So what IS the story with retail today?
Recent news stories are full of the apocalypse that is happening in the retail world. Here is a typical example:
I won’t cry for Homebase, but I fear for our high streets. The home and DIY chain is the latest to succumb to a crumbling industry – but with so many closures and profit losses, will retail manage to survive? Stephen Moss, The Guardian
Homebase was sold for £1 to Hilco, quoted as the turnaround retail specialists. It’s rumoured that 50 stores may close with about 11,000 job losses. The Australian company, Wesfarmers took over Homebase in 2016 and dispensed with all management team and brought in their own people – from Australia. This was an unmitigated disaster as they did not understand the UK market, as Stephen Moss puts it, “trying to sell barbecues in Bradford in November was not a smart move”. Hilco also bought HMV and operated the same swingeing store closures and subsequent job losses.
Retailers who have announced store closures include Marks and Spencer (100 stores by 2022) and House of Fraser (31 stores including the Oxford Street flagship store, Ireland not affected – yet), Mothercare (50 stores) and Carpetright (92 stores).
Many ailing retailers have recently looked for a solution to their financial woes by bringing in the administrators in the shape of a Company Voluntary Agreement (CVA). These include Poundworld UK (Dealz in Ireland) announced this week, House of Fraser, New Look, Mothercare, Carpetright and Toys ‘R’Us UK. A CVA allows the administrators to restructure the company and usually means store closures and frank discussions with landlords to renegotiate existing leases downwards. This has not gone down well with neighbouring retailers as they also struggle with high rents, lack of footfall and uncertainty in the market brought on by Brexit.
So why is this happening?
The usual narrative is to point to the rise in online shopping. Whilst it is undoubtedly true that online shopping has been increasing year on year, online sales account for about 10% to 30% of total sales, depending on the sector. This means that 70% to 90% of sales are still happening in traditional bricks and mortar shops. If online is not the whole reason what else is happening?
The Recession as a Retail Disruptor
Ten years ago, when the recession hit most of the globe, the retail market was disrupted. A lot of people lost their jobs, or took pay cuts, or were just so uncertain about what the future held that they were forced to economise. Gone were the luxury brands, frugal became the new black and shopping habits changed. The growth of low cost retailers such as Lidl and Aldi happened at the same time. Instead of one big shop in one big retailer, people learnt to shop around. Smaller local shops were rediscovered instead of the drive to the large retail park 20 km away. Various food scandals also made people think about the provenance of what they were buying, along with the desire to support local businesses and jobs. Some of these habits have remained but more importantly, it made people think about what they were buying.
The growth of Independent Retailers
As discussed in a previous blog post independent retailers are thriving in the UK with increases in numbers in all but two regions. Whilst we have no similar study here the anecdotal evidence is that this growth is happening in Ireland too. This growth is in the shape of local coffee shops, artisan food shops and boutiques as well as the reappearance of the traditional butcher and greengrocer.
Retail is changing because of technology
The omnipresence of technology and smartphone use has changed the way people shop. Webrooming is when you research a product online before you go to buy it in a store. Stores without a good, up to date online presence will certainly miss out on potential customers and sales. Recommendations by others is often a deciding factor on a purchase. Today this means Google reviews, Trip advisor and a host of social media tools.
The opposite is Showrooming when you look at or try on an item in store and then buy it online. This can be a double whammy for retailers as they not only have to maintain a costly bricks and mortar store but also have to have an e-commerce site – and compete with the booming online only sites. A physical shop and an e-commerce business are two different business models and the two don’t necessarily combine easily.
This small but growing trend is emerging from the desire to consider the impact of your buying on the environment. Evidence of this is in the Zero Waste movement, the huge growth in the awareness of single use plastic that is polluting our oceans, and the awareness of repairing an item rather than replacing it with a new one. This might seem counter intuitive to a retailer who just wants to sell stuff but it also produces new market opportunities. More of this in next month’s blog.
Change can mean new opportunities
The market, the customer, your competitors, technology – these are all factors in an ever evolving retail landscape. PWC’s Irish Retail and Consumer report 2018 notes that Irish consumers felt optimistic about spending more in 2018. Indeed the Irish Independent reports that May 2018 saw consumer spending rise for the 14th month in a row. While storm Emma was a hiccough in this upward trend there is reason for optimism – but not complacency. Staying ahead of the game and in touch with your customer will enable your business to thrive. Retailing is tough – but it has always has been, it’s just that the rules have changed a bit.
© Retail Renewal 13/06/18
Retail Renewal offers a comprehensive retail consulting service. Find out more on www.retailrenewal.ie If you’d like to get in touch with Retail Renewal about your shop or business project please give Linda a call on 086 8146949.