Tough times but opportunity abounds for innovators

By Sue Richardson, head of retail at KPMG in the North of England

Looking at the news recently, it’s hard not to conclude that the retail sector is going through a tough time.

While retail sales are still growing, growth is at a far slower rate than it has been, more than halving from 4.7% in 2016 to 1.9% last year and much of this growth has been driven by inflation rather than incremental volume.

Costs have continued to increase with changes to the National Minimum Wage and Business Rates, while those buying stock from overseas have suffered from a dramatic weakening of the pound.

At the same time, consumer demand has softened as household incomes are squeezed by a slump in wage growth which means that retailers need to achieve growth through stealing market share from competitors.

There have been a potent cocktail of cost pressures impacting retailers both on and off the high street which has seen household names falter and fail.

But with retail currently evolving at such a fast pace, those dynamic firms that can stay one step ahead of the competition can find that there are transformative opportunities available.

Dynamic brands, particularly in fast-moving markets like fashion, with a high proportion of millennial customers, have been able to achieve significant market share quickly by focusing their efforts on mobile and social media.

That’s a strategy that chimes with their customers and is hard for established retailers with the overhead base associated with large store networks to compete with.

Innovation and interaction

Consumers now expect greater interaction with brands through social media, gaming and blogs, and we’ll see more things like push notifications – where, for example, the technology can match your online shopping history with your location, and encourage you into a store with tailored discounts.

This kind of innovation is part of the reason why I’m not predicting the death of the high street.

We’re still seeing huge demand for primary space across the north, and rents are still high, though secondary and certainly tertiary sites are seeing far less demand.

What we do need is a fundamental rethink on the role of the high street in our towns in order to draw people back.

Shoppers are increasingly looking for combined retail and leisure destinations – places where they can get lunch, grab a coffee, a drink and also visit their favourite brands.

Shopping centres like The Trafford Centre, Trinity in Leeds and Liverpool One are destinations for locals, tourists and day-trippers because they have a diverse mix of vendors and leisure opportunities. In the case of Leeds and Liverpool these developments are in the city centre and could play an important role in encouraging people back to the high street.

Competition will intensify for areas that can offer that blend of activity and we’ll likely see landlords becoming more flexible with the terms of use for their premises.

Consumers want flexibility in opening hours and more options in how they can buy a product – whether it be click and collect or ordering in store for home delivery.

It’s all part of the trend towards omnichannel retail, so we could see more stores taking on more of a showroom role, supporting sales which take place online or on a mobile device.

Competing for customers

One upshot of this shift is that retailers are increasingly dependent on third-party logistics providers to fulfil online shopping deliveries.

Customers are placing more importance on the quality of delivery, like being able to book particular delivery times, so there is a challenge there around ensuring a good-quality service.

However, people will pay extra for a better service, so that is potentially a way to gain some margin too.

As logistics become an ever more important part of the retail industry, we should expect to see more fulfilment centres – and the economic web that supports them – pop up across the region.

Hopefully that means more jobs and investment in the region’s infrastructure.

Another interesting shift is demonstrated by one high-profile fashion brand announcing that it is to move its headquarters from London to Leeds, along with 400 jobs. I think we could see more firms doing that going forward as cost pressures increase.

So, we’ve seen that even if trading conditions aren’t set to ease significantly in the near future, there are innovative retailers which are bucking the prevailing trends by re-shaping the retail landscape.

Those retailers that move to address their overheads while delivering a customer-centric, channel-agnostic proposition that switches seamlessly between physical stores, online and mobile, will find themselves best placed to achieve growth during the undoubtedly tough year ahead.

Read more in the State of the Region series.