This week has seen three major retailers release their figures with three very different takes on the current retail scene.
To begin with the positive, IKEA’s total turnover increased marginally in the year end to August 2018 to €38.8bn with 422 stores in 50 markets. Those are huge figures by anyone’s standards. How do they sustain their growth? My view is that they have stayed close to their customer and in touch with the changing market. There were nearly a billion store visits in 2018 but 2.5 billion web visits.
“…we know that getting to an IKEA store isn’t always easy. That’s why we’re introducing new shopping experiences, such as compact inner-city stores and pop-ups that better meet the needs of our increasingly urban customers.” Quote from IKEA facts and figures 2018.
I can testify to this from personal experience. A couple of Sundays ago I visited IKEA in Ballymun with a friend who had just moved into a new apartment. We arrived at 11am, an hour after the store had opened and the car park was almost full. The store was packed but there was a great buzz and the tills were very busy by the time we eventually got there. The staff were calm, friendly and very helpful. IKEA put a huge effort into constantly upgrading their product, their store presence and their online offering – and it shows. From the crèche and the children’s areas throughout the store to the low cost café and snacks after the checkout, these all encourage the shopper to stay longer and have a relaxed experience. Regular readers of my blog might remember my earlier post about IKEA’s brand after the death of the founder, Ingvar Kamprad.
As a fast fashion retailer Penneys (or Primark everywhere except Ireland) is probably the most successful. Primark released their UK figures recently and sales were up 1.2% and profits by 15%. Many bricks and mortar retailers would bite off their right arm for figures like those. Primark is the third largest UK clothing retailer after Next and M&S, who are the market leader (more on them later). Penneys/Primark is an exclusively bricks and mortar operation with no on-line shopping. They buy at a scale that means low prices, keep costs down (minimal advertising presence, low cost shop fit-outs etc.) and, most importantly, no expensive online operation competing with their own stores. Is fast fashion sustainable in the long term? Probably not from an environmental perspective, but consumer behaviour and expectation has to change before the Primark business model is old hat. See my Conscious Consumer blog post for more on this subject.
Marks & Spencer
The most recent results were published by M&S on Wednesday for 6 months to the end of September. Much anticipated as not being great, they fulfilled those expectations. Group sales were down by 3.1% and pretax profits up by 7.1% with £100M in one off costs partly due to the closure of 24 stores.
“Against the background of profound structural change in our industry, we are leaving no stone unturned.” commented CEO Steve Rowe, having admitted that they had an ageing customer base and dated stores, expensive food and confusing promotions.
All of which makes you wonder what stone they have been hiding under for the last 10 years. The market has been shifting rapidly in that time with M&S seemingly oblivious to it.
The Super Tanker Syndrome
Having worked at a senior management level for a few large retailers including M&S I put it down to the corporate culture of retailing and the super tanker syndrome.
There’s a saying in retail that, “You’re only as good as last week’s sales”. Whilst that might seem that you are looking for constant improvement, in practice you are always looking back at what has worked before and trying to replicate it. For many years this worked for big corporate retailers as they were in a stable market and had an apparently unassailable position. Everyone agreed with the boss which meant that no-one really looked outside the business to see what was happening. Even if you did you were not listened to as the business was successful, wasn’t it?
Trying to change this corporate culture is like trying to stop a super tanker. It takes 20 minutes for a super tanker to come to a halt and the engines are usually turned off 15 miles out from the port so that they don’t hit anything. Apply that analogy to a large retailer and you get the idea. Changing course is difficult when you have so much invested in physical stores, your supply chain and the people who run the company. Long term strategic thinking was not part of the culture of “you’re only as good as last week’s sales”. Even the super tanker itself may one day be obsolete.
How retailers think
I was at a Managers Conference for one of the large retailers I once worked for and we did a management exercise to determine critical thinking style (don’t you just love it?). Out of a room of 50 or 60 managers only 3 were blue sky thinkers (including me!). You may not like the term but it is indicative of the lack of curiosity and innovative thinking by retailers. Some have always had it like IKEA and some are just waking up to it now like M&S.
Online shopping is a symptom not a cause
It’s all about the growth of online shopping. This is the line that is most regularly used by analysts to highlight the gloom and doom of the retail industry. Whilst on-line shopping is undoubtedly a factor in the overall retail market it is not the cause of many retailers’ current woes. Omnichannel has emerged as the way forward for retailers. While it’s easy to dismiss it as marketing jargon, omnichannel has already had a big impact on how consumers interact with retailers and how they shop. Omnichannel is not about providing multiple ways for your customer to buy your product but it removes the boundaries between different sales and marketing channels to create a unified, integrated whole. More of this in my next blog post.
One Saturday lunchtime recently I found myself walking down Henry Street. I worked on this street for many years and was struck by the change of atmosphere. The buzz and excitement was gone, along with the throngs of customers of my memory. The mix of shops had changed and the larger stores looked a bit tired and careworn. It’s all about the experience and I can see why customers are looking elsewhere for that buzz.
Even the super tanker is capable of reinvention. A team of Dutch architects have come up with a viable plan to turn super tankers into massive floating villages, as the image at the head of this blog post shows. Retail has always been hard work but the rules have changed now so retailers must adapt and change to stay in the game.
© Retail Renewal 10/11/18
Retail Renewal offers practical solutions for the ever-evolving challenges of running a retail business today. Find out more on www.retailrenewal.ie If you’d like to get in touch with Retail Renewal about your shop or retail project please give Linda a call on 086 8146949. Let us help you to support and grow your business.