It’s a tough time for some on the high street at present. Reported sales in the press by the major retailers across food and general products have shown wide variations.
Next posted sales for the Christmas period that showed a 13.6% rise in online sales however store sales fell by 6.1%. For the full year sales at Next stores fell by 7.2% whilst online rose by 10.4%.
Meanwhile all was not good news at Debenhams whose shares fell by 15% on a profit-warning announcement. Sales over the Christmas period fell by 2.6%. With the growth of online and discount retailers with easy ordering and returns, existing retailers must have a strong online facility that provides an easy to use customer journey.
Indeed customers are more demanding, they want value for money expressed as quality at an affordable price. But this is difficult to supply at a price if you are carrying the high overheads of an expensive retail estate of shops of which Debenhams have 240.
Meanwhile it’s reported that House of Fraser is in discussions with its landlords over rent reductions to endeavour to reduce costs.
Marks & Spencer said like for like revenues fell by 1.4% in the 13 weeks to 30 December whilst clothing and home ware fell by 2.8% and food was down by 0.4%.
For supermarkets there was also variations in business performance.
According to Management Today Aldi overtook the Co-Op this year to become Britain’s fifth biggest supermarket by market share, while Lidl passed Waitrose for seventh place.
In the 12 weeks to December 31 2017, Aldi commanded 6.8% of the UK grocery market, and Lidl was on 5%.
Sales at Tesco meanwhile rose by 2.3% in the 19 weeks to 6 January.
So what are the major challenges facing retailers?
High overheads when compared to online: Department stores who are generalists are suffering from the high overheads of retail footprint when compared to those specialists who only sell online.
Supermarkets have suffered the same problem; consumers buying habits in this sector have changed. Consumers now buy more frequently during the week evidenced by the Tesco Express and Sainsbury Local outlets rather than going to the hyper stores.
Discounting to compete: To compete with emerging high growth discounters particularly those who only trade online, real estate retailers have to discount to secure sales, this causes margin erosion and can lead to brand dilution.
But not so for Primark, they don’t do online, don’t advertise and have just announced clothing sales up by 7% over the Christmas period and plans to increase their high street retail floor space by a further 1.2m sq. ft. in 2018.
Black Friday has meant discounting even at John Lewis. Sir Charlie Mayfield chairman of John Lewis stated: “The level of discounting in the market this year was pretty unprecedented. And as a sign of that we had 24% more ‘never knowingly undersold’ price matches this year compared to last year.”
Convenience plays a key role: The convenience factor of purchasing online means that you don’t have to travel to a store to make a purchase. Traditional retailers need a strong online presence and make purchasing easy if they are to compete for online sales.
Specialist versus generalist: Specialist high street retailers also suffer from competition from the major food retailers, for example Mothercare competes with Tesco, Sainsbury and Asda for children’s clothing. In this case costs for the large retailers can be spread or amortised across a wide product portfolio rather than one type.
Exchange rates and the weak pound: John Lewis warned that profit margins would be under pressure in 2018. For example Sir Charlie Mayfield, chairman of the John Lewis Partnership says it’s due to the weak pound, which has raised the company’s costs. And the retailer is not passing on those costs to customers.
Inflation: According to the BBC news report dated 12 December 2017 Inflation is at a near 6 year high at 3.1% and therefore squeezing margins in the retail sector. Retailers may be or are reluctant to pass on these price increases to the consumer.
Offering value at a lower cost: Giving the customer what they want so that they perceive value in their purchase. For example compare Aldi’s sales with its Specially Selected range where it reported sales were up by 30% to the results by M&S for its range over the Christmas period.
So where do we go from here?
Choice: Customers want choice and this can be met with an offering of both online and in store. The in store experience needs first rate customer service to help and assist the customer with their choices and purchases. It needs store layouts that are easy to navigate and not confusing, the mantra has to be make the customer’s journey and sale of your goods, pleasurable and easy to achieve not forced.
Personalisation: where customers receive information regarding products and services that are relevant to them. Emails that are generic won’t be as successful in persuading the customer to part with their hard earned money compared to tailored communication that matches their buying pattern.
No queuing at checkouts:
Amazon launched its Go Store on 22 January where customers no longer need to queue at checkouts or self-service tills. Customers use their smart phones on entering the store to swipe and identify them selves using the Amazon Go app. Items the customer selects are billed to their credit card.
In an effort to tempt shoppers some retailers are investing in experiential shopping. This is where customers can take part in a unique experience.
Research from Barclaycard shows that 36% of the 250 retailers who were surveyed offer in-store events comprising classes, courses and exclusive sales previews.
Will we see smaller retail footprints?
Possibly amongst the generalist retailers who will need to reduce store sizes to be able to protect margins. But Primark who specialise only in clothing are bucking this trend.
Whilst the major retailers have deeper financial pockets to draw upon life is going to remain difficult and uncertain for those who have lost focus or have an unclear offering.
The fight for the customer’s wallet/ purse will get more intense in 2018.
What does this mean for marketeers?
Value is key to success. Consumers don’t want frills they want choice customers expect to be put first.
Adding value by experiential shopping, where the customer is able to experience a product or service or range in a non-sales pressured environment before committing to purchase.
Loyalty is hard won by customers want convenience; the rise of paying by smart phone is evidence of this and the replacement of loyalty cards with QR codes on your phone.
BBC Business News, The Guardian, Management Today, Primark web site, Financial Times