Retail Analyst Breakfast Briefing

The latest Barracuda Search Breakfast Briefing at Quaglino’s saw Retail Industry commentator – Richard Hyman address a distinguished group of retail CEOs and leaders.

A short address and the follow-up discussion centred on two areas – firstly, 2015 and an overview of the unprecedented structural change underway in UK retail; then secondly a look at the upcoming ‘Black Friday’ trading period and implications for online and store trading.
2015 – The year of deflation and structural change

Richard confirmed that in 2015 the consumer is spending more, but the majority of UK retailers are not benefitting. Deflation pervades the market in every sector, transforming retail into a lower margin activity. In the first 9 months of 2015 – food retail sales value averaged +0.3%, representing price deflation of -2.1%. In the same period – non-food sales value averaged +3.4%, which amounted to price deflation of -2.0%. The message was clear – price deflation is structural and essentially driven by growing oversupply – too much space, too many web offers and too many players.

What to do…?? It is no longer possible to check the rear view mirror in order to plan for tomorrow, nor can we look to international models for guidance. UK retail must steer its own course through unchartered shark infested waters. Deflationary pressures are forcing retailers to review their business models and develop new strategies that require significant structural change. Current organisational cost bases – are for the most part – no longer sustainable.
In 2015 the performance gap between retailers with business models adapted to the ‘New World’ order and those hampered by legacy issues is growing. The launch of the new ‘Living Wage’ and increased business rates will only exacerbate the cost pressures. When interest rates do inevitably rise, there will be a major shake-out in the sector. In summary, Richard stated that UK retail was at the start of a period of unprecedented structural change – the likes of which has not been seen in any of our lifetimes.

Black Friday

Richard then summarised The Black Friday phenomenon, which reached the UK last year and will shortly be repeated. He described it as an unwelcome newcomer to the promotional calendar, but an established fact of life that retailers must plan for and manage. It sucks full price/margin spend from December into November at a discount and at reduced margin. He summarised Black Friday as a Zero Sum game.

The 2014 figures were outlined:

November 2014 non-food sales value +9.0% – by far the biggest spike for 15 years
December 2014 + 3.5% … sounds OK but Christmas price deflation was -1.8% = weak demand
Online sales value November 2014 +50.0%

Richards forecast sales growth of +5.2% for November 2015, stressing that once again Black Friday will cannibalise Xmas sales. He predicted for December 2015 a weak +2.4% sales increase.
The assembled retail leaders were asked whether they viewed Black Friday as a positive development. The answer was a unanimous NO, aside from a major online retailer, who saw BF in a largely positive light. Their online operation can plan for and service the +50% sales spike, and it provided a good opportunity to shift residual stock.

Conclusion

In conclusion, Richard made two important points: firstly, the focus must be on sales – managing costs is the easy bit; secondly, winners have one thing in common – all genuinely put customer at the centre of their thinking.