HT to Julian Barker via Stuart Green
What is going on in UK retail?
Retailers and pundits are calling it ‘structural change’ meaning an economic condition that occurs when a market changes how it functions or operates, making yesterday’s forecasts and decisions inappropriate.
In practice, as you now know, this is one of the most fundamental retail changes in career history for most people.
- Radical changes in how people shop: need to buy anytime, anywhere, any way they choose, or else..
- Major mults locked into large space outlets – their retail estates at least 20% over capacity - that cannot be released via sell-off without compromising the balance sheet (the value of a store is based on sales of £1k/sq ft/annum, which no other business can legally deliver, +2% annual depreciation means a lifetime expectation of 50 years, all contributing to lower sell-off prices..
- Long tail of instore SKUs: with 80% of sales produced by 20% of the SKUs, means that current stores are at least 20% too large, a gap too great to cover via instore theatre and alternative usage, putting more pressure on the £1k/sq ft/annum KPI. This means that the Tesco cull has to be just the start…
- Online still indicating an unknown upside, and an equally unmeasurable downside for traditional retail
Where is it headed?
Radical change has to result in a re-alignment of market shares, only issues are how long and how fundamental... Pragmatic business people have to plunge in and commit now, in order to optimise resources and profitability, while others ideally await a return to normal...
Taking Nielsen market shares as a basis, why not ‘what if’ the possible re-alignment – crude, but probably better than assuming share maintenance or even reversion to better times?
Current share Share end 2017?
Total Mults 90.6% 88.0%
Tesco 27.9% 25.0%
Sainsbury’s 15.9% 14.0%
Asda 15.6% 14.5%
Morrisons 10.8% 9.5%
Aldi 6.2% 9.0%
Co-op 5.8% 5.0%
Waitrose 4.2% 5.0%
Lidl 4.2% 6.0%
Key dynamics:
- Drift of business away from large space retail, with lock-in + long tail causing profitability issues/write-offs
- Smaller, closer, more frequent shopping trips benefiting small local convenience players
- Growth of online - no space/tail issues - with click & collect diluting fulfilment costs
How does it affect you?
These changes represent both opportunities and threats. Threats for those who ‘wait & see’, but opportunities for the few who act now on incomplete information but can anticipate the inevitable consequences of fundamental change in their markets. The unprecedented forces unleashed in the market will not be limited to the market-share ‘tweakings’ indicated above – we are talking about fundamental change in market composition, the degree of which change will be determined by your category-customer-competitor mix…
What to do about it?
Back-to-basics review of relative competitive appeal vs. available alternatives – by definition this will re-evaluate brand capabilities vs. real consumer need, set against your company expectations of brand growth, time window, and appetite for risk, all assessed within a realistic – and objective – assessment of a current market context and its probable development
In other words, if your current trade strategy pinches a bit, perhaps our 3.5hr bespoke session can help secure a better fit?
More: contact me bmoore@namnews.com
