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Sep 2, 2016

Why changing customer tastes are good news for independent retailers

By Paul Clapham


When Goldman Sachs tells the investment world to be underweight in retail equities, that world listens and reacts accordingly. Most private individuals, including independent retailers, tend to scratch their heads or ignore it because they don’t know what said investment bank is talking about or whether it applies to them.

In practice, what it means is good news for the independent and bad news for major multiples. It means sell or don’t invest in retail stocks. From my reading, that goes across most, if not all, retail sectors.

It isn’t just an American investment bank that thinks this way. Fund manager Neil Woodford, who controls £15 billion of the public’s money, has only one retail stock in his portfolio - Next - which he holds because of its good dividends.

Sea change in spending habits
Surely this is just one of those temporary realignments of the stock market, not necessarily representative of the real world on the high street? Perhaps, but it doesn’t look that way. This appears to reflect a sea change in how British shoppers spend their money and where they spend it.

Ah, thought I, on reading this, it’s all about the internet, isn’t it? Online sales are stealing trade from the high street and out-of-town sites. That’s part of it, but only a small part. The far bigger part is that the British consumer has changed their ways. Shopping is no longer a favourite pastime. We don’t want to shop until we drop.

This is pretty odd, given the economic picture. Unemployment is very low. Interest rates are at an all-time low. House prices are on an upward track, despite a recent hiccup. Wages are rising. Taken together that should mean a high level of consumer confidence, which has always in the past led to a boom in retail sales. But it hasn’t happened to anything like the extent one could expect.

Of course, some retailers are doing very nicely. Those that are consistently cheap, such as Aldi, are romping along. A commitment to specialisation is also paying dividends. Anyone offering a distinct shopping experience is seeing good sales. The strugglers are Tesco, Homebase and Morrisons, ie the middle ground.

Marks & Spencer is still, for lots of people, a benchmark of good retailing, although it has nothing like the kudos it used to enjoy.

The company has a new chief executive who, in common with several of his predecessors, has vowed to get women back into the stores to buy clothes as well as food. Retail analysts are saying he will just be the latest to fail in that quest, unless he comes up with something truly outstanding.

Dixons Carphone, which is one of the winners that have surprised the City, says customers have become cannier. They are ready to spend, but have to be tempted with new products and great offers.

Opportunity for independents
The figures make doleful reading for big retailers overall, as retail in general and big retail in particular is attracting a lower share of consumer spending.

Again, this is partly about online buying, but it’s far more about consumers growing up and having ever more sophisticated wants. Happiness is ever less a function of accumulating things, it’s ever more about personal experience - including experiences gained by owning and using those things.

Therein lies the opportunity for the independent retailer. That is especially true of sports retail. Customer satisfaction and, by association, long-term customer loyalty is achieved not just by the customer walking out the door with bright new shiny products. It’s far more about how you help them achieve product satisfaction from their purchase.

I have recommended previously that independent sports retailers should sell themselves as experts first and foremost. That includes knowing which clubs are seeking members, which run in-house tournaments and what local and regional tournaments are open for teams and individuals to enter.

It makes sense to focus on your areas of specialisation and those sports where you perceive growth potential. Attempting it across all sports would be a lifetime’s work, however laudable.

Nobody could have missed Marks & Spencer’s decision to get rid of piped muzak in its stores, not least because there has been a lot of comment in the press, much of it saying ‘what a good thing’. We shall see. The reason retailers introduced this in the first place was the evidence that it persuaded people to stay longer and spend more.

We may all have moved on and now find it annoying or, perhaps, on some subliminal level we may still respond positively. I’m confident someone at M&S’ head office will be tasked with keeping a close eye on developments regarding this decision. If sales fall, you can bet the muzak will be back and, should they rise, expect a rapid announcement by the retailer’s PR machine.

I have not seen the reasons that led to the decision. I hope and expect M&S would be the sort of business that would have researched some regular customers on the subject. Equally, they might just have noticed that the lack of music has done no harm to Aldi’s growth.

It does, however, demonstrate the importance of being aware of customers’ changing tastes, not just in terms of products, but also regarding the in-store ambience. The bottom line is you do need to ask them. That can be done to some extent with a simple sign saying: ‘If you like what we do, please tell your friends; if you don’t like it, please tell us.’

Customers getting savvier
Meanwhile consumers are, as above, getting savvier. They are rejecting BOGOF deals because they know they’re a route to waste. They know 50 per cent off means the product or service was too expensive in the first place. They know what they want.

Classically, 50 per cent of what we buy we actually need and 50 per cent of what we buy we are persuaded we need. That is not sustainable. As an increasing proportion of customers apply their sharpened savviness to that equation, it’s clear purchasing will tend to reduce. That reduction will hit hard with retailers that don’t get up to speed with the new market conditions.

The retail world tends to focus on ‘want’ rather than ‘need’. That’s entirely right - it’s where the profit for your business lies. But if the customer is refocusing on need, rather than want, then you have to go with them.


Richard Hyman’s take on current retail trends

Follow Richard Hyman on social media. He is a highly regarded guru of retailing. He describes himself as a retail analyst and writes a column for Retail Week.

Hyman also founded Verdict, which researches the retail world. He’s been in the business for 35 years, so knows about shops and shopping.

His take on current retail trends is rather worrying, especially for the big boys: “The long-term pattern of every developed economy is that retail comes along first in terms of where people spend their money. Once you get richer, other things are developed for people to spend their money on. That natural pattern is accelerating in the UK.”

Hyman adds: “We are in the most price promotional market I have ever seen and there needs to be a significant shake-out.” 

That has to be absolutely true, not least because most of the big retail groups, especially the supermarkets, have nailed their colours to the price mast. My translation of Hyman’s prediction is that BHS will not be the last big group to disappear in the foreseeable future, perhaps this year.

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