Retailers must innovate their way out of recession

This article is brought to you by Retail Technology Review: Retailers must innovate their way out of recession.

Despite positive signs in retail sales, 73 per cent of consultants working with the majority of the UKs top 50 retailers expect sales to contract or show only marginal growth in 2010...

A new Management Consultancies Association (MCA) report, released on the 14th December 2009 says that the battered retail sector is likely to experience a tough 2010 with sales expected to either contract or show only marginal growth. The MCA New Norm report for the retail sector also found that retailers must switch their attention away from cutting costs to innovating new products and services to recover and prosper post recession.

The MCA surveyed consultancies which have a particular expertise in the retail sector. Their clients include most top 50 retailers and over 90 per cent of the FTSE-100 and FTSE-250.

Value retailers will continue to prosper

The report also found that value/low price retailers, for example, Primark, Poundstretcher and Matalan, are likely to increase their market share while large supermarket chains may seize the opportunity to move into new product areas, for example, cars.

Retail sector will never be the same again

Online retailing will also continue to outperform high street shops. However, consumers, keen to socialise as well as shop, will flock to Westfield-like shopping malls. Increased credit costs will continue to squeeze retailers profit margins while consumers will remain reluctant to spend, focusing instead on reducing existing debts.

Alan Leaman, Chief Executive of the MCA said:
Our survey shows that retailers are willing and able to innovate, but many lack the cash flow and are nervous about the future. We are entering a period of great change within the sector, even against a background of continuing low levels of growth.

Tony Nugent, head of retail solutions at HCL-Axon commented:
The Christmas period will be critical.  There are a lot of investment decisions waiting for final approval at the moment, but no ones going to sign anything off until theyve seen the actual figures.

What will the New Norm in the retail sector look like?

The New Norm for retailers is likely to see an extended period of marginal growth or contraction, with almost half (47 per cent) of consultants predicting that retail sales growth could stagnate or contract by up to 3 per cent in 2010. In addition the report identifies the following factors for the New Norm:

The big will get bigger: Those retailers with cash are better able to innovate so the big retailers will gain ground.

A shift to social shopping: Consumers wanting to socialise as well as shop will be more likely to travel to shopping centres although how much they will spend remains unclear.

Multichannel retailing will become a reality: A quarter of all retailing could take place online within the next ten years so traditional retailers need to become multichannel.

Quality of service will be key: The focus on costs during the recession has resulted in widespread dissatisfaction and lack of engagement among frontline staff however quality of service will be critical to keeping customers.

Retailers must stimulate demand, rather than relying on governments: Substantial cuts in public expenditure will reduce consumer spend and an imminent change in government leaves the future uncertain for retailers.

The outlook for UK retail

Despite this bleak outlook, consultants consider the UK retail sector to be quite well positioned to meet its challenges, and opinion is evenly divided to how this compares to the situation in other countries. But retailers must be ready to adapt to changes consumer demands and behaviour.

Philip Michell, Consulting Director at Vertex, commented:

Retailers will have to start looking beyond conventional ideas of service.  Customers want solutions, not products, and the successful retailers of the future will understand they have to anticipate customer needs, not just react to them.

Richard Hyman, Strategic Retail Adviser to Deloitte said:

The key to success in the future will be for retailers to become demand, rather than supply, driven.  Already we can see a difference between the retailers who are genuinely tuned into consumer behaviour, and the difference between them and less competitive companies will become clearer over the next year.

For a copy of The New Norm: Retail please visit www.mca.org.uk/newnorm