Recent news reports regarding Marks & Spencer’s shop closures have left other high street retailers feeling fearful about profits.
With plans to close 100 stores by 2022, in what M&S bosses are calling a re-organization of the entire retail chain, the aim is to turn a third of its in-store sales into online sales.
This of course is another blight in the midst of a global retail infection, predominantly caused by the propagation of online buying. Below Finance Monthly hears Your Thoughts on M&S’ shop cuts and the potential consequences across the UK.
Joe Rabah, Managing Director for EMEA, RMG Networks:
With the recent announcements that M&S is said to close 100 stores and that House of Fraser could close up to half its stores, it’s no secret that the UK high-street is under pressure as a result of changing shopper behaviour and a drastically altered customer journey.
For retailers to survive and adapt they must embrace technology to create meaningful, immersive retail experiences. However, it’s not enough for retailers to invest in technology without doing so in a purposeful manner and knowing the solutions that they invest in are going to be specifically relevant to their business and their customers. It’s essential that retailers use platforms that create frictionless purchasing experiences for their customers, enabling them to increase customer engagement that is tailored to individual customer needs and habits. In doing so they will drive customer loyalty and provide consistent cross-channel experiences. Today’s solution is not tomorrow’s in retail, and technology can either allow a brand to pivot so that it can adapt quickly to changing customer expectations, or it can lock a brand into delivering stale customer experiences.
While we don’t know what the future holds, retailers must understand whether the technology they are investing in suits a clearly defined purpose and is adaptable enough to suit their future needs and their customers’ evolving customer expectations, and consider this before making any technological investment.
Julian Fisher, CEO, Jisp:
With retailers, such as Marks & Spencer, facing large declines in high street spending as consumers turn to online shopping, bricks and mortar stores must evaluate how they are interacting with customers. We are a nation of shoppers and shopkeepers, but convenience is a key factor in driving potential instore customers online where they have access to a wealth of information, deals and personalised offers. To keep customers in stores, the high street shopping experience must provide this instantaneous access to information and personalisation through handheld devices. It is essential that retailers increase investment in areas such as mobile technology to bring the shop floor into the 21st century.
The restructuring decisions that Steve Rowe is making will have the desired effect with these future-thinking closures a controlled choice with M&S in charge of its own destiny. Customer service and quality of merchandise has been a hallmark of M&S for years.
Looking ahead, it will be innovation and the ability for stores and their staff to connect and personalise their brand with new customers who are armed with devices and a world of information and content. If they don’t they may succumb to the fate of others who have been unwilling to embrace changing consumer behaviours.
Iain Wells, Investment Manager, Kames Capital:
Will M&S shares be up or down tomorrow when they announce their results? I don’t know. Expectations are certainly low with earnings forecast to be down nearly 10%. The bad weather in the first quarter, that kept shoppers at home, has been so widely discussed that it can surely provide no negative surprises. With a dividend yield of 6.3%, and a price earnings ratio 9.8x, results that are in-line with expectations could see the shares rise.
While the share may rise on the day, more important is what evidence there is that the structural pressures that have impacted M&S over many years are easing. On this I am less confident. It is not that M&S is a “bad” retailer, just that the retailing world is changing around it faster than it can adapt, and the process of adaptation is painful for shareholders.
The key issues that M&S are trying to address include:
Everyone has a view about M&S, what they are doing well, and what they are doing badly. As a national institution management have the misfortune of having to carry out their plans on a very public stage.
Terry Hunter, UK Managing Director, Astound Commerce:
The news of the M&S store closures is yet another dagger in the heart of the British high-street. The retailer plans to move a third of its sales online, and intends to instead have fewer, larger clothing and homeware stores in better locations. If the company is going to recover from its recent sales slump, it is imperative that it has an exceptional online offering. It will now be competing more directly than ever with the likes of Amazon and Asos.
Online retailers like Asos take advantage of efficient and nimble business models by avoiding the costly overheads associated with running bricks-and-mortar stores and as a result, they can afford to invest a great deal in offering websites which give the best possible user experience. Although M&S is cutting back on some of these overheads, it is not as experienced or effective in the ecommerce arena as the pureplay online retailers. M&S needs to make sure its in-store offering works in harmony with its online strategy. The retailer struggled over the Christmas period last year – basic logistical errors caused a real headache as next day delivery targets were missed – a type of error you don’t see the likes of Amazon making. A truly omnichannel approach is the only way that this British retailer is going to recover, let alone flourish.
One factor that is working against M&S is that its customer base has an ageing demographic. The company has been making efforts for some time to attract a younger shopper and an improved online offering could potentially aid this. A younger tech-savvy shopper is more likely to make purchases online rather than instore. One of the key battles for M&S will be ensuring that its predominantly over-50 female shopper continues to visit the new stores, whilst also becoming more active in buying products from its website. It is a difficult road ahead.
Paul Fennemore, Customer Experience Consultant, Sitecore:
M&S faces a similar challenge to many other retailers – in trying to find out exactly who its target market is, and what they want, ahead of them wanting it. Evolving a customer experience strategy on the basis of anticipating needs in this way will require a very sophisticated, multi-channel, cross platform customer experience strategy in place, each of which must feed the other to create a total experience that is worth more than the sum of its parts.
One way it could go about reinventing itself online is to go beyond personalisation – which all brands claim to be able to do – and move to individualisation. This will deliver content to its customers based on specific data points. This will help set it apart from the other online retailers, and help it provide its customers with an unexpected, satisfying experience which will keep them coming back.
By creating a robust individualisation strategy, focusing on customers as individuals, rather than using the more traditional broad personas, M&S will be able to attract a younger, mobile-first demographic, who value individual interactions with brands. The challenge here will be to ensure that experience is consistent across all channels, including mobile, online, social media, and in-store. Integration of its systems will be key for M&S going forward, otherwise customer data will be siloed, meaning they won’t be able to track a customer’s journey efficiently. This will ultimately lead to a worse customer experience, as it won’t be consistent.
Ben Holmes, Head of Display, Samsung UK:
Yet again, we’re seeing more boarded up shop fronts on the British High Street with M&S recently announcing a series of store closures. We understand the predicament M&S is in as it sets about ‘modernising’ its business to ‘meet the changing needs of customers;’ but at the same time, we do believe that bricks and mortar establishments can be part of the modernisation effort rather than being the sacrificial lamb to more investment in online. When every retailer is battling for the same pound spent, businesses definitely need to be more innovative in how they sell to their shoppers. The old rules no longer apply when it comes to in-store retailing in an age where shoppers expect personalisation, digital connectivity and high impact experiences. We’d encourage retailers to experiment with digital technologies like video walls and touchscreen kiosks because these technologies have been proven to drive engagement and sales. Physical stores are definitely not secondary to online retail estate because there is a real opportunity for companies to transform their stores into experiential destinations – think brandship not just flagship. Until retailers start delivering genuine, digital experiences, we can unfortunately expect more casualties.
Adam Powers, Chief Experience Officer, Tribal Worldwide London:
This latest announcement is yet another indicator of a malaise that’s been hanging over UK retail stalwarts for the past few years. The inexorable growth of online commerce means that a strategic rethink must be undertaken for businesses that want to successfully trade on the UK high street. Actually, this is a global challenge, but the UK is one of the most advanced ecommerce markets in the world and so we are seeing the outcomes here earlier. Like Mothercare, M&S is clearly trapped in the middle of a market where they are being squeezed at both ends. Cheaper or more fleet-of-foot competitors are doing product innovation around food (Aldi/Lidl) that was once an M&S sweet spot. Away from food, key competitors have high performing home delivery infrastructure like Next or ASOS that leave M&S looking lumbering and out of touch with modern customer expectations. Additionally, M&S are getting squeezed from the top as style needs for their target demographics are increasingly met by internet optimised clothing competitors. The wrapper around all of this is really customer experience - online and instore, this is the modern retail battleground. From the outside looking in, it appears that nobody at M&S is looking at customer experience holistically, with a mandate to drive radical, customer-centric transformation and the initiatives underway, such as store closing, look piecemeal. What’s particularly worrying about M&S delivering a turnaround, is that the way things are emerging must be highly unsettling for the workforce, the very people who are at the frontline of delivering customer experience.
John Taylor, Co-CEO, Duologi:
The internet has made it easier than ever before for customers to compare prices and shop around online, without ever having to leave the comfort of their homes. This subsequent decrease in footfall to the high street has led to a number of high-street brands opting to close stores where footfall has dwindled to save on overheads, with M&S being just the latest example of this.
However, this does not mean that the high street is dying – far from it. Rather, we’re seeing a shift in the retail landscape, wherein the retailers set to thrive will be the more flexible, agile brands which can offer customers a choice in how they shop and pay for products.
To accomplish this, savvy smaller retailers are taking the time to optimise their online presence to sit alongside their bricks-and-mortar offering, engaging customers who no longer shop with a brand due to ongoing store closures.
This flexibility also extends to the payment process itself. With consumer confidence currently low, flexible finance options such interest free credit, 0% finance and buy-now-pay-later can support shoppers at the time of purchase – particularly for big-ticket items – which can both engender consumer loyalty and increase average basket values.
Charles Brook, Partner, Poppleton & Appleby:
We should be careful not to jump to conclusions. There is undoubtedly an acceleration of change in the retail market with some large towns experiencing retail depletion more than others. Statistics released this week in Yorkshire put Doncaster, Barnsley and Huddersfield towards the top of those hit hardest by a combined net loss of more than 1,000 retail outlets in the past 12 months.
Marks & Spencer is shifting the focus of its in-store offering away from homewares and clothing to place emphasis on and serve its online offering in a more contemporary manner. This is a sensible response to the evolved way in which even its traditionally conservative-minded customers now shop and, having such a significant leasehold estate, and it needs to plan well ahead. I think it highly unlikely that M&S would try to foist a Company Voluntary Arrangement on its landlords.
Perhaps this is a good time to deliver seemingly bad news. The M&S Board may be gambling on the market and its major shareholders (if not the public at large) recognising that whatever issues have hit other big names, M&S is reading the trading conditions and charting its future trading strategy with typical caution.
Rick Smith, Director, Forbes Burton:
Retail is going through a transition, and a transition that M&S should have seen coming, especially with the likes of Ebay / Amazon etc dominating the way people shop, but unfortunately for all those concerned (towns, cities, the high street, communities, shoppers, staff) they didn’t. High street shopping is now all about the experience.
However, it’s not just the blue-chip retailers fault, it’s a collective from councils, property owners and communities. This should have been recognised and adaptive investment should have been put in place a long time ago. The problem we have now is that it’s all knee jerk and I’m not convinced they are going about it the right way. Closed high street shops is simply demoralising for the community and once the reality of it sets in it’s quite scary when you start thinking more about it.
M&S haven’t kept up with the times and they need to look at online sales especially for the struggling clothes and homeware sections. While they’ve been able to do well compared to their competition by attracting females to their clothing range, they have failed to find their proper place in the market on this side of the business and need to get this totally right. Also, many of the stores need modernising which is difficult when profits are dropping and there’s no money for investment.
Their food range is nice and appeals to a small, specialised section of the population. However, competitors have caught up with their food offerings and often for much less with most now doing a ‘finest’ or similar range. A small percentage do also believe the bad press around packaged meals, and this combined with the offerings from the competitors has had a knock-on effect because there has been no differentiator in terms of quality. M&S food is of very good quality, but it is now evident with these closures that they do not have the resources to convince the public otherwise.
Emma Thompson, Head of Strategy, Visualsoft:
E-retail is booming at the moment, with consumers currently spending a staggering £1.2 billion a week online. As such, high street retailers need to make the most of this opportunity to ensure they have the best chance of success. Those who fail to do so can expect to fall behind more digital-savvy competitors, as we have seen with the likes of Toys ‘R’ Us and Maplin.
While it still remains to be seen whether Marks and Spencer’s store closures will help boost performance, it is heading in the right direction by using this restructure to support the growth of its website. This forward-thinking attitude could see the retailer maximising its growth potential, as the majority of the UK’s top retailers that neglect their online offering risk stunting their growth as a result.
For Marks and Spencer to effectively focus its efforts, it needs to not only improve its website’s user experience, but also utilise a variety of online channels to boost revenue. Social media in particular should be a priority, given that a growing proportion of e-retail sales are driven through the likes of Instagram and Facebook. If the retail giant prioritises these areas, it can expect advantageous results to follow.
Leigh Moody, UK Managing Director at SOTI:
The decision to close 100 stores over the next four years is a bold decision from one of the UK’s leading retailers and highlights the shift in focus from high-street to online in order to keep up with evolving consumer trends.
In response to this change and to support its online growth plans, M&S will need to consider how they integrate their mobility management strategy across their entire on and offline operation to ensure they are streamlined, data is protected and customer demands are met.
As M&S becomes more digitally enabled across all channels including mobile and social, mobility will be key in influencing the shopping experience, touching every part of the value chain which in turn, will lead to further opportunities for cost savings and buying efficiencies.
We would love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
2018 is expected to be the year for high street collapses, and it’s already looking like a grim year for retail survival, never mind growth. In the UK 2017 saw even more shops go bankrupt, and the last decade has only been exemplary of a slow decay for British shopping, from Woolworths, BHS and JJB Sports, to Blockbuster, Virgin Megastores and Phones 4U.
Above is Finance Monthlys list of five top UK retailers that are the most likely to be closing down in 2018.
The high street is reeling after a winter of ill health. Toys R Us, Maplin, House of Fraser, Claire’s: it seems that even stalwarts of the retail landscape aren’t immune to rising rents, the burgeoning ecommerce market and wavering consumer confidence. Below Finance Monthly gains special insight from Andrew Watts, Founding Partner, KHWS, The Brand Commerce Agency, on the impact behavioural science can have on high street performance.
Many other household names appear on the brink of crashing. The question must now be, is the high-street blight another blip or could it this time be terminal?
Nowhere are the symptoms more obvious than casual dining chains like Prezzo, Carluccio’s and Jamie’s Italian. These eateries and others like them have enjoyed the benefits of the booming experience economy in recent years, but not anymore.
Their current troubles are based in low consumer confidence which started with the financial crash almost a decade ago. As real-term income has dropped, and the cost of raw materials increased, consumers have become even more selective about how they spend their disposable income. Retail therapy is no longer proving the consumer tonic that it once was, and even the experience economy is under pressure. A nice experience is no longer enough; spending must result in a clear benefit and value for money.
The homogenised nature of casual dining is a sound example. The majority of chains are backed by private equity, so scale and profit are a key part of their basic business strategy. As a consequence, each brand offers similar mediocre food and a mirror-image dining experience. It’s become harder to charm consumers into splashing out and coming back. Add rising prices to the mix, and people can be forgiven for dining out less.
What’s unfolding in casual dining is symptomatic of a wider malaise on the high street, but this trauma needn’t be fatal. In casual dining, we can see the possible remedies that can be used to salve other areas of retail - a natural downsizing of the market coupled with stronger brand differentiation.
Understanding consumer behaviour is of fundamental importance to succeeding in this landscape. Establishing how and why spending decisions are made will empower brands to tailor their marketing messages accordingly. Behavioural science-led marketing techniques are now enabling brands to do just this, something that has not previously been possible.
Working in partnership with Durham University Business School, we examined the hardwired short-cuts – known as heuristics – that everyone uses to make decisions. We then identified and reframed the nine most relevant to purchase decisions; we refer to them as Sales Triggers.
For casual dining brands, there are two Sales Triggers that are particularly relevant and could prove the cure for the current problems ailing them: Brand Budgeting and Less Means More. This means using marketing messaging to demonstrate real value in a crowded marketplace (Brand Budgeting) and also offering something different or exclusive that enhances the experience when dining (Less Means More).
Despite the seemingly dismal outlook on the high street, some retailers are bucking the trend. Grocery discounters like Aldi and Lidl are triumphing because of their successful use of the Brand Budgeting and Less Means More Sales Triggers. There are some success stories in fashion retail, too. FatFace and Ted Baker have done well in the past quarter, posting robust Christmas sales. This is down to two things: a good product range and a strong reputation. This demonstrates their use of two Sales Trigger. FatFace uses Choice Reduction to simplify information and choice, so people don’t suffer from overload and default to their current behaviour. Ted Baker utilises the obvious truth, communicating well-held positive views of the brand’s heritage, to provide people with information that they are unconsciously seeking to confirm their beliefs.
Flourishing retailers are those who invest in understanding the key Sales Triggers that inform the purchasing behaviour of their customer base, and tailor their service output, products, tech and shopping environment accordingly. High-street brands seeking to replicate and sustain such successes can then use these insights to inform their marketing strategy. This differs from sector to sector, but can be clarified by a behavioural science-led approach which can inform marketing and ultimately present an offering and point of difference that will boost retailer longevity.
There’s no quick fix, but with the right sort of changes, the current retail retrenchment doesn’t need to be a terminal issue for the high street. Gaining a deeper understanding through behavioural science of how shoppers could help cure the pressures on the high street.
Toys R Us has gone into administration, putting 3,000 UK jobs at risk. Equally, Maplin has come crashing down. In the past months more and more retail companies and big high-street names have hit the deck. Are these signs of an infected era in the retail sector? Is the retail infection a real fear at the moment? What are the prospects of more big chains failing?
This week Finance Monthly hears from a number of expert sources as we list Your Thoughts on the potential for a retail infection, the impact of online shopping on the high street, and the future we might see throughout the rest of 2018.
Dom Tribe, Retail Sector Specialist, Vendigital:
The collapse of Toys R Us is a clear example of the need for retailers to adapt to changing shopping habits if they are to survive. Despite losing significant market share to competitors such as Amazon and Argos, Toys R Us failed to implement an effective E-commerce model with expedited shipping options and also continued to rely on its large warehouses. Opened in the 1980s and 90s, these have proven highly costly to run, with difficulties around managing stock levels, and have been outperformed by its new smaller stores.
Toys R Us’ relationships with key suppliers also hit the headlines over the last year, with the chain demanding long payment terms and exclusivity on certain ranges despite no longer being the key player in the market.
Overall, this collapse emphasises the need for high street stores to continually take heed of customers’ changing shopping habits if they are to stay ahead of the curve and survive.
Mark Hinds, CEO, Polymatica:
Toys R Us and Maplin are both examples of businesses that, despite being deeply involved in technology, have simply been left behind by the fast-paced changes in retail in this decade. All the inventory, special offers and customer data in the world won’t help if you can’t combine them and act quickly to react to customers’ needs.
The sad fact is that we’re likely to see more retailers go this way until big-box stores can find a way to adapt to the changing habits of consumers. Understanding customer data will be critical for this – not only in understanding what will be the most effective strategy based on their existing resources, but also in having the speed and flexibility to adapt strategy in the field to ensure that what seems the best approach doesn’t turn out to be a dead-end. To do this, data needs to be put in the hands of those who actually need it – the executives, marketers and other operational staff who can build a new business. Data scientists have a valuable role to play, but there are so few of them available. Retailers need to make analytics available to people with specific business knowledge to help make data-driven decisions to navigate this changing retail environment.
Perry Krug, Principal Architect, Strategic Accounts, Couchbase:
The UK retail industry is undergoing huge upheavals, and Toys R Us and Maplin have found that out the hard way. It’s no secret that the environment in which massive physical stores like Toys R Us once thrived no longer exists: footfall and sales are down, rents and competition are up. Many retail parks and shopping centres are facing extinction and are a great example of the urgent need for revolution in retail. Stores like Toys R Us were among the first to recognise that customers want more choice than could be found on the average high street, creating sprawling estates in order to supersize the physical retail experience throughout the country. However, this now pales in comparison with ecommerce, which gives customers infinite-scale retail from the comfort of their own home – as well as newer developments such as Amazon Go.
All of the most successful retailer business models in 2020 will be digital-first or digital-only, it’s as simple as that. Ultimately retailers must meet the demands of the 24/7 global digital economy to guarantee faultless and reliable experience to customers, no matter what the scale or location. Physical stores have two roads ahead of them. Either they can continue doing what they’re doing, where further decline is the most likely outcome. Or they can try to function in parallel and support of ecommerce, by offering an omni-channel experience that merges online with offline experiences. For instance, this might mean being more boutique or acting as a showroom for big-ticket items that customers really need to try before they buy. Likewise, a business model like Amazon Go which successfully combines elements of physical and digital shopping experiences in one store may prove to be the blueprint for success in the years ahead, in which only the strongest and most innovative retailers will survive.
Charles Brook, Poppleton & Appleby Northern:
Even before the batteries have run down in the Christmas toys, people engaged in the retail market are already wondering which of the big high street and retail park brands are going to be the New Year insolvency story.
The only real surprise that Toys R Us and Maplins might be this year’s big story is the timing. I’d have expected this to happen a little sooner.
Both major on out-of-town retail park locations, both have considerable fixed overheads and both carry vast quantities of stock much of which relies upon significant discounting to carry them throughout the year between their peak sales period each Christmas.
With the New Year comes the first rent quarter and the largest VAT liability of the year and, whilst each business should have a healthy bank balance following peak season sales, they will also be facing the bills for all of the stock that they have hopefully shifted in the last quarter of the previous year. Together, these produce the retail equivalent of Thunder Snow.
This year it’s Toys R Us and Maplins, next year there will almost undoubtedly be someone else. We shouldn’t rush to assume that this is indicative of a particular trend in the current UK economy. Sure, Toys R Us has a high fixed cost base with significant retail properties with long-term commitments; it’s business model pre-dates internet shopping and arguably it has failed to move into that market as strongly as it should. Maplins operates in the most competitive sphere of internet sales yet it has expanded massively over recent years into retail parks and the high street; that is counter-intuitive and perhaps the strategy was misguided.
Whatever the outcome of any inquest into the failure of each company, what these cases remind us is that retailing is a highly volatile and sensitive business to be in. These retail leviathans are burdened by inertia and a lack of flexibility and when the economy turns against them they can find that it's near impossible to avoid a melt-down.
Phil Duffy, MD, Duff & Phelps:
Since 2011, the banks have paid out over £28 billion in compensation for mis-sold payment protection insurance. This has resulted in what some economists call “helicopter money”, large sums of cash distributed to the significant swathes of the population. Coinciding with the UK finally emerging from one of the toughest economic periods in living memory following the financial crash, it is easy to understand why people who were suddenly handed a large windfall may have had the confidence to spend it shopping for a treat for themselves, rather than saving it.
However, people do not exist in isolation from wider economic concerns. It is difficult to imagine now, but there was genuine economic optimism in the period from roughly 2012 – 2016. The economy was growing faster than almost any developed economy, the government’s strategy to recover from the financial crash seemed to be working and there were no major economic threats on the horizon. In this climate of optimism, and with interest rates at almost zero, it is easy to understand why people who were suddenly handed a large quantity of money may have had the confidence to spend it in a carefree manner.
The tide has turned. Brexit and its multitude of ramifications has caused a crisis in consumer and business confidence, with many now expecting economic turmoil approaching the level of the 2008 crash. This is causing many consumers to hold onto the little disposal income they have, resisting spending on all but essential items. This emerges clearly from the BRC’s Q4 2017 retail sales figures, which showed that sales of non-food items fell 3.7% on a total basis and 4.4% on a like-for-like basis. While wage growth has remained low since the financial crash, the compensation from the PPI mis-selling scandal was responsible for putting some money back into consumers’ pockets. With this now drying up, and a deadline for claims set at August 2019, retailers will be fearing a further softening in consumer demand and more hardship to come.
Leonie Brown, Customer Experience Strategist, Qualtrics:
Price is no longer a sustainable competitive advantage in retail - internet retailers have put pressure on the margins of traditional bricks and mortar stores and continuing to compete solely on cost is a dangerous game that has already claimed a number of high profile high street retailers.
In today's economic climate, experiences are the key differentiator. Consumers are willing to pay more for and be more loyal to brands that focus on experiences as the core selling point of their goods and services - to do that, brands really need to tap in to the emotions and behaviours of their customers.
Understanding what they expect, what drives them to spend more or return time and time again to the store lies at the heart of it. Retailers need to become more intelligent and understand their customers better than ever before and they need to act proactively on that intelligence. It's no use recognising that your sales figures are dropping if you can't understand why and then make changes to close that gap.
Rick Smith, MD, Forbes Burton:
The demise of Maplin and Toys R Us are both unfortunate but not wholly unexpected. We’re also seeing the likes of Marks & Spencer’s planning to close some of their stores to reduce costs and New Look also announced in February that a CVA may be on the cards as sales have fell but at least 10% of UK stores are at risk of being closed.
However, is the retail sector infected? Some may say yes but the problem is more about change and an inability to compete. There has been a huge shift in how and where transactions take place, moving from the high street to online.
Both Maplin and Toys R Us had online presences but they faced stiff competition from the likes of Amazon, who could offer the same goods for less due to a vastly different infrastructure and lower operating costs.
Another issue which won’t have helped is the current lower spending by consumers, people are still feeling the effects of wages not keeping up with inflation.
So what does the future hold in store for the retail sector? The future certainly looks uncertain, mainly due to millennials and their behaviour as these consumers will hold a trend for online shopping and social media for years to come.
Clothes stores may be spared as people still like to try before they buy. But, there are more online clothes stores springing up all the time that offer easy ‘try and return’ services which could cause real problems for clothing stores in the future.
We may also see more stores merging as they try to stay in business, similar to the Carphone Warehouse and Dixons group merger.
Retailers need to use this difficult period to shake up their operations and their stores in order to remain competitive in their industry, there is no room for firms that aren’t willing to change or become innovative – take advantage of the technology that we have these days to make their stores more of an experience for their customers because a good experience will keep them coming back.
Simon Willmett, Financial Director, Nucleus Commercial Finance:
The Woolworths administration was a decade ago and we seem to have been speaking about the demise of the high-street since then. Would I go as far as calling it an infected era? No. But, we are definitely facing challenging times.
The first quarter has historically seen companies that have stretched themselves financially succumb to poor Christmas trading. This, combined with lower January sales and VAT payments can be a death blow for business. With Maplin and Toys ‘R’ Us both going into administration on the same day, the weakness in their model is clearly highlighted and it has forced everyone to reconsider the market again.
The continuing growth of e-commerce, Amazon being the obvious example, but also larger supermarket chains expanding their product offerings has made the market very competitive. Chains will need to make sure their business model is suited to the invariable challenges that lie ahead.
Unfortunately, I don’t think the worst of it is over and there are a number of larger high profile chains that appear to be suffering various signs of distress. Whether these businesses will eventually fall into a formal insolvency process is unclear but what is certain is that they will all need some form of restructuring - whether that is formal (via a CVA for instance), or a refinancing, remains to be seen.
Alan Andrews, Marketing & HR Consultant, KIS Bridging Loans:
We believe that there’s a huge likelihood that the UK retail sector is being hit harder than ever by online retailers, particularly Amazon.
If you think of buying children’s toys, gadgets or electrical goods, what’s the first place you think of? Probably Amazon, not the shops that specialise in providing these products.
This is because they offer easy ordering, super-fast delivery and prices that are usually cheaper than anywhere else. This is great for your Christmas shopping, but not so great for the UK economy when we are ploughing our money into a company that sends most of its profits abroad.
Amazon are forever expanding their range of products and services, making themselves a competitor for most UK retailers. If they want to introduce a new product, they already have the website, the warehouses, the delivery services and the advertising to do so. This is near enough impossible for other businesses who want to provide similar services to compete with, when companies like Amazon can do it so much quicker and so much cheaper.
There was a time when Toys R Us was the new industry giant, closing down smaller independent toy shops itself. And now there’s something even bigger – threatening nearly every industry all in one go.
It’s sad to think that taking your children to a toy shop could be a thing of the past. I imagine that, in the future, the closest thing they’ll get to going to a toy shop is scrolling through an iPad.
We have to ask ourselves if this is what we want for the future. Are we our own worst enemy?
Saving a few pounds now could be very costly for the future. I believe that it’s very likely that more industry giants similar to Toys R Us and Maplin could start to close down as online retailers continue to grow and we put more and more of our money into them.
As these retailers start to close, thousands of jobs will be lost, as figures have already shown.
Prav Reddy, Partner, Charles Russell Speechlys:
The recent insolvencies across both the High Street and the casual dining sector indicate a steady acceleration in the number of retailers suffering financial difficulties.
As well as the administrations commenced by Toys R Us, Maplin and Jamie Oliver’s Barbecoa restaurant chain, we are also seeing an increase in the number of businesses in the ‘managed’ stages of insolvency such as House of Fraser, Mothercare, Byron, Prezzo and Jamie’s Italian. Generally, the downturn is being driven by reduced consumer spending, the continued penetration of online retail and food delivery companies and the depreciation in sterling which has increased the cost of imports for UK retailers.
It is very likely that there will be further insolvencies throughout 2018 in the retail sector (following a difficult 2017) and is fair to characterise the sector as being in an ‘infected era’. However, the extent to which this ‘infection’ spreads will ultimately depend on the ability of retailers to adapt to the challenges facing them (such as customer experience and retail locations) which would also include restructuring measures to address rising pension liabilities, expensive rents and embracing the changing retail habits of British consumers. As with any infection, businesses that are resilient to the challenges set out above and actively seek ways to protect themselves from the problems faced above are likely to fare better than those most exposed.
Simon Brennan, VP Sales Europe, Engage Hub:
These retailers failed to adapt to changing consumer demands. Other toy brands like Lego & Disney make a big effort to ensure that stores have a great in-store, interactive experience for children, encouraging them (and their parents) to visit the store. Pursuing a business model that saw little to no change in a decade, in the face of evolving consumer behaviour, left people with little reason to visit.
In research commissioned by Engage Hub to examine the fragility of the customer experience, over a fifth (22%) or consumers said that standards in customer experience had declined in the last year. This can partly be attributed to a stressful retail environment and a genuine decline in the same services that have always been offered. Equally though, it could be attributed to a rapidly changing consumer, that no longer perceives the standards or services of old as acceptable.
It’s widely accepted that traditional 'bricks & mortar' retailers, saddled with higher running costs and business rates, cannot possibly compete with Amazon et al by playing them at their own game. But the in-store experience and physical customer touch-points, are the obvious point of difference retailers need to exploit better.
It's not all doom and gloom though. Dixon's Carphone for example, the retailer that operates the Curry’s, PC World and Carphone Warehouse brands, reported a 4% rise in like-for-like sales over the past year. Having gone through their own growing pains, they invested heavily in the look and feel of their stores to compete with the likes of Apple. People still like to buy from people, and by offering aftersales support in the guise of Team Knowhow, the company is creating new revenue streams and human-centric services, suited to the modern consumer.
In fashion retail, the ability to try before you buy is as old as the trade itself, but online retailers like Missguided have shown what is now possible in store with their first forays into Bricks & Mortar. Blurring the lines between physical and digital, while creating two-way conversation with customers, Missguided use social media to engage a more tech-savvy demographic and retarget customers following service interactions.
The ability to combine online data with offline data to personalise offers and augment the instore experience is a lesson to more traditional competitors, as to what can be achieved with a data driven in-store strategy, rather than tinkering around the edges with store layout.
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