Retail - Business issues

The boom preceding the crash of 2008 was a credit-led phenomenon and the retail sector expanded mightily as a result of it. It suffered correspondingly when consumer demand dried up.

The extra outlets many buoyant retailers had so optimistically opened rapidly became a dangerous drain on resources and the impact on the shopping malls and high streets of developed economies – the recognisable face of modern retailing – was devastating:

“For half a century, strip malls were the commercial heart of suburbia. Americans drove to these open-air shopping centres, strung out along a main road, to pick up their dry-cleaning or get their hair styled. Now vacancy rates are at 10.9%, a level not seen since 1991, according to Reis, a property analyst¹.“   

There is no guarantee of recovery to previous levels of business. Growth had been stuttering at best. In July 2011 UK retail sales values were 0.6% higher on a like-for-like basis from July 2010, when sales had risen 0.5%. On a total basis, sales were up 2.5%, against a 2.6% increase in July 2010².  There is a real risk of economic stagnation, depressing demand for years to come.

In the words of Stephen Robertson, Director General, British Retail Consortium: " When you take into consideration inflation and January's increase in VAT, 2.5 per cent growth effectively means people are buying fewer goods. Food sales continue to outperform non-food with inflation helping to drive top-line growth. But shoppers were only tempted into stores by an unprecedented number of promotions which come at the expense of margins. Sales of non-food goods barely grew, though clearance events helped summer clothing in particular. Growing fears of a global economic slowdown and a sovereign debt crisis have sent shockwaves through financial markets. Policymakers in Europe and the US must act quickly to implement a coordinated and credible strategy to reduce public sector deficits while supporting growth. Business and consumer confidence needs to be restored quickly before spending paralysis sets in³." 

Looking beyond economic challenges, the overall shape of retail as an industry is being changed by factors including merger and acquisition activity, global sourcing and technological innovation.

Retailers have consolidated, embraced new technologies and widened their supplier base globally in an effort to scale rapidly, secure savings and protect themselves from competitive pressures.

If the immediate future is indeed likely to be marked by sluggish consumer demand, it may be that these and similar strategies continue to offer retailers their best way forward.

Similarly, the leading retailers who choose to work with Xchanging are discovering that outsourcing and procurement can acquire a particularly strategic significance when growth is hard to find.

1 http://econ.st/hm7frn
2 http://bit.ly/nCWJtp
3 http://bit.ly/nCWJtp