Retail: Eye of the Storm or Aftermath?

Retail has been beleaguered of late. Despite sales of food, non-store and fuel growing by 0.8% in February 2018, there have been plenty of news stories about household names going bust.

Toys R Us and Maplins recently went into administration. New Look also appears to be in trouble. It is soon to undergo a restructure. Recent reports suggest that the restructure will satisfy its creditors. However, it will mean the closure of 60 stores and close to 1000 jobs losses.

It also seems that it is not just high street stores who are struggling. While online retailers have been notoriously buoyant, the latter part of 2017 saw online sales squeezed too.

What’s going on?

According to the to the national press, ONS and the British Retail Consortium, it is now the combination of stagnant wages and inflation that have caused consumers to stop consuming.

However, if you read the reports on each of these cases, flaws in this theory become apparent. Toys R Us and Maplins, it seems, both underestimated the impact that online competitors would have on their business. While online sales display a continuous upward trend (ONS section 1 of  What’s the story with online sales? it seems highly likely that Toys R Us and Maplins will not be the last retailers to underestimate the importance of keeping up with online growth. Recent reports in the Retail Gazette suggest that House of Fraser and M&S need to improve. This is because when it comes to online vs instore, customers are not shopping in accordance with their preferences. In a recent survey carried out by Superbrands, Amazon for one was outperformed by Apple, John Lewis, Heathrow and even M&S.

Could there be another cause?

Aside, it seems that the recent disasters have been caused by mismanagement. This mismanagement had nowhere to hide because it had been stripped of the buffer of super profit. According to the Retail Gazette, Toys R Us was horrendously mismanaged. Huge bonuses were doled out to upper management while, at the same time, the company pension pot had a deficit of 9.8 million. Furthermore, the chain had not undergone a future liabilities evaluation in ten years.

In contrast, Maplins kicked off a huge restructure back in 2014. This was with a view to growing the business because it was bogged down with debt. Yet, despite the experience of the buyers in turning struggling business around, the 2 year period of profit and growth for Maplins was not high enough or sustained enough to save it. By 2016, it’s unique selling point – knowledgeable staff – was no longer unique enough to compete with cheap online prices. People might very well have visited the store to ask the staff questions. But why buy when they could scan item barcodes with their smartphones and buy cheaper online?

This does not bode well for New Look.

The Importance of Management

What is demonstrated in both instances is that two major retailers have failed to survive the usual boom and bust of the UK economy. The press is telling us that this is because of inflation and stagnant wages. But retailers have survived these before. I would argue that these retailers might have survived unfavorable conditions. But only if they had been able to rely on the loyalty of their traditional customers. Furthermore, it is my view that it is the mismanagement of the implications of a combination of factors which leads to such failure. That is to say, the mismanaged response to stagnant wages, high inflation, a hike in the minimum wage and responding to online competition.

This in itself raises questions about marketing tactics and gaining customer loyalty;

Do the same techniques work in a world where we trust online retailers with our personal details?

If not, what differences in skills do retailers need to look for in new hires?

Since there are still signs that major players are struggling – House of Frazer being the latest – it seems that the eye of the storm is yet to come.