Paul Thomas retail consultant

CPC Strategy – Retail Trends and Predictions for 2017

Our Luxury Retail Consultant, Paul Thomas, was invited to contribute to CPC Strategy’s roundup of Retail Trends and Predictions for 2017.

Not surprisingly tech features heavily in future trends but as Paul says, while some will be heralded as the future of retail, none will be.

Read more here…

 

To explore Retail Remedy’s future trends further, read our blog post Retail Trends to Watch in 2017. If any of them resonate and are giving you cause for concern then pick up the phone and give us a call.

MW asda-store

Asda praying for a “Christmas Made Better”

Sales performance was significantly behind the competition reporting a 5.8% decrease in like for like sales for Asda’s third quarter. This has resulted in a market share slump, down significantly compared to a year ago, and puts Asda in a weak position as it heads into the lucrative golden Christmas quarter.

This is the ninth consecutive quarter of sales decline and the promise of a turn in fortunes is overdue. Project Renewal has yet to make a difference as far as we can tell but in a way, this is no surprise – an inward looking retailer will get the results it has always had without a fresh perspective.

It is early days in what has become a year of change in the board room at Asda, but we finally have a reason to believe that things will start changing. New appointments made from outside of Walmart will bring new experience and ideas into Asda, particularly when you consider that experience has been acquired at Co-op, John Lewis and Sainsbury. This might actually be the trigger for change, finally.

As much as the “Christmas made better” campaign lacks the blockbuster/tear-jerker/side-splitter formula so many retailers are adopting, the series of short sound-bite ads works for us. Each mini ad promotes a product or range that is worth heading to Asda for. They are almost old-fashioned, but they are simple, effective and memorable which is really the point, isn’t it?

Dodging the heavy price led messages of Black Friday feels like the right decision, bringing focus on good value through everyday prices suiting the demographic rather than getting drawn into what has become a fortnight of margin erosion and bringing sales forward. Talking of margins, Asda’s GP is reportedly holding up but with a weak sales line, profits are being hit. It’s all about volume for Asda now and that means traffic.

Asda survived the card reader chaos at the tills relatively intact given the magnitude of the problem and rode out hygiene concerns in delivery vans. But any further disruption to in-store payment or online purchases will only dent the already fragile sales line. We expect belt and braces approach from here on to prevent any further hit to footfall.

We get a sense of hope from Asda, and we don’t think it is unfounded either. But the bottom line is footfall. Traffic was down again in Asda’s Q3 so we are expectant of more to come from the management team to encourage that footfall. Price cuts help in the very short term, but are quickly matched or beaten leaving nowhere else to go. Asda can do better, and it is highly probable that they will do better.

 

Is it time for Marks and Spencer to stop digging?

Marks and Spencer have been trying to dig their general merchandise business out of trouble for several years but for now it seems that the time has come to stop digging.

Doing what you have always done just does not give you a different result and that is what has happened with their fashion. New leadership and a focus on design did nothing more than rack up a huge research bill. A high tech leading edge website resulted in another huge bill and no return on investment. Identifying Mrs M&S only served to give M&S’s current customer a persona, that same customer that was not shopping clothing.

If M&S are not on the verge of a seismic shift in its business strategy, they should be.

One way of getting new direction is to bring in new leadership at the top level. And by bring in, we mean look outside the building’s walls for talent. Steve Rowe has yet to make any impact and although it is early days we question whether he has the experience from other retailers to challenge the status quo.

Food sales have been the saving grace of the British institution, with growth propping up the declining general merchandise sales, and in particular clothing.

Clothing was always the core of the business, a sign of good quality underwear, school wear, twin sets and separates. But that customer grew old and the next generation were more fashion orientated. M&S didn’t move with the times.

We know we are stating the obvious here to any commentator or casual observer of the retailer’s history, but what is astonishing is that this was not obvious to the business itself.

Archive by Alexa, Autograph, Best Of British, Classic, Indigo Collection, Limited Edition, M&S Collection, Per Una, Twiggy are the brands under which womenswear is marketed. Each one of those brands is marketed to a different target customer with a different sense of style and taste, at different points of maturity. And yet, each cannibalises the other with product cross over. Fewer brands is a welcome message from Steve Rose but we still feel they are spreading themselves to thin.

It feels like, by closing stores and cutting jobs without an accompanying announcement on a new strategy, M&S are giving in. Or rather, they are still digging, but this time a trench to retreat in to.

Reducing cost will take the pressure off the profit performance but this will only be short term, and will not save themselves rich. Get the offer sorted out before worrying about short term profit. If they don’t, they could regret giving up that space one day.

M&S need to revive their flagging clothing sales by identifying the customer that has the biggest spend available to them. She might be younger than the typical existing customer, she doesn’t want or need such a wide range of brands, she will want to see range and price architecture though, and she will identify with fashion but is not a fast fashion clone.

She is confident in her style, something that M&S should learn from, and yes she is an existing customer already only she currently walks past the clothing rails in search of food.

Stop her in her tracks with clothes that she wants to be seen in, ones she can style in her own way. Give her size and colour options, and prices she considers good value.

On that note, we will happily pass the spade back to M&S so that they can dig the foundations for a revived and renewed fashion offer.

Morrisons stores

Morrisons building the momentum to withstand competition

Another quarter of like for like growth and Morrisons are within reach of a Golden quarter worthy of the name after too many weak Christmases.

Dave Potts has put in place a leadership team that could be considered a little myopic in the short term most coming from Tesco, but at least the team recognise what good looks like from their pre-Clarke years.

This team have pricing and store standards at the heart of the Morrisons turnaround. Focusing on delivering availability and keeping prices competitive (except perhaps Marmite at the moment) has helped restore customer’s trust.

The year ahead however, is unlikely to be plain sailing. The management team are making the right decisions but Morrisons lacks the same scale as its competitors and Brexit and National Living Wage will bring margin pressure that scale would help to buffer. Deals with Ocado and Amazon are pointing the grocer in the right direction, but the core business lacks depth of buy across broad ranges. Aldi are fast closing the market share gap and have a fraction of the lines of Morrisons.

In store visits we have undertaken, we have seen a lack of progress with Market Street. The capital spend in this area could be wasted unless clarity of vision is communicated to the store teams that are tasked with delivering it.

Productivity is one area where Morrisons have an opportunity if they employ improved methods. Great news for potential future savings but we are not sure they are best placed to be able to deliver the changes to achieve store efficiency without compromising the offer.

The control of inventory and flow of goods will only be improved through the adoption of their new, sales based ordering system. The transition from the old order writing to the new system may cause some hiccups along the way so we await with interest how they execute on this. Better than has been achieved on Market Street we hope.

The Morrison’s customer has not significantly changed, with an older perceived demographic than the other Big 4 grocers. Yet despite this they are growing. The job in front of the marketing team is to entice the younger and more dynamic customer into its formats. Once they are in, the even bigger job is to convert them to the largest counter service offer of all the grocers. This is not a way of shopping that the younger demographic are used to, considered slower and not as convenient.

We are about to be bombarded by the new season of Christmas ads and our interpretation of the teaser is that it will be traditional and family focused, a good fit for the brand. Our prediction is that this will be the last cheap Christmas before prices are affected by inflationary pressure so we expect price to play its role in the marketing message.

Morrisons have created some traction now but cannot afford to take their eye off the ball. We want to be able to look back in 6 or 9 months time and say Morrisons saw the new storm coming and were ready for it armed with productivity initiatives. Let’s see.

 

retail trends 2017

Retail trends to watch in 2017

There is no disputing that 2016 has been a tumultuous year for many retailers, corners have been turned, green shoots have appeared and store doors have closed for the last time. The question is, what will 2017 have in store for retail? Here we set out our thoughts on what retail trends in 2017 will be creating a buzz.

The grocery sector in the UK is worth a staggering £180bn so any minor bump in the road can have significant financial implications for the retailers in the sector and for the consumer. The key trends we predict are not surprisingly centred on price, costs and driving margin per square foot.

  • Price architecture will dominate promotions. Opening price points that are competitive across all the grocers including the discounters will be a focus much like Tesco’s Farm brands offer. Remember the backdrop will be price inflation caused by Brexit and the consequences of fuel price hikes.
  • Sainsbury has acquired Argos and will be using it as a margin enhancer rather than a traffic driver. All the grocers will be looking for ways to grow store margins that don’t depend on price increases. Volume led events will be one way to achieving that.
  • The ebb and flow of innovation suffers in times such as these. Volume is king as retailers rationalise ranges to gain clarity and increase margin from suppliers by driving item volume. The fewer items a retailer has, the more potential they have to enhance volume and therefore margin. Next year’s battle will not be won on price alone however.
  • Retailers will be looking to reduce the cost of the labour charge to offset the increasing national living wage commitment. The balance will between easy wins like anti-social pay rates and social conscience and bad PR. The more sophisticated retailers will look to reduce complexity in-stores and streamline tasks, to genuinely give more time to stores. It’s not easy to do though and we would expect a period of operational weakness as better processes bed in and resistance to change lessens.
  • The use of technology available to customers will explode in 2017. Some will be heralded as the future of retail, but none of them will be. Hype and PR driven, they could be highly promising but none will payback in 2017. The only exception will be revenue earned from suppliers who have been asked to fund some of the development and execution.
  • Online grocery is still in its infancy and will continue to grow in 2017. Investment in online sales and infrastructure and tech to support it will be more than can realistically deliver a return and the risk is that store investment could fall short, leaving stores under-invested, and customer service exposed.
  • Space will be filled in larger format stores by known footfall and profit drivers. Expect to see reviewed and possibly renewed collaborations in the grocers on a store by store basis dependent on demographics. The results could be a mixed bag of store offering.

 

The luxury retail sector is just as susceptible to economic ripples as any, but that impact can be somewhat cushioned by international trading. With Brexit comes another scenario and we expect Luxury brands and retailers to be looking to protect their brand positioning and build on developing consumer shopping channels.

  • As the country becomes increasingly worried about the BREXIT impact there will be some slow-down in the purchasing of high value items and more people will adopt the purchase cycle from the recession of ’08 – ’14 where they are more selective about their spend and more likely to try own label / tertiary brands.
  • We expect a high degree of direct marketing from Luxury brands next year as they seek to grow the portion of online trade from 5% to 18% by 2020. They will need to improve their platforms and their ability for customers to purchase particularly on mobile.
  • The “See now Buy now” effect will further accelerate mobile commerce. Burberry are an early adopter have some of the best technology to enable this. More retailers and brands will follow in 2017 as they seek to engage with their audience faster to beat fast fashion retailers to the sale.

 

2017 will inevitably see more facias close on the High Street as economic pressure persists. These will be brands that have not differentiated, innovated or created a good value proposition for their customers in a price savvy market. The risk is brands employ short term tactics to the detriment of long term strategies.

  • The weakened Pound will negatively impact margin in 2017, pushing up prices to consumers and forcing retailers to add value to their range. The retail environment, customer service and personalisation will have to come into focus to compete with the value retailers that stand to gain.
  • Interest rates have nowhere else to go except up, increasing mortgage payments and credit. A cut in disposable income will put pressure on retailers to maintain prices but with cost increasing too, we expect to see retail closures in 2017. More pension fund deficits will inevitably come to light leaving retailers with a hole and nothing to fill it with.
  • Tourist purchase power will offer an opportunity to retailers in tourist hot spots if they are agile and adept enough to react. New ways of embracing technology to reach international customers will abound.
  • Staycations will be attractive in 2017, UK holidays to UK citizens will appear relatively cheap. Local tourism has an opportunity to ride the wave as do retailers in travel hubs. The downside is fewer UK travellers for the airlines and travel companies.
  • Exports will continue to rise and those retailers that are brave enough may feel they have a burning platform to push expansion outside of the UK.
  • There will be a significant focus on what the fast fashion brands will do to react to ‘see now buy now”. Currently they have approximately six months before the catwalk collections hit the shops, to create their own versions. But this time frame will be eroded in the future. So they will definitely want to sharpen their lead times, but there will obviously be a limit if they are going to wait for the catwalk. Therefore, we expect brands to start their own cat walk campaigns, as Top Shop have, and recruit designers to lend their name to ranges.

For retailers to navigate the uncertain path that Consumers will carve, agility and creativity will be the key skills they will need to nurture. Take the assets that they have and make them as relevant and as productive as possible.

Nothing is more certain than change and 2017 will see the retail landscape change. If you want to know which retailers are likely to struggle in 2017, simply walk the shop-floor in a number of stores in the same week, and then visit their competitors. You cannot hide the neglect in corporate strategy or the failure to execute it on the shop-floor. In this space everybody can hear you scream, if they know what to listen for.