At the first Annual Retail Lecture conducted by the BRC (British Retail Consortium) Andy Bond President of Asda, discussed the changing landscape of retail and a shift in customer attitude towards value “There appear to be increasing signs that we may be at the bottom of the cycle and green shoots may be appearing. But don’t let this fool you. While consumers may be ready to shop again, the recession will have definitely created a good degree of long-term behaviour change.”
According to Bond, consumers are beginning to revaluate what and how they purchase; retailers will no longer be able to drive higher margins through so called ‘specialist’ categories, Bond quoted that the organics industry is negative 30% yoy whilst ASDA is positive 25%. This gap he feels is driven from the fact that ASDA is not boosting its profit margins by charging the customer a premium for its organics range.
Customers want choice, quality and service but will not pay an unnecessary premium for it, retailer’s margins have to come into line and they will have to keep costs down by thrift.
Bond warned retailers that whilst we will see an upturn within the economy, consumers expectations will change forever; the consumer of the future will be more empowered, creative and will seek transparency; most of all the consumer of the future will demand value. For those companies who do not embrace this shift, he told, “you’re living in the past and in the future you may not be here”.
As Marks and Spencer announced a drop in UK like-for-like sales of 5.9%; with falls in GM and food at 6.9% and 5% respectively, how much time does Ian Dyson really have to implement the ‘2020’ change program that he has been tasked with?
Marks & Spencer’s UK sales have dropped by 1.7%, whilst its overall sales grew by 0.4%, thanks to the 25.9% increase in international sales. Last year, the adjusted profit before tax was £1.09bn whilst this year’s results see a drop to £768.9m.
The Board has taken the last six months to review the business and layout its long term strategy. Ian Dyson has been entrusted with the responsibility of leading the ‘2020-Doing the Right Thing’ change program, which is set to refocus the Company’s brand communication, accelerate change, focus on international expansion and multi-channel development.
As the Group’s final dividend for 2008/09 has been reduced to 9.5p, how long does Dyson and Sir Stuart Rose really have to deliver a positive step change that their customers will respond too?
As volume and value retailers continue to gain market share, is there really a future for retailers who are not able to compete on price or deliver a true point of difference to their customer?
Many articles have been written discrediting value retailers and the dominance they have within the market place, however, the simple fact is, love them or hate them customers are turning to them to deliver a better return on the money in their wallets. Is it therefore imperative to understand how they achieve such a dominate position within the market, and what are the lessons retailers can take when reviewing their business models?
My view, having worked with value retailers for +20 years is that they are not driven by costs; instead they drive a culture of excellence, quality and continual improvement. Cost elimination then becomes a derivative of this focus. Value retailers never stand still long enough to accept complacency or their market position. Whilst many companies are now working on tactical strategies to reduce costs, the very best value retailers see this as part of their business model, irrespective of the current trading conditions and economic/global climate. Hence as trading becomes increasingly more difficult they have the ability to focus on existing and new customers rather than fighting the fire that has begun to consume most retailers engine rooms. Whilst exec. teams of many retailers are in the war room discussing the best way to baton down the hatches, and determining how the business will operate with a 20% resource reduction, value retailers are able to focus on how to attract a greater customer base.
In summary, the retailers that will come out of the recession strongest are those that review all that they do, respond quickly to the need for change, invest in their people, focus on quality and meeting the changing demands of customers, and do all they can to eliminate waste and provide value. For those retailers that have joined this shift towards delivering customer value, don’t through your strategy away through this difficult period, instead, embrace it, communicate it, and empower your teams to work faster to deliver it.
