Opinion: Retail is paying the price of ongoing structural change

Any doubters clearly haven’t been shopping lately on high streets, malls, retail parks, neighbourhoods or online.

That lengthy list says everything – we now have massive, and growing, overcapacity. And this is driving the most promotional market I have seen in more than 30 years in the business.

In the past few weeks 60% of UK retail was on promotion. Lots of mid-season Sales have dominated windows and landing pages. But don’t get the idea that this is just seasonal – it isn’t.

We are tracking price promotions by sector and by company. I have to go back to last November to find the last time more than 50% of the industry was actually trading at full price – just before Black Friday.

It remained above 50% all the way to Christmas – the most cut-price Christmas ever, with 70% of the industry on promotion.

Following the January Sales and the arrival of the new season’s product, most retailers will have been hoping to rebuild margins but few have.

Promotions eased down to 58% but ticked back up at the time of writing. This unprecedented discounting is being driven by retailers, not by customers.

No industry lowers its prices like this out of choice. For most, if the guy next door goes on Sale, they feel compelled to follow suit. The implications of this are clear – both margins and brand trust are being eroded.

Sectors on Sale

Not all sectors are under the same pressure. In grocery, the competitive agenda is still being set by Aldi and Lidl, and perpetual price promotions are the first item.

Every national multiple has a price promotion every week. In non-foods, footwear is dealing best with the relationship between supply and demand. Only 25% of the sector is on Sale.

Our research shows that footwear has maintained its price integrity far better than apparel, the most oversupplied of all retail sectors. Even between these latest mid-season Sales and the January Sales, our clothing retailers’ main message to consumers has been all about price.

Jewellers have also fared better than fashion. More than half the sector opted out of Black Friday and managed to minimise discounting in the run-up to Christmas.

More recently, the majority of jewellers have again managed to trade at full margin. Department stores fared less well with the majority on Sale in the run-up to Black Friday, and then all the way to and through Christmas. The new year looked a little better once January was out of the way and last week 50% are running mid-season price promotions.

“Are retailers actually good enough at retailing? The evidence of widespread unplanned discounting says no”

Richard Hyman

With demand relatively soft, and supply a growing problem, are retailers actually good enough at retailing? The evidence of widespread unplanned discounting says no.

Customers are being educated to wait for Sales and rarely have to wait very long. Christmas was the weakest I have ever seen and the results season will make sobering reading.

Soon, the national living wage will start to kick in and already-creaking industry economics will creak some more.

Until there is a fundamental reset of supply and demand, only the very strongest will be able to rise above the all-out price war.

Meanwhile, the gap between those that still retain brand trust and price integrity and the growing majority who do not will widen.

The peak of dramatic change in UK retail is not behind us but is about to unfold, as the industry restructures.

• Richard Hyman is founder of Richardtalksretail.co.uk