Christmas was good for many retailers, but to maintain share or increase growth in a volatile environment, it will be necessary to invest in differentiation, believes PwC industry leader for consumer markets Lisa Hooker
Even though there’s been a fair amount of negative noise around Christmas trading this year, many announcements have been quite positive.
Early in the season, Christmas looked like it was getting back to normal. In our pre-Christmas survey, shoppers said they expected to spend more on presents and celebrations than in the previous year, mainly because of bigger family gatherings.
While the Omicron Covid-19 variant did have an effect, many customers had already completed their shopping by the time it emerged. It may have affected those shoppers that were leaving it late, but the overall impact was more of a blip than a catastrophe.
Like many, my Christmas shopping was largely unaffected because I’d finished it early – not because of any organisation or desire for a bargain over Black Friday, but because my family can be difficult to buy for.
“Our research revealed that customers on average spent £433 last Christmas – a 7% increase on last year”
Overall, there were decent results, even with ongoing supply and staffing issues. Those supply issues may have even helped to protect margins as many retailers refused to discount products due to shortages.
Our research revealed that customers on average spent £433 last Christmas – a 7% increase on last year.
But, as ever in retail, a new year brings new challenges and opportunities.
Cost inflation (of staff and goods) and the cost-of-living crisis (for consumers), strong comparisons for some sectors such as grocery and online, and continued supply problems are some of the issues likely to make underlying challenges harder in 2022.
Certain sectors saw such unprecedented performance during the pandemic – such as grocery and pureplay fashion – that they may also experience readjustments.
Grocery, in particular, may find the next six to 12 months tough as challenges around staff, Brexit and discount competitors expand into a flat or declining volume market.
But even with all this turbulence, retail is starting the year from a position of relative strength. And that gives cause for optimism because significant opportunities remain: resilient consumer sentiment, employment and wage growth, all combined with lockdown savings and pent-up demand.
Take the impact of hospitality and leisure, for example. While it is expected to take spending from certain sectors, it’s not always a trade-off.
In some instances, it can be good for certain retail categories, such as fashion and beauty, as people look for new outfits and new looks to impress.
Elsewhere, fashion may also get a boost from workers returning to offices as restrictions ease. I know I’m going to have to find some new workwear – I can’t wear my sweatpants to the office or turn up to meet clients in the same dress-down gear.
Whether it’s my daughter starting work and stealing my formalwear or the moths getting into the wardrobe, I’ve got a few reasons to get out and buy some new clothes. I’m sure I’m not alone.
“Legacy retailers need to invest to differentiate themselves: better-skilled workforces, faster and more resilient supply chains, increased innovation and more”
Despite the challenges facing the sector, 73% of UK chief executives are confident that the domestic economy will grow and 83% believe the global economy will improve over the next year. That suggests opportunity abounds.
But to maintain share or increase growth in a turbulent environment, legacy retailers will need to invest to differentiate themselves: better-skilled workforces, faster and more resilient supply chains, increased innovation and more.
But how do they get access to these differentiators?
One way is through M&A. But businesses will need to be strategic, not just looking at deals for the sake of blindly chasing growth.
The need to address issues such as ESG. Business models and innovation will also require investment. That can be difficult for already stretched workforces, finances and in-house teams, so we may see businesses seeking new talent through partnerships or joint ventures.
Tesco is one example. Not only has it invested in Trigo, which has gone on to power its till-free store, it has also set up a joint venture with rapid-delivery company Gorillas to offer 10-minute deliveries to customers.
Vertical integration may be another solution, particularly for supply chain challenges, stock shortages or ESG. This appears to be an emerging theme: we’ve seen Morrisons buying a packaging recycling plant and even a fishing trawler, Chanel buying over a dozen of its suppliers and Lululemon investing in plant-based nylon and mushroom leather.
On the face of it, these actions may seem like they are only relevant for big retailers. But it is possible to make any of this work for small retailers or those on local high streets.
For those businesses, it’s thinking about how you get on board with a new platform. Can you do it yourself or will you need to use an aggregator, app marketplace or shared portal to amplify your offerings?
Whatever trends unfold over the next year, and however customer behaviours evolve, one thing we can be certain about is that our industry will continue to demonstrate resilience, courage and innovation.
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