in detail and generated forecasts in the premium sections of richardtalksretail.com. Here, I can say briefly that there is huge oversupply in the market – too much space, too many stores, and too many mouths to feed. This is the key cause of price deflation which has become a permanent feature of every sector. With year-on-year prices down by 4% and more every month, customers are quickly learning that generally, it is no longer necessary to buy at full price. This is not just margin-dilutive but brand-dilutive too. It fundamentally impacts your relationship with your customers.
It became very clear halfway through 2014 that what seemed like a retail recovery had no steam left. The writing was on the wall. Last week’s otherwise excellent Retail Week Live Conference barely mentioned sales ie selling stuff. After a period of frenetic cost reduction the industry is lean but not very mean. In fact it is having to be increasingly generous to generate sales. Retail needs to get much better at selling and this is about better understanding of customers, about relevance, about editing ranges so you do not confuse genuine choice with product proliferation. But beware businesses chasing sales at any cost.
** For more detailed discussion and forecasts of demand, margins and capacity visit the premium content of richardtalksretail.co.uk