The KPMG/SPSL Retail Think Tank, which met last month, has warned of possible business failures in the expected downturn. The RTT debated the subject, ‘What are the secrets of successful retailing and how can retailers survive and prosper in a downturn?’ for its latest White Paper. Its warnings were in part based on its predictions for Quarter 4, 2007, which were more pessimistic than previously, with downward pressure expected in all three areas considered; Demand, Margins and Costs. The latest BRC-KPMG Retail Sales Monitor figures underline this too, with like-for-like sales in October rising by just 1%, their smallest rise in 11 months.
The key observation of the RTT was that the principles of success for any retailer remain the same irrespective of the economic environment in which it is operating – but they just become even more critical in a downturn. Such principles include the retailer’s ability to:
- know and understand their target customers, how those customers perceive them, what their wants and needs are, and what they expect;
- use that understanding to create a delivery proposition of the right product, environment, price/value and service offer;
- be able to deliver the proposition successfully, via the organisational structure and infrastructure and the culture;
- fundamentally and constantly re-evaluate the proposition and the structure
“The customer is, in a very real sense, a stakeholder in every retailer and, in fact, is the key stakeholder”, said Helen Dickinson from KPMG. Knowing, understanding and responding to your customer is, therefore, the RTT asserts, the single most important mantra in the success factors of winning retailers and doubly important in a downturn. Complacency is ruinous warns the RTT; there is little loyalty in retailing. If customers don’t like what you are selling today and you don’t spot it by tomorrow, they’ll be voting with their feet the day after.
Retailers need to put ever more effort into understanding the continuous changes in their customers’ attitudes, desires and behaviour. Sporadic analysis of EPoS data, mystery shopping and holding focus groups with customers is no longer enough. Now, the need to continuously track and understand customers’ experiences is a business requisite.
Invariably, part of the proposition surrounds price and value, but its role, like every other part of the mix, is always changing. Nick Bubb, of Pali International explains; “People are sated by bargains. They will not buy things in 2007/8 that they don’t need, simply because they’re cheap. Retailers who are successful now and will be successful in a downturn are not necessarily the slash and burn discounters. The rules are changing and it’s foolish sometimes to simply discount in a belief that it will add value. Far better to find exactly what your customers want, which may be items with added perceived value, and then having sourced them, actually add price to match that different perception of value.”
The RTT believes in the importance of delivering relevant information to where it is needed in order to satisfy customer demand. Retail is the ‘final leg of the relay race’ and the interface with the customer its final apotheosis; the moment when that visceral link between the chief executive, the designers, the manufacturers, the teams of buyers, the merchandisers, the marketers, the supply chain, the shop-floor staff and everyone involved is either endorsed or condemned. Too many batten-passers can impede the speed of delivery and ultimately weaken the linkage between supply and demand.
Whilst the RTT pointed to the fact that the most successful retailers treat their staff with as much respect as they treat their customers, they can’t afford to wait until it’s too late to change their structure, proposition or philosophical orientation. They must be able to be aggressive with stores, channels, staff or formats that don’t perform and cut them back speedily and efficiently.
Retailers need to take a hard look at their management and staff, and assess whether they are willing and able to respond to changing market conditions. If not, hard decisions must be made. These may have several positive effects; removing resistance to change, reducing the payroll, shortening the decision chain and, as a bonus, giving younger management an opportunity to prove themselves.
In a downturn nothing should take the organisation’s closest attention away from that vital customer relationship. It is a matter of embarking on a journey, but never arriving at your final destination. Happily many retailers will have the customer-focus, relevance of proposition and business model to succeed. Others, sadly, will fall and perish. Wherever they fall in the great retail forest, new saplings will grow and flourish in the clearings made. Who knows what original propositions they will have, what new retail DNA guides them, what exciting innovations will, literally, be in store?
Date Published: 12/1/2007 5:30 PM
Note to Editors:
The RTT panellists rely on their depth of personal experience, sector knowledge and review an exhaustive bank of industry and government datasets including the following:
Members of the RTT are:
- Nick Bubb – Independent Retail Analyst
- Dr. Tim Denison – Ipsos Retail Performance
- Jonathan De Mello – Harper Dennis Hobbs
- Martin Hayward – Hayward Strategy and Futures
- Maureen Hinton – Conlumino
- James Knightley – ING
- Richard Lowe – Barclays Retail & Wholesale Sectors
- David McCorquodale – KPMG
- Martin Newman – Practicology
- Mike Watkins – Nielsen
First mentions of the Retail Think Tank should be as follows: the KPMG/Ipsos Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.
The RTT was founded in February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited. The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector. The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.
Definitions: The RTT assesses the state of health of the UK retail sector by considering the factors which influence its three key drivers.
1. Demand – Demand for retail goods and services. From a retro-perspective, retail sales, volumes and prices are the primary indicators. When considering future prospects, economic factors such as interest rates, employment levels and house prices as well as others such as consumer confidence, footfall and preferences are used
2. Margin (Gross) – Sales less cost of sales; the buying margin less markdowns and shrinkage. Cost of sales include product purchase costs, associated costs of indirect taxes and duty and discounts
3. Costs – All other costs associated with the retail operations, including freight and logistics, marketing, property and people
The Retail Health Index – how is it assessed?
Every quarter each member of the RTT makes quantitative assessments of the impact on retail health of demand, margins and costs for the quarter just completed and a forecast of the quarter ahead. These scores are submitted individually, collated and aggregated in time for the RTT’s quarterly meeting. The individual judgements on what to score are ultimately a combination of objective and subjective ones, drawing upon a wide range of hard datasets and softer qualitative material available to each member. The framework follows the example of The Bank of England Agents’ scoring system on economic intelligence provided to the Monetary Policy Committee.
The aggregate scores are combined to form the Retail Health Index (‘RHI’) which is reviewed at that meeting and occasionally revised after debate if members feel it appropriate. The RHI tracks quarter on quarter changes in the health of the UK retail sector and as such provides a useful and unique measured indicator of retail health. The index ‘base’ of 100 was set on 1 April 2006. Each quarter, it assesses whether the state of health has improved or deteriorated since the previous quarter. An improvement will lead to a higher RHI score than that recorded in the previous quarter, and with a deterioration leading to a lower score. The larger the index movement, the more marked the shift in the state of health.
The RHI has two main benefits. Firstly, it aims to quantify the knowledge of the RTT members in a systematic way. Secondly, it assesses the overall state of health of the UK retail sector for which there is no official data.
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