The major realisation arising from the aftermath of the five-year global financial crisis is that we are in fact awakening from a 30-year dream based on borrowed money…
However, the unprecedented change of this nature also represents significant opportunity for suppliers and retailers that are prepared to accept market realities, seek growth at the expense of the competition and employ increased use of real innovation in both brands and methods of selling and marketing…
In practice, the 2008 wake-up call has been so unprecedented, it has caused government, banks and citizens to deleverage, paying down debts with money that that might have continued to be spent in the marketplace, resulting in flat demand, at best, in most countries.
Moreover, those consumers still in employment have become increasingly savvy, determined to settle for nothing less than demonstrable value-for-money, and with ready access to objective price comparison data to guide them at point-of-purchase… In other words, savvy consumers are now making up their own minds, unwilling ever again to outsource their purchasing decision-making to brand owners and retailers…
As a result, many retailers are struggling to achieve acceptable levels of profitability, causing the flatline and even falling like-for-like sales achieved in December’s run up to Christmas and the New Year. With one exception…
The retail exception
With annual sales of US$469bn, Walmart continues to deliver Returns On Capital Employed of 19.6% compared with other retailers struggling to reach 10-12%. And therein lies the issue. If it is possible for one retailer to maintain acceptable levels of profitability in ‘impossible conditions’ then every stock market will expect all retailers to achieve similar results, or have their share prices downgraded, making them increasingly vulnerable to takeover in the process.
As a result, we are now witnessing increasingly competitive behaviour by retailers determined to grow profit at the expense of the competition. Moreover, given the generous margins available on H&B brands, it can be anticipated that cosmetics and toiletries will play major roles in the upcoming retail battle…
The redundancy of large space retailing
Another fall-out from the financial crisis has been the growing realisation that large space retailing has its limitations. This is due specifically to the increased supply chain efficiencies and better shelf-management resulting in two facings doing the work of five facings, with little loss of impact. In addition, the cut-backs have made savvy consumers shop ‘little & often’ and thereby making them increasingly sensitive to the on-cost of driving to out-of-town stores.
The growth of online
Whilst grocers are cutting back on megastores, rising internet food sales will see supermarkets sign up for twice as much online warehouse space in 2014. According to a report in The Guardian, Tesco, Asda and Waitrose will this year commit to doubling the space devoted to internet dark stores. Around 1.8m sq. ft. of warehouse space is already dedicated to dark stores, but that is set to increase as online shopping transforms the retail sector.
Acceleration of online growth
The combination of faster picking, more delivery slots and increased use of ‘click & collect’ means the acceleration of online growth, mainly at the expense of less efficient competition. However, faster online supply of goods – especially bulky items – has to accelerate the redundancy of large space retailing, and given that there are no obvious alternative use options (i.e. sell-off) available, then the major retailers will seek to optimise freed-up space via a combination of in-store theatre and franchising.
Providing the numbers add up, this new availability of in-store space has to represent a major opportunity for suppliers and retailers to fundamentally re-think their application of shopper-marketing, a process conceived at a time when retail space was at a premium….
