Cost to serve ….

Between 1994 and 2004 , operating costs for retailers rose 19.4%. Between 2004 and 2014 , they rose by 33.4% , whilst retail consumer spending only increased by just over 2% in the same period. Whereas in the 1994/2004 period consumer spending rose by 5%. These figures are from research carried out by the British Retail Consortium. What is worse, is that  they have also commissioned a report called Retail 2020, which indicated that with a combination of the national living wage, business rates and apprenticeship levy , the equivalent of another 20% of  current margin, will be added to the cost base over these five years.

None of this makes good reading, however, it is a reality and one in which retailers need to address to survive. I have never operated a retail store nor even worked in one, but I have spent a long time working with retailers and feel a shared responsibility in trying to look for solutions, to help retailers. Regrettably, as yet, I have failed dismally. But I have seen others that are looking at ways and means that are achieving some success. 

The consumer scene has much changed in recent years , to state the blindingly obvious. But it is not all about tough economic times plus the onslaught of the Internet . There has been a change in consumer spending habits . The consumer is looking to spend more of their ‘dosh’ on experiences. 

Waterstones, the bookshop chain, which was on the verge of bankruptcy five years ago, appears to have turned the corner. In its London West End store , it has incorporated a bar and cinema in the store. Great idea, that seems to be working , but most, if not all, the stores in our industry would struggle to find space for a bottle of wine and a TV. However, the point is they have looked for associated ‘experiences’. What is more relevant is that they have invested large amounts into staff training focusing on engagement with the consumer, something I have been bleating on about for some time. For Waterstones, it is working and they are now returning to profit. 

There a number of parallels with book stores and party shops . Both sell product that is easy to buy online, if the consumer knows what they want. But when they don’t and look for advice the retailer should always win. When I say ‘win’,I mean  ‘win’ over a web site. I have talked about this in previous blogs. The upsell potential of staff engaging positively with the ‘in store’consumer offers major opportunities for every good retailer. The example of Waterstones could not  illustrate it better. There is probably no other form of retailer who has suffered more from online competition .

However, there have been announcements in recent weeks that underline the changes we are experiencing.

WALMART – in the USA announced the closure of 260 stores. They are opening some new ones but only around 60. The world’s largest retailer closing stores is not to be overlooked.

IKEA – have announced consumer saturation. What they mean is that in the areas they are trading it is very unlikely they will achieve much growth because consumer doesn’t need anymore…it is a point of saturation…

Forgive me for the laziness of taking chunks of wisdom from elsewhere, but I think the following chunk from Forbes, is very poignant . The article was about not expecting continuous growth in retail spending at Christmas.

……The idea that we will forever increase our annual spending on holiday gifts suffers from the same sort of shortsightedness. Why should holiday spending rise every year? It turns out there is no good reason.

It is certainly true that many people and families choose to spend more on the holidays when they see their incomes rise. As you move from starving college student to young professional to upper middle class family, your gift buying likely increases. However, this is not without limit. At some point, most families simply reach a natural gift spending limit.

I believe this applies to all consumer spending in advanced economies and is backed by a lot of current research . Consequently , retailers , with the many other challenges they face , are faced with two formidable ‘book ends’, dramatic increase in their cost base at one end, and at the other, the end of natural growth in the consumer spend. Innovation and creative thinking will be needed, but the retailer cannot do it alone. For those suppliers who wish to maintain a presence in the High St , must help and support with that innovation and creativity . That said , I don’t think within the party market, that we are anywhere near saturation. 

One final point brought about by seeing something twice in one week. It relates to contactless payment. In one incident , I saw an elderly lady berating a retailer for not accepting contactless payment and with the other a woman walked out of a retailer because they did not accept contactless.

And ‘proper finally’ think  on this , if you don’t yet have contactless . The quote below (Financial Times) includes Apple & Android payments.

Richard Koch, head of policy at the UK Cards Association, said: “It took almost eight years for monthly contactless spending to reach half a billion pounds — now it’s grown by the same amount in just four months.

It maybe another cost, but going forward, it is cost worth considering.

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