UK Retail on the up….or is it ?

With employment rising, unemployment falling, real wage increases, low inflation and historically low interest rates, current indicators suggest that the immediate outlook for the UK high street is very good.

Many within our industry may initially agree with this but beneath this sunny picture there are a few clouds. Most of us are aware that the big grocery retailers are having a very tough time fighting falling sales and decreasing margins. No tears are shed but the reasons behind these declines can be echoed in our own market place. New aggressive competitors and ever changing trading environment.

Online operators have been around for a few years now and have experienced continuous growth and good profitability. But even they are seeing the market changing on , nearly, a daily basis. A recent supplement in  a Sunday paper illustrated some of the difficulties facing online traders. They , first, appeared as the new whizz kids on the block. Using technology in a way it had never been used before and catching many traditional retailers off guard. But now when the new kids sit down and devise a plan , the next day (bit of an exaggeration but helps to make the point) they have found that technology has moved on again and their plan looks dated.

Even if sales are looking good, the one area that most players are suffering with is that of margin. Retail rents are the highest in Europe and online operators are experiencing a constant battle with delivery costs and for once this has nothing to do with oil. For the couriers the biggest hurdle is making the first delivery. What I mean here is if the customer is not in for the first delivery they start to lose money. There is huge pressure to make that first delivery and there are numerous ways being looked at, to achieve this target. I shall look at those in a later post. The main point here is that even where the sales outlook looks optimistic the cost of sale through every channel becomes increasingly tough.

There is a whole raft of blicks and clicks modes of sale being considered that undoubtedly change the way we buy but many experts still believe that the ‘shop’ has a major part to play.

Certainly, despite the overheads, retailers in general might well favour real stores, in part because when people shop online they buy less, so incentivising them to get back into stores is important. “There’s no serendipity online and actually online is difficult to browse,” says Mr Perks. “And clearly people still want to go to shops, although the high street of the future may not be a place to buy, but more a leisure outlet.”John Miln, chief executive of the UK Fashion and Textile Association,

I spoke to a customer last week and asked him ‘how was business?’ . He replied that the first three months of the year had been pretty good but the last three had been poor, and he had not the slightest idea why. This is a retailer, who is long established, well stocked and provides a good service. Sometimes there are more questions than answers ( yes it is a song lyric Johnny Nash 1972), but one of my theories is that there is a subconscious confusion with today’s consumer. I think that the retail channels are creating a level of uncertainty and confusion  as to where the consumer can make their purchases. Whilst online is increasing its market share it still is only approximately 11% of the total retail market. The spend in our market place is discretionary. They don’t need party items. They might go into a shop, maybe not see what they want or think they may get cheaper online. They, then, go online can’t find it, can’t get it or find it is not always cheaper or order and don’t get it. Hence, the consequence is they don’t make the purchase and carry on with their lives thinking it has made little difference not having the item.

Party outlets could be described as leisure outlets (as in the above quote) . Not that anyone is going to visit a party shop as a leisure activity in itself but the purchase is primarily for a leisure activity. But, perhaps, we as an  industry, need to make that purchase more of a fun experience, something which the online sellers would struggle with. Yet a ‘bricks and clicks’ operation may be able to achieve. Retail is moving very quickly. Historically change has been mainly driven by major retailers. Now, even they are unsure as to what is really  happening. If we as an industry, have an advantage for once, it is that we are small and can change more quickly than major retailers. We know things are changing (yet more lyrics – Jay and the Americans early 1960’s) the trick is knowing what the changes are.

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