Now is the time to plan for tomorrow

Whenever one faces a crisis, it is always tempting to look at the past for guidance. This time around, however, it is clear past experience is of little value for retailers trying to decide what to do today to prepare for tomorrow.

The challenges retail faces are not just the result of wider economic problems, but also to do with structural change across the industry. While short-term survival is critical, initiating change must take account of what lies beyond too.

So, what does successful performance look like in this climate?

After about three decades of relentless physical expansion, coupled with the arrival of online, the UK industry has reached saturation. The relationship between supply and demand has changed. Growing by simply opening stores is a luxury open only to a tiny minority; defending market share and driving organic sales are essential.

Now is the time to review and challenge most aspects of the business model, while paying some attention to stores and product range.

In addition, it may not be so easy to get out of leases, but it may well be that a better understanding of catchment areas will allow a more demand-driven flexing of local ranging.

Many ranges betray some hedging of bets from risk-averse buying teams unsure which will be the winners and which the losers. However, this is a time when every single team member has to back their judgement.

Remember, less is more: a strong customer relationship is built on believing the retailer has edited the range for them. A tighter, narrower range provides more focus for customers and should allow retailers to drive more volume per item.

This year total retail costs will climb about 5 per cent – three times more than total sales will grow; next year the gap is likely to be at least as wide. The industry is living beyond its means and needs to operate smarter and buy better.

Managing costs is highly sensitive and needs to be achieved without compromising the top line. Customer service is already an issue for most retailers, so simply cutting shopfloor staff is unlikely to be an effective answer to managing costs. The relationship with customers is critical and few retailers can afford to take shoppers for granted.

Instead, better understanding of demand should allow stores to have more relevant offers, at the right price, to improve stock management and schedule labour more effectively.

When this economic crisis is over, retail will still face the challenges that stem from maturity. It will still be a lower growth, lower margin industry than the one we knew. This is the time to start planning for this brave new world, assuming you will be around to see it.

Richard Hyman is strategic adviser at Deloitte.