Published Tuesday 8th February 2022

For many, 2021 won’t be remembered fondly, and could not have ended soon enough. The all-powerful doom and gloom of COVID can easily carry the blame – but that really doesn’t tell the whole story. Retail has always been a fast moving, continually evolving sector driven by the consumer’s love of being fickle and determining what’s in and what’s out. What is now also true, is that the pandemic world has accelerated this retail Darwinism, forcing the sector as a whole to reconsider what it takes to be successful.

Marks & Spencer are on the verge of having to revise their profit forecasts in a positive way. Next have announced the second positive adjustment to their profit forecast of 2021 – predicting a pre-tax profit increase of 9.8%. In the wider context of the health of the high street, these figures should inspire a positive outlook for 2022. Results have been driven by well-considered, well delivered strategy that embraces the changing habits of consumers and the evolving channels through which retail can interact and deliver. In the case of M&S, brand repositioning has contributed to the upturn in fortune, but taking a ruthless look at efficiency has resulted in the improved performance of both these essential retailers.

There are reasons to be optimistic. Footfall on our highstreets was 5.2% higher on New Year’s Eve than Christmas Eve (usually the reverse is true), suggesting that we were ready to come out of COVID isolation and support our retail spaces. However there is a lot of ground to make up, a lot of confidence to win back, and a lot of decisions to make on how to manage operational challenges balanced with customer expectations.

Two headline challenges facing retail (amongst other sectors) are supply chain and staffing. The former a result of the perfect storm of Brexit and COVID is one that with an optimistic outlook, should resolve in time. However, during that time, the impact on costs, stock levels and delivery time will have to be addressed. IKEA announced a 10% price hike, Next 6% and Greggs a 5p – 10p per product – all of which hit the consumer hard and present a barrier that retail must overcome. Employing a pro-active communication strategy to manage expectation will be critical going forward to prevent alienating both existing and potential customers, while addressing internal processes will help to keep operational disruption to a minimum, and help protect that all-important margin.

Staff shortages have been exacerbated by the requirements of isolation to help curb the spread of Omicron, but the reality is that retail has perennially suffered from workforce challenges. The grocery sector – notably driven by Lidl, Aldi, Morrisons and more recently Sainsbury’s have made moves to address the problem by increasing staff wages to be above the government living wage level. Paying at least 50p an hour over the rate may only seem a small gesture, but the implication is that it is a demonstration that staff are valued as part of the larger organisation. Sainsbury’s have committed £100m to improve pay and rewards which for potential employees has to be considered a valuable incentive.

There is always the question of how either pay rises or staff incentives can be funded without the consumer ultimately feeling the pain in their back pocket. One solution is to take a critical approach to reviewing operational costs within the business – from the headache of fluctuating energy costs, through the complexities of packaging and impending compliance requirements to the detail of card payment costs, ERA have a network of cost reduction experts that can help to facilitate cost and process efficiencies. Finding savings in existing budgets not only has the benefit of allowing re-investment, but also helps positioning the business as being efficient, sustainable and responsible. Increasingly in the competitive and challenging retail environment, these three values are becoming ever more prevalent.

2022 will no doubt bring more retail winners and losers, and those with a close eye on the evolving landscape, and a flexible strategy based on efficiency and engagement should finish on the right side.

To find out how ERA are helping retail businesses find cost efficiencies within their existing budgets, please get in touch.

About the Author: Alex Venner, joined ERA with 20 years of marketing experience gained across a broad range of markets in the UK and Europe. Initially working in account management for automotive and telecommunications clients, his career developed through a number of Thames Valley agencies to culminate in consultancy positions with technology, retail and retail property investment clients.

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