Shopping for change: Curium’s Managing Director Andy Dawson considers the pressures facing the retail sector and the need for retailers to deliver on their strategic priorities.
With Next Plc shares down following today’s trading statement and reduced profit guidance, we have yet another reminder of the challenges facing retailers. The company said: “The UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero.”
Last week, the Marks & Spencer chairman Robert Swannell warned that consumers were yet to feel the full impact of a weaker pound on prices. The effects of Brexit, plus the fact that the likes of M&S import more than 90% of their clothing and home products, will play out over time.
We also saw a quarterly decline in retail sales for the first time since 2013 and a rise in inflation to 2.3%, which is expected to climb to 3% this year, exceeding wage growth.
Add to the mix the uncertainty of a general election and some interesting political and economic uncertainty around the world, and you have a headwind of change and uncertainty.
How should you react, especially if you are a high-street operator?
Under the leadership of Sergio Bucher, fresh from his time at Amazon, Debenhams has announced its strategy. Bucher has committed £150 million to invest in the store estate, supply chain and, importantly, the mobile shopping experience. The focus is on making Debenhams the destination for social shopping.
Reaction was a little muted due to the lack of hard numbers – at Curium, we’d refer to the benefits and how quickly they would be realised. I think it is fair to say that the jury is out; the markets are worried about execution risk. Mere words are no longer good enough.
Earlier this week, M&S announced a new head of clothing (Jill McDonald, CEO at Halfords), a role considered by many to be the toughest job in retail. It has also launched a “radical” new campaign today – ‘Spend it well’. Retailer watchers will keep an eagle eye on M&S to see how these developments play out.
Look at another company, Boohoo plc, which reported robust numbers. It is starting to get real credibility back and is executing its strategy of “Leading the fashion eCommerce market”.
Boohoo has had blips along the way but, as it demonstrates its ability to execute its strategy and plans, it is being recognised as a leading player and has a stratospheric share price valuation. But, Boohoo cannot afford any further blips without being punished.
I think it is critical that businesses, especially publicly owned businesses, demonstrate their ability to execute their plans, whether that is their strategic agenda or delivering business as usual.
One former customer I have admired from afar is Shop Direct Group. Shop Direct has reinvented itself as a digital retailer, ditching the old catalogues and delivering on Christmas trading. It has developed Miss Very as the centre of what has proven to be a very successful customer experience strategy.
Shop Direct has demonstrated its ability to execute a strategy and adhere itself to its customers. Rumour has it that there is a £3 billion valuation doing the rounds, so the rewards can be reaped.
Finally, Lord Wolfson, the boss of Next plc, suggested that retailers would need to take extra risks in order to protect market share in the face of inflation. He went on to say that “when you get an economic shock these risks are worth taking”.
Next has suffered a dip in market confidence and will be busy working on shoring up market confidence. This is the time when change teams and programmes really show their benefits.
It is often suggested that 70% projects fail to deliver their benefits. Now is not the time for that. Just ask Lord Wolfson, Jill McDonald or Sergio Bucher in a few months’ time, especially if they haven’t demonstrated their ability to deliver transformational change.