UK retail industry outlook

The world of retail is a change­able place. Cus­tomers love the reg­u­lar improve­ments to the ser­vices they enjoy, but for the busi­ness­es deliv­er­ing these upgrades it can be a puz­zling, even exhaust­ing, expe­ri­ence.

In many ways the UK retail sec­tor could not be in a bet­ter place. Month after month unem­ploy­ment is falling and the num­ber of peo­ple in work hits a fresh record high with each new bul­letin from the Office for Nation­al Sta­tis­tics.

Although wage infla­tion has been omi­nous­ly absent in recent times, the mon­ey sift­ing into our pock­ets is actu­al­ly start­ing to increase in real terms mean­ing that some of us are actu­al­ly start­ing to feel wealth­i­er than we used to – a nice change.

Inter­est rates are at their low­est lev­el since William III, which has had a triple pos­i­tive impact on con­sumer spend­ing. It has encour­aged house prices to soar, mak­ing home­own­ers feel bet­ter off, while bor­row­ing is cheap­er and sav­ing is point­less; so for good­ness sake go out and spend.

For the time being, infla­tion is his­to­ry too with prices drop­ping in many parts of the econ­o­my. The most obvi­ous sign is the recent­ly halved price of crude oil, which trans­lates to cheap­er petrol, util­i­ties and, through the sup­ply chain, cut-price prod­ucts and ser­vices.

Busi­ness­es see this as a bril­liant time to invest mean­ing even more employ­ment, and more pur­chas­es of bits and pieces from the nation’s shop­keep­ers. Mean­while the Euro­pean Union is strength­en­ing with “prob­lem mem­bers”, such as Spain and Italy, drag­ging them­selves back into the black. Greece, of course, remains a wor­ry.

Tech­nol­o­gy is play­ing a role in all this hap­pi­ness. Web­sites make every­thing eas­i­er, quick­er and cheap­er, putting prod­ucts right under the noses of con­sumers and, once pur­chased, deliv­er­ing them direct to their doors. The imme­di­a­cy of the inter­net makes spon­ta­neous pur­chas­es all the more so.

Com­plet­ing this per­fect pic­ture, curi­ous new cer­e­monies, such as Black Fri­day, Cyber Mon­day and Small Busi­ness Sat­ur­day, have con­joined to put a rock­et under sales just as the Christ­mas peri­od gets into full swing.

There is a host of oth­er events dot­ted through­out the year, from Valentine’s Day to Father’s Day, which while pro­vid­ing less of a stim­u­lus than Christ­mas, nev­er­the­less remind us all to put our hands in our pock­ets for peri­od­ic gifts, treats and stays.

In gen­er­al, things look very rosy indeed. Yet shop boss­es read­ing this would be for­giv­en for screw­ing up their faces. They’d agree that the econ­o­my is OK and, bar­ring any major hic­cups, demand should remain high, but turn­ing these fac­tors into a prof­it is a con­vo­lut­ed process.

Low infla­tion means down­ward pres­sure on mar­gins. High employ­ment sounds good, but it needs con­sis­tent wage growth to make a real dif­fer­ence. Tech­nol­o­gy has invit­ed new com­pe­ti­tion and is at worst a dis­trac­tion, while the new shop­ping “events” have made it near­ly impos­si­ble to bal­ance sup­ply with demand.

For food retail­ers, the inva­sion of mega-dis­coun­ters Aldi and Lidl from Europe has blown their sec­tor to pieces, and only a com­plete rebuild along entire­ly new pric­ing met­rics will save oper­a­tors who focus on price-aware shop­pers.

The growth of online is a bless­ing and a curse. It has shed light on con­sumers like nev­er before, giv­ing retail­ers who crunch their num­bers the chance to seg­ment and tar­get dif­fer­ent demo­graph­ics with­in their cus­tomer base. But, put sim­ply, it can be hard to keep up with all the inno­va­tion.

“UK retail­ing is still recov­er­ing from the ‘great reces­sion’ at the same time as it is adjust­ing to sub­stan­tial struc­tur­al reforms,” says David Stod­dart, an ana­lyst at Edi­son Invest­ment Research.

The prob­lem for many retail­ers is the sheer speed of advance – it’s not so much a march of tech­nol­o­gy as a gal­lop

“The major gro­cers face increased com­pe­ti­tion from the con­ti­nen­tal dis­coun­ters that is reset­ting their mar­gins and returns on cap­i­tal. In addi­tion, they are absorb­ing the addi­tion­al costs of serv­ing the online chan­nel.

“Growth of online is also a game-chang­er for non-food retail­ers, has­ten­ing the demise of mar­gin­al shop­ping loca­tions and pro­vid­ing a bet­ter means of address­ing chang­ing con­sumer atti­tudes than tra­di­tion­al stores ever could.”

The prob­lem for many retail­ers is the sheer speed of advance – it’s not so much a march of tech­nol­o­gy as a gal­lop. You used to get time to adjust to new inven­tions, now a year might see mul­ti­ple jerks for­ward.

Con­tent mar­ket­ing, omni-chan­nel retail, the inter­net of things and con­tact­less all have an influ­ence on retail today, yet no one out­side of the tech­nol­o­gy indus­tries them­selves had heard of these terms five years ago.

Dig­i­tal is improv­ing the cus­tomer expe­ri­ence, trans­form­ing the how, what, when and where of their shop­ping. But for retail­ers it’s enough to make your head spin. To make mat­ters worse a bad invest­ment in a ser­vice with no future could reverse a prof­it.

“Retail­ers are strug­gling to keep up with rapid­ly chang­ing con­sumer demands,” says Andrew Long, head of IT strat­e­gy at Accen­ture UK. “The dig­i­tal trans­for­ma­tion has a long way to go and its impact will affect every­one and every­thing – busi­ness­es are going to have a major chal­lenge keep­ing up with the pace.”

Tech­nol­o­gy is the prob­lem, but it is also the solu­tion. Peo­ple shop online, and increas­ing­ly through smart­phones and tablets, mean­ing that only tech­nol­o­gy can ensure they remain hap­py with the ser­vices retail­ers pro­vide.

“Tech­nol­o­gy is a key enabler to pro­vid­ing cus­tomers with the expe­ri­ence and ser­vice that cus­tomers now expect through every touch-point a cus­tomer has with a retail­er,” adds Mr Long.

“It dri­ves per­son­al­i­sa­tion of the inter­ac­tion, a con­text of the cus­tomer and any pre­vi­ous inter­ac­tion, as well as mak­ing the inter­ac­tion more effi­cient and effec­tive. Lead­ing com­pa­nies are see­ing cus­tomers attract­ed and retained by the improved out­comes that tech­nol­o­gy can deliv­er.”

The digi­ti­sa­tion of retail might lead to sleep­less nights for some and the end of the road for oth­ers, but this is what retail looks like now – an end­less reimag­in­ing of what is pos­si­ble and how it can fuel the cus­tomer jour­ney. Those uncom­fort­able with this notion should get out while they still can.