Opinion: Retail in a recession - an opportunity to succeed?
By Danny Rappaport, PMC Director of Consulting
The better you plan what you’re doing, the better the outcome. That's just as true in retail as it is in life in general.
As the UK is set to head into a challenging period of recession, let's look back at the innovation and adaptation that has brought our retailers through the last few decades of change and turbulence.
The retail industry is famous for its innovation and resilience but, like equality, resilience is relative. The 2008 recession proved that some retailers are more resilient than others, and the next one will be no different.
I remember there being some doubt before the last recession about whether it would actually happen. In hindsight, it was a clear sure-fire cause and effect of the financial crisis, leading to a knock-on effect in consumer confidence. And yet, the recession and economic downturn still came as a surprise to many experienced retailers.
The 2008 recession was a bitter lesson in resilience.
Many familiar brands disappeared altogether. Whilst the official definition of a recession is two quarters of falling GDP, in 2008 there followed a fall of five consecutive quarters. According to the ONS (Office for National Statistics) it took five years to recover the lost ground.
Back to the present time and non-food retail sales took a particular hit in the three months to the end of October, decreasing by 1.2% on a total basis and 1.8% on a like-for-like basis. Online non-food sales decreased by 6.3% over the period, against a decline of 8.0% in October 2021.
So it’s not easy out there at the moment...
Retail and the ability to handle change
Retail is one of the oldest, if not the oldest trade there is, depending on how you define it. So surely with all the years of experience that brings, retail should be a pretty change savvy industry?
The accelerated change driven by Covid, Brexit and the predicted forthcoming recession, has left a fair number of casualties. Alas, Woolworths, Debenhams, Joules and Made.com are no more. But what about the retailers who did weather the storm - the ones who emerged stronger, wiser and often in a more resilient state? Let’s review the tactics and common identifiers between them.
The question “what hasn’t changed?” is maybe more relevant. It’s a bit like the Monty Python sketch about what the Romans did for us...
I would argue that the biggest change in retail is expectations. We all expect more, and that includes price, value (quality and function), service, and availability - the four cornerstones of retail success.
In most retail supply chains; costs have increased dramatically over the last few years. Some retailers have been able to pass this cost on to customers as a mark-up, some haven’t.
The supply chains themselves are also being hit by environmental issues, Brexit, war and fuel crises haven’t exactly enabled stable prices or consistent availability. Consequently, some retailers have found alternative suppliers, routes, or other innovative solutions, that have enabled them to manage customer expectations in other ways.
The financial markets and business environment have also changed in the last few years. After many years of near-zero interest rates, low inflation, and financial/currency stability the markets are changing quickly. The environment for growth, predictability and planning has become a lot more difficult.
As a direct reaction to this change, we the consumers have also changed our buying behaviour.
When you review it altogether, apart from customer expectations, product costs, availability, supply chain, fuel costs, interest rates, currency values and customer behaviour, nothing has changed really!
The famous lyrics of Gloria Gaynor’s top hit from the 70s reflects many of the retailers both surviving, and more importantly, prospering in today’s market. Here are some of the bold changes and innovations we are seeing emerge:
Primark have continued to open stores, increased their offer range, and launched an online click and collect operation all in the headwinds of a recession.
B&M continue to expand stores and product range. Their acquisition of Heron foods in 2017 enabled them to increase their profit margins, despite a slight revenue fall. They also moved online for the first time in June 2022.
Crew Clothing have increased their store estate by 20% between March 2019 and March 2022. They’ve also transformed their customer experience and in-store technology in one of the most competitive markets there is.
WHSmith opened 98 new stores in the UK this year and has seen a 92% like for like increase in sales! They plan to open an additional 160 stores across 16 countries and have seen a 148% increase in sales across their travel stores in the lead up to November 2022.
John Lewis Partnership (JLP) attributed 75% of their 2021 sales to online purchases. During lockdown JLP also accelerated multichannel growth and ventured into finance and insurance.
Co-op, a familiar brand in nearly every town has grown 6.9% year on year 21 – 22, and Lidl has seen a 9.4% growth, fuelled perhaps by food price inflation but impressive, nonetheless.
So, retail continues to change, innovate, and surprise. It may have its challenges, but it’s rarely dull and there is huge opportunity to succeed, as we are seeing many of our customers do.
Danny joined PMC as Director of Consulting in October 2021. He joins from Capgemini, where he was a Vice President in the UK, operating across verticals including Finance and Retail. Danny brings a wealth of experience in providing technology and business services to the retail, finance and CPG sectors, having worked in senior executive level positions in the UK, the Netherlands and India.
Danny has worked in a variety of roles in Retail, CPG and Financial Services in sales, delivery and consulting. Danny is extremely passionate about our markets and the opportunities that exist for our customers in today’s global digital economy.
This opinion article was first published by Danny via LinkedIn