The Calm Before The Storm

The retail sector has been somewhat under siege of late and this turbulent period shows few signs of letting up, at least in the near future. It appears that the sector is undergoing one of the most significant transformations ever witnessed in the last twenty years and the next 18 months look set to be a period of intense change for the retail sector, and companies that ignore todays warning signs, do so at their peril.

So what are the factors that have highlighted this and how should companies respond?

The Economy
In reality from the late 90s to the first few years of 2000, we have experienced a relatively benign economic climate, and retailers have been able to flourish, despite any hidden issues they may have had. However, this has started to change considerably and there are now clear warnings of economic slowdown, with a lack of confidence in pensions and other investments, together with the falling of house prices.

Further, the consumer has suddenly understood that they cannot continue to live and spend on debt and we have the first clear indications that they are reigning in their spending. Collectively, these fears combine to create a consumer, who is more aware and more concerned about these issues than they previously were, and is suppressing their expenditure on their disposable incomes,

The Consumer
Irrespective of the above, the consumer has become more demanding in recent times, and far less loyal to any retail brand. The days of the customer saying, when unable to find a particular product, that they would come back later are distant, and their response is now more likely to be one of moving their custom, very quickly, elsewhere. The consumer is also now far more educated than ever before on product knowledge and benchmark pricing and as a consequence, is far more demanding of the retailer, to offer real value. Customer expectations have changed dramatically and this change is reflected in a consumer that now values honest and consistent prices over lowest prices or sales. They are looking for products that are of consistently good quality, but not necessarily the highest quality.

Perhaps more importantly, they want employees to treat them with dignity and respect when they shop.

The Retailers
Prior to the challenges above, the UK has seen over the last few years a clear polarisation of retail offers. The big are getting bigger and stronger and for them, in order to grow, acquisition was the way forward. To that extent the sector saw some well publicised activity, which was in effect the result of the demand on a sector where legislation restricts organic growth. In tandem with this, traditional store formats and concentration on core categories began to blur, especially as grocery retailers started to grow with speed for their non food offering. Finally, it became apparent that consumer positioning was critical and that resulted in a polarisation of offers between a broad appeal versus a value add appeal. As some retailers then found, the middle ground was not a very comfortable place to be.

The Result
Adding all these factors together the results have been significant. In the UK this year over seven traditional retailers have collapsed or sold their business. There have been some significant profit warnings from well known household names. The strong continue to grow, while the weak look vulnerable.

Harsh as it may sound, it may be these converging factors that will whittle down the weak and expose those that have an old fashioned linear approach and arent serving their customers needs fully. These players will simply be swallowed up and the customers that have come to rely on them and trust them, will for an instance, be in limbo as the shops they have always used, change names overnight.

Survivors however, will have to be leaner, more thoughtful, and capable of offering alternative consumer strategies, which encompass services, products and most importantly a different approach to the current management of their business. Its these companies that will capture the customers left in limbo and look to market to them, as their competitors loose vital customers on the road to consolidation.

An adverse environment, as this has now made efficiency and differentiation a critical imperative for success or failure of retail organisations. Chief Information Officers (CIOs) and key business decision makers are increasingly under pressure to increase the speed, efficiency and decision making process within the enterprise. The management and use of information quickly to instrument change will now be as valued and competitive as other fundamentals in a retail business.

It is to this end that retailers will turn their enterprise reliance on mobile technologies, specifically enterprise level devices. It is now seen as a competitive imperative to have the correct technology available to manage without compromise, the complex data in various forms that retailers have. It is also now a question of being able to access that data to the correct people in a retail organisation who are empowered to make decisions in real time.

Business processes and innovative technologies are now more in sync than they have ever been in the past and this can only be achieved by managing IT solutions that are mobile.

Bluntly, connected information across the entire value chain will be a critical success factor to maintain a competitive advantage.

Retail will be different in the next few years, but how many are really ready to take the drastic steps needed to thrive? You dont have to look far to see international players circling the sector to understand that they feel that there is still value in the UK. If todays retailers dont extract it, its inevitable that they will.

Richard Hull is a Senior Director for the Retail ISG at Symbol Technologies in EMEA, and is seen as an industry expert on retail and consumer strategy and a subject matter expert on food marketing and manufacture, category management, retail process and store strategy.

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