The overalls can be taken off, the brooms stowed away; the clean-up job after the collapse of the retail sector is just about over, with life returning to Britain’s shops.
When the credit crisis struck, there were few industries that felt the blow quite as hard as the retail industry, with research specialists Conlumino calculating that the dark days of the recession cost retailers £23 billion. Consumers tightened their belts and both high street stores and online sellers felt the pinch. But prosperity is returning.
The economic recovery has undoubtedly played a key role; the more money people have in the bank, the more expendable income there is to spend on goods. It is unsurprising therefore that as Britain’s financial situation has improved, so has the retail sector, with sales volumes up 6.9 per cent in April 2014, compared to 12 months before. These figures, provided in the latest Office for National Statistics (ONS) retail report, are supported by a recent CBI survey, which found that UK retailers were more confident about their future now than they have been at any point in the past 12 years.
Retail sector: Sales volumes up 6.9% on previous year
Importantly though, this improving performance is not simply a case of the same businesses emerging from the ashes of their predecessors – the retail industry has undergone a transformation, one that any business buyer will need to take note of before venturing into this vertical. Indeed, as the market conditions become more favourable, it would be easy to assume that it would be straightforward to capitalise on rising consumer spending and make gains in this sector, but in reality there are more subtle innovations that have underpinned this change in fortune.
As the market shows clear, sustained indications of growth, it is natural that it will attract more attention from potential business buyers. But, always eager to make acquisitions when an industry finds itself at the bottom of an upward curve, it could be dangerous to rush into a purchase without appreciating the other factors at play in retail’s steady return to profitability.
When austerity struck, the savvy retail businesses realised they had to adapt – they had to get lean and they had to evolve their marketing and sales techniques to suit the changing, digital consumer. With its ease, greater selection and ability to compare prices, online has replaced brick-and-mortar stores as the modus operandi for many of Britain’s shoppers; internet shopping now accounts for about £1 in every £5 spent on non-food items in the UK.
It is not just the steady shift to buying goods online though, it is also the increasingly prominent trend of consumers using mobile devices and retail apps to browse and buy. Retail companies must cater to this new form of shopping – the ones at the forefront of the sector’s resurgence in recent months already are.
HMV a golden example: From bust to market leader in just 18 months
HMV remains a golden example for retailers to learn from. The company failed to wake up to the fact that customers were no longer buying CDs and DVDs in the same volumes as they once were, resulting in it going bust 18 months ago. However, the business has bounced back and is poised to overtake Amazon as the UK's biggest music and DVD retailer in the coming months.
The firm behind its successful return to Britain’s high streets is Hilco. The turnaround specialist, which has also been involved with Habitat and Clinton Cards, introduced live performances in stores to promote new releases, returned to the successful tactic of selling band merchandise such as t-shirts, and stopped selling electronics like tablets.
By realising the market still existed – albeit in a smaller state than previously – to sell DVDs and CDs, the business focused on how to attract customers back into shops rather than using Amazon or other online retailers. By doing so, the new-look, streamlined HMV is performing far better.
Another example comes from the high street brand Argos. The company has introduced a new fast-track service so customers can order and pay for items online or on their phone and then go into the shop, use a self-service machine and collect their goods. It might seem like a simple move, but it is one that has enhanced its value proposition to the consumer.
In food retail, online shopping services are booming, with Ocado setting the standard for delivering groceries to people’s door at a time convenient to them. It is unsurprising that a struggling Morrisons – Britain’s fourth largest grocer – has attempted to latch onto this success by launching an internet shopping partnership with Ocado.
Morrisons' sales fell by 4.9 per cent in the six months leading to August while Ocado’s total sales were up by 22.5 per cent in Q2 of this year. Whether the partnership will be enough to save the supermarket is yet to be seen, but the figures indicate the way the market is moving and the need for supermarkets to evolve at pace with this change.
Morrisons’ close competitor Asda has followed suit – the company announced in September that it had acquired a fully automated click-and-collect pod technology, developed in Holland. The service will allow customers to order their groceries online and have it delivered to a temperature-controlled pod of their choosing so they can pick it up at a time and place that suits them. It is another example of retail innovations that are becoming central to business models.
In short, focus and convenience has become key. But that’s not all; additional marketing ploys such as having loyalty apps – something used by the likes of Greggs and Marks & Spencer, among many others – click and collect services, and the ability to comfortably browse and purchase through a mobile device have all become things that the consumer not just desires but actually expects.
The message is clear: retailers have not simply sat stagnant, waiting for the economy to improve so they can turn a profit again. Instead they have made innovative strides to evolve the way they market and sell products to customers. This willingness to refocus business models and embrace innovation has ensured they capitalise on every pound that is being spent by consumers, whether that is online or on the high street – this has been at the heart of the retail sector’s growth.
According to a Colliers report from Q3 2014, approximately 13 per cent of retail units across the UK are vacant so the opportunity is clearly there for someone searching for a defunct business to take over. Many of these vacancies date back to the tougher recession years and with Britain’s economy growing once again now would certainly be a good time to capitalise on these openings.
Refocus business models and embrace innovation
And for those looking to buy a retail business, having an innovative approach will be key as hoping that the industry’s upturn will carry the business to impressive profits might not be enough. Buyers will need to be ready to take the business down new paths and find more innovative ways of delivering its goods to the customer.
As such, having experience of the industry, or employing people who do, could prove invaluable in turning a failed business around. Ultimately, what we are seeing is that to be successful a business buyer must approach the acquisition with a strategic vision or innovative ideas that will carry the business forward in the constantly evolving retail sector.
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