Report: Retail 2014 - industry leaders’ business priorities

The UK retail sector will continue to be slow despite the country’s improved economic fortunes during the coming year, according to 25 retail chief executives and senior executives interviewed for Retail Week and Kurt Salmon’s Retail 2014 report.

In spite of the economic growth and falling unemployment recorded in 2013, 15 of the 25 industry leaders interviewed for Retail 2014 said they expect retail sales to be flat this year. Nine expect sales to be “slightly better” and only one said they would be “much better”.

Retail bosses believe it will take some time for the improved economic performance to translate into a significant rise in consumer confidence, owing to continued pressure on household spending and the prospect of further rises in the cost of living.

Growth fails to brighten mood

While the recovery in the housing market is expected to benefit certain retail categories such as DIY, homewares and electricals, the full effects of cuts in public spending - not to mention further cuts that may be in the pipeline - are still to be felt. “That there is growth in the economy is good news but it’s going to take some time to make a significant difference to most people,” says the chief executive of a specialist retail chain. “Prices are still rising and most wages are not.”

People are looking for good value - good value at the top end and the discount end

Department store group chief executive

Asked if the mood among their customers had improved from this time last year, 52% of the retail executives said it was unchanged, while 44% said it was a little better. “It will continue to be challenging,” says the managing director of a specialist retail chain, adding that consumers are “still very worried about the cost of living and rising prices”. The responses from the retail bosses suggest that fear of unemployment has receded, but apprehension over the cost of living has increased markedly. In the Retail 2013 report, fear of unemployment was nominated as the most important concern weighing on consumers’ minds, but for Retail 2014 inflation and cost of living was given as the most important concern, with unemployment in a distant fifth place.

Thrifty habits remain

With continued pressure on household budgets, the majority of the retail chiefs forecast further growth for discount and budget retailers. Moreover, they generally expect their customers to retain thrifty habits learned during the downturn, even when personal circumstances improve.

“Over the past few years people have got used to living a slightly more frugal lifestyle and they have got used to value retailers as an acceptable medium for consumption,” says the boss of one clothing chain.

For a chief executive of a department store group, consumers are looking for value more than ever. “What we have noticed is an increasing trend towards value. That doesn’t mean cheapest but people are looking for good value - good value at the top end and the discount end.”

While the improvement in overall economic conditions is yet to be reflected in the consumer mood, the responses from the UK’s top retail executives suggest the period of unrelenting retrenchment and cost-cutting may at last be drawing to a close.

Asked what balance they were seeking to strike between reducing costs and driving growth to boost profitability, those saying “about 50/50”, “mostly growth” or “all growth” represented 96% of the group, higher than in 2011 (92%), 2012 (88%) or 2013 (86%).

Omnichannel dominates

While this points to a stronger emphasis on growth than at any time during the past four years, there is little prospect that this will halt the downward trend in total UK retail space. The majority of leaders interviewed for the report anticipate net decline in UK retail space in 2014.

Of the 23 who expressed an opinion, 18 said they expected total UK retail space would fall in 2014, and only three expected it to increase. A further two executives anticipated no significant change.

“I think the trend will be that retailing space will get smaller across the board,” says a supermarket chief executive. “Certainly there will be less space opened and the space that is opened will be smaller square footage.

“This is because the onset of online is changing the space requirement across all retail sectors. I believe this reduction in space will continue over the next three to five years.”

With online growth the primary catalyst for the decline in retail space, it is little surprise to find store space and omnichannel/multichannel at different ends of the spectrum of retail chiefs’ investment priorities. When the executives were asked to nominate their top three business priorities for 2014, investment in additional UK space achieved the second-lowest aggregate score - calculated by adding up the number of times it was placed first, second or third - and was only mentioned four times overall.

By contrast, not only did investment in omnichannel/multichannel have the highest aggregate score, it also had by far the highest number of mentions and was nominated as the most important priority by 15 of the executives. Investment in mobile was the top priority of a further four of the executives, and had the fifth highest aggregate score.

Kurt Salmon managing director Helen Mountney says: “As customers switch channels and click-and-collect and returns processing facilities, for instance, become even more important, the most successful businesses will be those that deliver change - both internally and externally - as seamlessly and quickly as their customers demand.”

Seeking a single view

However, the interviews carried out for Retail 2014 reveal that many retailers have some way to go in terms of omnichannel integration, if the ideal is defined as a retailer having a single view of its stock and the customer with whom it is transacting across multiple channels.

The retail chiefs were asked what stage they had reached, selecting from five options: I have a single view of my stock and my customer; I do not have a single view of my stock or my customer; I have a single view of my stock but not my customer; I have a single view of my customer but not my stock; and I am a single-channel retailer.

While 29% said they did have a single view of stock and customer, 21% said they had a single view of neither stock nor customer.

The retailers were also asked to identify their omnichannel priorities and not surprisingly investment in mobile came out on top, followed by a single view of stock and the customer.

Several of the executives emphasised the particular importance of having a single view of the customer. “This is the most important area of omnichannel by far,” said the managing director of a department store group. “Our vision is to make every customer feel like a VIP. If you have a single view of the customer it means that when a customer calls a call centre we can ask his opinion of the goods he has recently purchased and make sure he is happy.”

Image boost

There was a widely held view among the retail leaders that the sector still has much to do to improve its appeal in the jobs market. While a number suggested graduate recruitment had become easier in recent years and that the efforts to make retail a more attractive career option were bearing fruit, others suggested this improvement was primarily because of pressure in the jobs market.

However, a number suggested the advent of omnichannel retailing could help improve the industry’s standing as a career choice, particularly among younger people who tend to be more drawn to jobs that involve working with digital technology.

Indeed, the transformative potential of omnichannel appears to go much further than enhanced career appeal.

Notwithstanding the challenges the growth in online retailing has brought, the pursuit of an omnichannel model seems to be fostering a less apprehensive and more positive outlook. In short, the prospect of “reinvention” that the creation of a seamless, retail universe appears to embody is a challenge many retail chiefs are relishing.