7 Sept 2017
Bad Year for UK Retailers Sees Several Survival Strategies on Show
- Photo: Shrinkflation: Can reduced quantities of Quality Street help rescue retailers?
- Photo: The Argos Catalogue: The pre-digital dinosaur beloved by consumers and advertisers.
- Photo: John Lewis: Hoping acting lessons prove a dramatic remedy for diminishing returns.
- Photo: Baulch: “Doomed to failure”.
Shrinkflation, far-reaching redundancy programmes, cut backs on print costs, withholding order quantities and trips to theatre school, no approach is seen as off-limits as the UK's Brexit-beleaguered retail sector bids to ride out the storm.
It is no secret that 2017 has proven to be a particularly trying year for the UK's retail sector, dogged as it has been by Brexit uncertainty and the ensuing currency fluctuations. It has been interesting to see, though, just how individual companies have addressed the situation and which strategies they have opted for in order to survive in this changed economic reality.
The obvious starting point for pretty much every retailer looking to protect their bottom line, of course, has been to ensure that their costs are under control. Unsurprisingly, this has led to the introduction of a raft of cost-cutting measures, the most prevalent of which has been a thorough review of staffing at every level – from head office to shop floor.
Inevitably, this has resulted in the announcement of substantial redundancies across the retail sector. In the case of Asda, the Wal-Mart-owned UK supermarket chain, it is already in consultation with more than 3,000 employees in 18 of its stores deemed to be under-performing, with their staffing levels seen as disproportionate to their sales performance.
Similarly, Sainsbury's, the UK's second-largest supermarket chain, is looking to cut 1,000 head office jobs as part of an efficiency drive designed to save the business some £500 million (US$650 million). To this end, it has brought in McKinsey, the New York-headquartered management consultancy, to draw up what has been surprisingly uneuphemistically referred to as a 'headcount reduction plan'. In March, the retailer announced it would be cutting a further 400 in-store jobs, while another 4,000 workers face changes to their working hours, with the night shift likely to be scrapped in up to 400 stores.
Even Tesco, the UK's largest grocery chain, has not escaped such cutbacks. It is said to have already informed staff at its head office that there will be something of a cull in the months to come.
It is not just the grocery sector, though, that is facing such a drastic reduction in numbers. Wilko, the East Midlands-headquartered value retailer once seen as the natural High Street successor to Woolworths, is consulting with almost 4,000 staff over a proposed reduction in numbers. This, again, is no huge surprise. According to the company's most recent accounts, its profits dropped by a massive 80% last year.
This was largely ascribed to the £13 million rise in costs suffered by the company in the wake of sterling's post-EU referendum slump. On top of that, the imposition of the National Living Wage was also cited as a major contributory factor. In truth, this is a development that has hurt not only the discount-retail channel, but also pretty much every independent retailer.
Not every company, however, has immediately opted to reduce staff numbers, with some taking a more creative approach to balancing the books. One increasingly prevalent strategy is shrinkflation – the practice of downsizing or de-speccing products while the supplier and retailer maintain the price point and margin – essentially a less-product-for-the-same-price-as-before proposition.
According to the Office of National Statistics, the UK's official statistical monitoring body, more than 2,500 products sold in the country have shrunk in size over the past few years, with the majority of these coming from the food sector. To be fair, this figure may be a little skewed as it is far easier to compare food items than many of the goods in other consumer categories. Toys, for instance, are seldom sold by weight, making it easier to hide any downsizing.
More thorough research with regard to other product categories would undoubtedly reveal that the number of products actually affected by shrinkflation is far higher. There is also a general expectation that the next few years will see that number grow exponentially. With retailers clearly worried that consumers won't accept large price increases, the thinking seems to be that offering them less product for the same money might be more palatable.
Argos, the UK's largest toy retailer, seems to have already gone a step further by trimming several millimetres off the dimensions of its new Autumn/Winter Catalogue. While this might not sound too draconian, it is worth remembering that this catalogue is a true icon of the British retail scene, with this 'laminated book of dreams' the pillar on which Argos' retail success was built.
As the years have passed, though, and the online sector has grown in significance, many have questioned the utility of such a publication, including a number of senior figures within the company's own management team. Back in 2012, John Walden, the company's Chief Executive, seemed to sound the death knell for the publication when he indicated that, in future, it would purely act to support the retailer's digital channels.
Inevitably, both its print run and its pagination were cut and have been further reduced for every subsequent edition. To be fair, the rationale was pretty much inarguable – the print and paper costs associated with the catalogue were astronomical and clearly offered the potential for significant savings.
Whatever the Argos management team may feel about the catalogue, many consumers are hugely reluctant to let it go. With a significant number of Argos stores no longer carrying the catalogues, even a brief visit to the retailer's Facebook or Twitter feeds will demonstrate just how strongly customers feel about this absence. Even now, for many consumers, online has yet to prove an adequate replacement for print.
There is, however, one further catalogue-related conundrum that Argos has to contend with – the print edition currently generates huge revenues from advertisers. Indeed, some have gone so far as to suggest that the continuing existence of the catalogue owes less to its value to consumers than it does to the advertising revenue it generates for the business.
While many of these strategies represent practical and predictable responses to the current trading climate, others have adopted approaches that could be deemed more innovative or even risky. Some suppliers, for instance, have suggested that certain toy retailers – particularly the cash-rich ones – are holding back on initial order quantities in the belief that they will get better deals as the year unfolds.
While suppliers are far from thrilled by this tactic, it is difficult to blame retailers for taking this particular approach. Indeed, there is a strong argument to be made that they are just playing the game. There are, of course, certain risks involved in pursuing such a strategy – if a line is in short supply, the chances are that late-ordering retailers won't get the level of stock they want. In the case of a significant number of the less in-demand lines, however, the gamble may well pay off.
Perhaps the most unusual tactic, though, is the one currently being trialled by John Lewis. The London-headquartered high-end department store group has announced that it is sending staff from its Oxford store to theatre school in a bid to boost their confidence.
The company has suggested that the new vocal techniques and enhanced stage presence that could result from such study will impress shoppers while improving the overall customer experience. Should the trial prove to be successful, the company has announced its intention to roll it out to all of its staff on a nationwide basis.
For those who have been in the toy trade long enough, the initiative is sure to stir memories of the days when walking around Toy Fair stands inevitably involved being waylaid by 'resting' actors, all determined to deliver product presentations with an enthusiasm that verged on the manic. On the whole, it was a ghastly experience, with most retail buyers hastily requesting "just the short version", though many were notably less polite.
While everyone understands the importance of retail theatre and the crucial role it plays in the fight against online shopping, this is the sort of initiative that will sharply divide customer opinion. Brave and bold or irritating and off-putting? I think it's safe to say where the smart money might be going.
Ultimately, the only unifying factor here is that every retailer has clearly realised that doing nothing is no longer an option. Just which strategies will prove successful and which are doomed to failure, though, will only become apparent with the passage of time.
John Baulch is the Publisher of Toy World,
the leading trade title for the UK and European toy trade