As we welcome the New Retail Year and consider the outlook, there is the usual mixture of total unknowns and total certainties ahead. One of the latter is around price. 2014 became increasingly price-led and the New Year is certain to be even more so. In 30+ years in and around retail I have never seen a market where price is so dominant and deeply embedded in customer behaviour.
I believe there are three key drivers here. The first is economic. Household budgets are squeezed between static real incomes and rising costs. Factors like PPI payouts, dipping into savings and falling petrol prices have helped mask the underlying weakness of demand, but it’s there nevertheless. The second concerns the relentless growth in online. The internet is changing the economics of retailing and because it is a materially lower margin distribution channel, it relies far more on lower prices, promotions and discounts than its physical equivalent. The relentless growth of online retail has helped to make the industry much more promotional. And the last key driver is retailers themselves. The expansion of value players and discounters has forced mainstream players to lower prices to compete.
The minority of retailers who have resisted the temptation to discount beyond their strategic promotional calendar are generally the ones in better shape. Those that have embraced discount days and using price cuts will find it often difficult to persuade customers to buy at full price. Each of the three divers I have discussed here will be very much to the fore in 2015. I think there is every prospect of the New Year being even more price-driven than the last.