James Tucker, Business Advisory Partner at Scrutton Bland looks at the problems faced by several large retailers, and suggests how local businesses may be able to avoid the same pitfalls.
Surely no one can have escaped the growing tide of financial strain and failure within the retail sector in recent times. High profile names in trouble since the beginning of the year have included Maplin, Toys R Us, Claire’s Accessories, Homebase, Poundworld and most recently House of Fraser.
With continuing profit warnings and bad data coming out from the sector, the list of much loved retail brands that are no more is set to continue to grow as we approach the make-or-break Christmas season.
The overall economy, whilst not setting any records is performing satisfactorily – growth is bubbling along at reasonable levels and unemployment remains at record-lows.
So what is causing this rising tide of failure in the retail sector? Looking at the list above there is no real pattern in terms of market sector or customer demographic. It includes those at the top and bottom ends of the market, those seeking to attract buyers from younger and more senior markets and operators in what would be considered ‘household essentials’ as well as luxury spend.
What they all have in common is that they have failed to adapt to a changing environment and been too slow to understand what their customers want and how to deliver it.
It would be a foolish business owner that breathed a sigh of relief that they were not connected at all to the retail sector and felt there was nothing to be learned from this.
The retail sector is never out the headlines at the moment –and even the darling of the high street John Lewis is reporting much reduced profits and profit shares for its ‘Partners’ are declining year on year. After adopting what was a theoretically sensible policy of not participating in the race to the bottom that is Black Friday, some years ago they succumbed to the inevitable and joined in – demolishing their own margins along with all of their competitors.
In a rare glimpse of positive news recently, Tesco announced improved results having invested vast sums in repositioning their offering and suffering huge losses whilst doing so.
There are not many restaurant chains that have been able to survive recent times without announcing large scale branch closures – this has got nothing to do with internet shopping or disposable income levels – just that consumers were getting fed up with what they had to offer and voting with their feet.
And this is where the opportunity lies for small and medium sized businesses whatever sector they are in – people are spending the same if not more money in restaurants now as they were this time last year. It’s just that less of that money is being spent in Prezzo, Jamie’s Italian and Byron; which means more of it must be being spent in independent restaurants.
Why? Because they are light on their feet, they can respond to their customers desires almost instantly, they can change their menus weekly, they can offer fantastic quality local ingredients and if something works they keep doing it, and if it doesn’t they don’t need three board meetings to decide to stop doing it.
In all of our daily lives we deal with large, faceless organisations with levels of service that would bring a small business to its knees within weeks.
So far from seeing national competitors as a huge threat, I would view them as a real opportunity – they tend to be very poor at understanding their customers and even when they do they take an eternity to change their offering to match it.
So what are your ‘blue chip’ competitors doing or not doing that you can do better in terms of customer service, lead times, breadth of services, and engaging product lines. How are you responding to changes in your sector be it technology, changing consumer demands or environmental pressures?
By taking a step back and analysing the weaknesses of our competitors I think we can all see real potential to capitalise on the opportunities that exist for those that have a close connection and understanding of their customer base, meaning that smaller businesses will continue to thrive and provide employment to the local community whilst the giants continue to struggle.
The media loves a bad news story, but wouldn’t it be great to write our own narrative – ‘local businesses thrive despite the woes of the nationals’.
Scrutton Bland’s business advisory team regularly work with local businesses operating in the retail and hospitality sector. Furthermore, all of our business advisory, tax, financial advisory and insurance broking teams all work together to ensure our clients receive a fully supportive service.