The festive period provided a much-needed glimmer of hope to many retailers in light of the difficulties of the past year.
The Chief Executive of the British Retail Consortium (BRC), Helen Dickinson OBE, stated that “the uptick in spending over Christmas gave many retailers cause for cheer… with energy-saving products, warm clothing and boots all selling well”.
The BRC registered that sales values had increased in December over the previous year. However, it has been noted that sales growth is largely driven by higher prices due to inflation rather than a rise in the volume of goods customers are buying. With high inflation expected to continue in 2023, and consumers continuing to rein in spending, many of the pressures faced by retailers remain. We explore the importance of innovation during turbulent times, as well as seeking relevant forms of advice early.
Cost of living crisis
In the UK, the cost of living has been increasing since early 2021. The annual rate of inflation reached a 41-year high in October as it rose to 11.1%. As the prices of consumer goods are rising faster than wages, people’s wages are decreasing in value.
Retailers face the challenges posed by the cost of living crisis alongside the ongoing impact of the COVID-19 pandemic. Retailers are struggling with recruitment as they grapple with a shortage of skilled workers and staff demanding wage increases. Disruptions to supply chains globally means maintaining quality of product at competitive prices is becoming increasingly difficult.
The rising costs of food, energy and housing has resulted in many consumers actively looking for ways to reduce their spending. For example, demand for loft insulation rolls and other energy-saving products is on the rise.
Impact on Retailers
Despite the strong growth reported by some retailers recently, we should not be quick to forget the fall of some notable names in the sector towards the end of last year. Trouble faced by brands which had stellar pre-pandemic performances demonstrates that consumer behaviours can change drastically in a relatively short amount of time. Maintaining profitability through the cost of living crisis and the ongoing effects of the pandemic has proven difficult.
For example, the lifestyle retailer Joules was recently acquired by retailer Next after entering into administration. Following supply issues faced by the retailer last winter, stock delays led to frequent discounting which impacted brand image. By November 2022, Joules appointed administrators after months of poor trading.
The online furniture retailer, Made.com, also collapsed into administration in November. The retailer faced supply chain issues and a decline in consumers purchasing homeware after lockdown. The result was an accumulation of stock for a business which was originally designed to be inventory-light.
The downfall of the brand is an example of the decreasing demand for larger items, such as homeware and white goods, especially due to the cost of living crisis. In addition, the downfall may be indicative of more online businesses collapsing under the pressure.
Innovation amidst the crisis
With high inflation rates expected to continue in 2023, we expect many retailers will focus strongly on innovation in order to build consumer confidence.
The CEO of Made.com, Nicola Thompson, said that the brand had thrived in “a world of low inflation, stable consumer demand, reliable and cost-efficient global supply chains and limited geo-political volatility”.
“That world vanished, the business could not survive in its current iteration, and we could not pivot fast enough [emphasis added].
It’s paramount that in these financially difficult times, retailers adapt in a timely manner in order to remain profitable.
As well as focusing on offering competitive prices amidst the cost of living crisis, some retailers are finding creative new ways to interact with consumers. Such initiatives have the potential to deliver value whilst reinforcing brand image and creating a buzz. Sainsbury’s, for example, recently presented the concept pop-up store, ‘Sainsfreeze’, which focussed on the grocer’s ranges of frozen foods and providing tips on how to freeze food in order to reduce wastage.
The retailer Very launched its ‘Everyday’ collection in 2022 which intends to provide more affordable clothing items and homeware. The brand has stated that the products will be typically priced at 20% less than its ‘V by Very’ own-brand range, in order to offer better value to consumers through the cost of living crisis.
Turnaround
It is paramount that businesses adapt quickly to stay ahead of the curve during economically challenging times. It may be that the directors of a company which is in a period of poor performance require legal advice in regard to turnaround strategies and their legal entitlement to continue to trade the business despite the financial pressures. An effective turnaround strategy may dispense with the need to enter into a formal insolvency process but it needs to be managed carefully. It is important that directors seek legal, accountancy and other relevant forms of advice when a company is facing financial difficulty.
If you are concerned about your business in light of issues raised in this article, please do not hesitate to contact a member of our Retail Sector.
