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2009 will be a cathartic year for UK retail
Archived article dated Friday March 6th 2009
In my last column I looked at how managing cash and working capital are top of most companies' 'to do' lists for 2009. But what other steps can businesses take?
By Helen Dickinson
This was the subject of the latest discussions of the KPMG/Synovate Retail Think Tank, the industry group, of which I am part. Our latest white paper concluded that with the challenging economic backdrop, 2009 will be a cathartic year for UK retail and that trading conditions will remain difficult at least into 2010, with non-food retailers being hardest hitHowever, it's certainly not a case of sitting back and letting events take over. At our latest meeting, the RTT debated what it thought successful retailers could be doing this year. I thought I would share the results of some of these deliberations with you.
• Adapting business strategy in a changing market
The RTT predicted that it would see a swathe of re-financings for retailers needing to rebuild their balance sheets, high-profile distressed disposals, and opportunistic buying of businesses by those with funding in place.
For those in better financial shape, investing in growth where possible will be the order of the day, as recession presents an opportunity to take market share, as the good get better and potentially bigger. The winners will be those that do two things - relentlessly pursue a clear vision of who their customers are and what they want and have the flexibility to innovate and make changes to their business to respond to those changing customer needs.
There will be a new focus for buyer-supplier relationships, with retailers carrying less stock and refreshing product offers more often, while liquidating slow-moving stock more quickly and frequently will increasingly become common practice. New emphasis may also be seen on local sourcing, bolstering the dynamism and variety of their range, guarding against weak exchange rates and fulfilling 'green', environmental ambitions.
• Responding to the changing habits of consumers
According to Synovate, footfall is due to drop by 2.3% this year compared with 2008, which led to predictions about fewer purchases and smaller basket sizes, as well as shopping and spending less often.
Shoppers will expect more enjoyment from fewer experiences, which could trigger a potential renaissance of customer service excellence. With fewer people out shopping, store staff should take a more active interest in their customers: serving them with a smile, priding themselves on excellent product knowledge and assuming responsibility for lifting conversion rates.
Consumers' price knowledge will become more accurate and whereas buying on credit used to be de rigueur, we may now see a revival in saving-up-to-afford-to-spend.
• Looking for property opportunities
Excellent opportunities exist for strong retailers to acquire prime quality sites, with property disposals by distressed retailers releasing some primary and good secondary stock. According to RTT member Mark Teale of CBRE, some 4,000 units - equivalent to 0.5% of British retail stock - is predicted to become available, providing a rare opportunity for stronger players to selectively take High Street market share.
However, because the supply tap of new development was turned-off relatively early on, the scope for non-food retailers to acquire high-productivity, speculatively-built modern stock is likely to prove much more modest than in past recessions.
• Treating cash as king
Finally, sharp-eyed readers will notice that this is the second time I've mentioned cash in a fortnight, but it bears repetition. Businesses need to continue to manage this very closely through careful and consistent management of expenditure and working capital.
Although cash should be top priority, many retailers are not very good at forecasting it and most have a poor track record of bringing down working capital. With the squeeze on credit, accurately forecasting cash will be a critical challenge for many, as will maintaining savings from cost reduction programmes.
Controlling cash flow and the supply chain will also be a significant challenge for the sector, while the management of currency volatility is crucial to profitability. Over recent years, retailers have been sourcing a larger amount of their stock from overseas, introducing increased currency risk into their businesses. It is vital for retailers to have a partnership approach with their bank, ensuring both work very closely together.
The RTT's deliberations concluded that 2009 is set to be a 'brave new world': an extraordinary year set against a unique economic backdrop where high-profile casualties will invariably capture the headlines. However, this is only part of the story: the year ahead will be challenging but there are many winning retailers in the economy. As businesses have failed - and continue to fail - there is much to be won by their competitors if they have the right strategy and proposition. Whatever happens, the group agreed that the retail landscape will look very different in 12 months' time.
Helen Dickinson is Head of Retail, KPMG
To see the full RTT white paper, go to www.retailthinktank.co.uk
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