YOU CAN’T STOP THE FUTURE

This blog marks the beginning of 2017. As such I thought it might be useful to contemplate possible developments and trends that may (or may not) kick in or move rapidly than before over the coming twelve months.

It makes sense to me to continue to look forward – not back. However I will make an exception in the case of the retail sector. Momentous developments such as the vote to exit the EU in July in the case of the United Kingdom will spark off a number of developments into the future – most likely stretching far into the next decade and not just the next year. On-going developments in technology will also continue apace over the coming months.

The word “uncertainty” appears in many commentaries and articles on the implications arising from Brexit for UK and European retailers. In a previous blog I addressed some of these issues and do not intend to rehash them in this blog. Suffice to say that many trends and developments will be directly and indirectly affected by the fall-out from the Brexit referendum in the UK.

An article published in Retail Week provides us with some indicators as to how the winds are likely to blow in 2017. I thought it might be useful for us to look at the trends identified in this article (https://www.retail-week.com/eight-trends-retailers-should-look-out-for-in-2017/7017163.article).

Many of the eight trends identified by the author are likely to be directly shaped by the state of the overall economy in 2017. One of the major initial consequences of the Brexit vote was a decline in the value of sterling relative to the other major currencies. The net effect of this is to shove the costs of sourcing materials and products for retailers. In turn this has a direct impact on prices for the shopper. Unfortunately this is likely to follow an upward trajectory. A perusal of the newspapers since the autumn will generate numerous references to price increases – most notably in the battle between some of the major food retailers and some of their suppliers over the issue.

To some extent shoppers in the UK have been protected from sharp rises in prices. Some retailers have absorbed some of the additional costs which they have incurred, with a view that they want to avoid excessive negative publicity in the press. Others have avoided decisions in this area because they have utilised currency hedging policies. The latter have mitigated their exposure to cost increases.

However the bad news for shoppers in 2017 is that many of these hedging policies will run out soon and then retailers will have to take cost increases more directly into account.

This means that they have to address the following questions. Do we add on the costs to our prices (thereby having direct implications for shoppers? Or do we absorb some of these costa through reduced margins. Some retail sectors may have greater opportunity to pursue the latter strategy – if margins are sufficiently large to allow them to do so. Many sectors however work on tight, miniscule margins and there is little “wiggle room” for further reducing margins, without throwing the retailers into serious financial difficulties.

The issue of worker’s pay and pensions is also one that is increasingly coming to the fore. High profile retailers such as Sports Direct and ASOS have become embroiled in publicised cases, where workers appear to have been treated badly in terms of pay and working conditions.

BHS, largely through its previous owner, had disappeared off the high street and more worryingly left its workforces with no pensions.

The onus will be on retailers to act in a more socially responsible manner – or otherwise face punishment, if they fail to address pay and working conditions. This will also increase their cost base and most likely have an impact on the price that shoppers will pay for their goods.

As I write this blog, the media highlights the high levels of debt incurred by British society. Unsecured lending to household went up by around £2 billion in November 2016: the highest level since 2005. Householders owe £67 billion on credit cards. This coupled with increasing uncertainty over Brexit and inflation is likely to have a negative impact on retailing during 2017. Much of this splurge on credit cards was most likely stimulated by the raft of sales and promotions introduced by retailers well ahead of the Christmas season e.g. Black Friday.

The Retail Week article highlights the continued and growing impact of technology on shopping in general and the consumer experience in particular.

In particular it highlights advances in virtual reality, augmented reality and biometric recognition. The key point here is that none of these technologies are necessarily new or particularly innovative: they have been around for a number of years. However what is important is the fact that as retailers become more familiar with their potential uses and become more comfortable with the technology, opportunities for exploitation are going to grow exponentially.

Virtual and augmented reality has direct implications for the utilisation and demand for physical space. We are increasingly going to see greater use being made of “virtual” space. This in turn will reduce the need for as much physical space as is currently being used by some retailers – particularly in the clothing and fashion centre.

The article points to the need for “fair credit” to be provided by retailers. This is going to become more prevalent in response to pressure for policy makers to be more transparent and accountable to shoppers in terms of what they can reasonably expect to pay for items. Retailers in some sectors (such as consumer durables, white goods and the car industry) might spot opportunities to be more creative in this area.

The Internet of Things (IOT) refers to refers to the ever-growing network of physical objects that feature an IP address for internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems.

The article highlights that developments in this area will become more strategic in the coming year. In particular shoppers will become ever-more connected to retailers. Indeed retailers will also be able to leverage some efficiencies with their supply base. This should lead to more accurate forecasting and lead to potential savings which could (in theory) be passed on to the customer in the shape of lower prices.

Increased automation is also likely to feature more prominently both in-store and within the areas of supply chain management. Robotics, once the prerogative of science fiction movies and books, is now become more viable and practical in the retail and supply chain environment.

This development has implications for the work-force. It also has relevance – given the possibility that the number of migrants entering the UK may drop in the longer term due to Brexit negotiations. Work that was previously performed by low paid workers can now be tackled by robots or technology.

In previous blogs we discussed the example of self-checkout and the lack of need for physical personnel.

As you might predict, Amazon is one of the pioneers and drivers of developments in robotics and automation.

We have often recognised the unpredictability of weather and its impact (usually negative) on demand – particularly in clothing and fashion. The Retail Week article predicts that we will see more “seasonless” fashion practices.

It highlights retailers such as Brands including Burberry, Tommy Hilfiger, Topshop Unique and Ralph Lauren, who have embraced “see now, buy now” collections, allowing shoppers to buy the styles they see on the runway immediately rather than waiting six months.

In summary 2017 will be an interesting year to monitor in terms of developments and trends. Let’s cast a “gimlet eye” over proceeding in the coming months and compare notes at the end of the year.

 

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