Based on Retail Executives Retail Breakfast Presentation January 21st 2020

Retail trading in each of the past five or six years has been more challenging. I see no evidence to suggest this year will not continue this trend, and next year. In almost 40 years this is by far the most difficult market I have seen. It is clear to me that most retail business models are not fit for purpose. The extent to which fine tuning is needed will vary, but the old model will no longer work in the way it did.

The key source of this growing pressure is the evolving change in the relationship between supply and demand. Over the past 15+ years, online has grown to now account for almost 30% of all non-food retail sales. Meanwhile, physical space has actually grown, slowing in recent years, but still expanded. Supply has therefore increased hugely. Demand over this period has failed to keep pace, especially in the post debt crisis period, and then dampened further by uncertainty around Brexit. Twenty years ago, UK retail was physically immature. Today we have chronic over supply and this is progressively hitting trading economics.

Against this background, we inevitably see growing distress. Many businesses unable to cope with the demands of an increasingly overcrowded market. But there are some retailers (a minority) who are trading strongly. There is much to learn from these winners. This is not about copying but identifying different approaches and applying aspects to one’s own business.

In this increasingly tightening market, over expansion becomes an increasing drag on performance. Over expansion has pervaded most retail businesses. Too many stores, many or most of which are much too big. Product offers have also become too big. Significant editing is required. But the key to all this is the customer. Too many retailers have been chasing a widening customer base and forgetting their core customers. In every business I know, there are some customers you don’t want. Some sales you should reject. Core customers should determine what you sell.

Today’s winners include businesses as varied as Aldi, Primark, Selfridges, Home Bargains, Costco and Reiss. Each has a clear target market and does not allow peripheral customers to dictate the offer. This focus allows them to deliver strong availability, fast stock turns and a consistent experience for customers – a virtuous circle. While people love to pigeonhole, this market is not about what you do but about how you do it. No sector or type of retailer is immune from trading pressures. Execution is everything. Sam Walton (founder of Wal-Mart) and Jeff Bezos (founder of Amazon) have both readily acknowledged studying competitors for inspiration. If it was good enough for them …