Savvy shoppers are calling the shots in a cost sensitive world

Although high street sales figures may look weak, people are still keen to hit the stores – the retailers’ problem is convincing us that they offer value for money when there is so much choice, says Richard Hyman

The well chronicled state of our retail industry makes depressing reading. The rate of growth in the value of sales has become pedestrian. Most retail businesses are reporting relatively weak figures. Are we simply getting bored with shopping? Are we falling out of love with the whole idea of consuming?

On the face of it, the idea seems preposterous. While habits do change over time, 60 million people are not going to radically alter their everyday behaviour overnight. We continue to live in a world in which what we stand for, what we achieve and our progress are measured to a large extent by material emblems of one kind or another.

Significant change in this behaviour would have major implications; since the decline of manufacturing our economy has been based on service industries. This is not just about retailing but about the products and services sold through it, and all the employment that goes with them.

So, is this doomsday scenario really happening? Well, yes and no. First of all, it is not true that we are shopping less. In fact, we are buying more. Last year, unit sales were up by more than 3% and the year before by more than 5%. So in reality, we love consuming just as much as ever. The problem is the price we are prepared to pay for that consumption. A combination of three factors – the burgeoning value sector, growing overseas travel and retail capacity – have combined to bring UK retailing to an economic crossroads. The past 25 years have seen an explosion of floorspace as retail has sought to leverage the scale economies of larger stores in purpose-built shopping malls and out-of-town retail parks.

This has helped to drive market share growth and greater muscle has helped retailers to deliver lower prices and enhanced profits. However, new space has not always seen a corresponding closure of old, less productive space, and the result has been a relentless expansion of capacity.

Overseas travel has widened consumers’ experience. The high value of sterling has substantially strengthened UK tourists’ buying power, often in countries like the US where stronger competition has acted to produce lower-priced retail markets. Lastly, there has been the rise of the value sector. Retail formats aimed at people shopping on price alone are not new to the UK. But graduating from this kind of business, usually fairly small and focusing on one or two regions, to a national multiple with continuity of supply and consistency of offer was something that has only really happened recently.

Retailers – such as Primark, Matalan and Peacocks – and the supermarkets are catering for a much wider market. In fact, it is striking how relatively classless the customer profiles of these retailers are. Their business models are not focused on the very limited potential of people shopping on a tight budget but on delivering great value for money.

All this has produced a virtuous circle for consumers. More capacity and the physical maturity which flows from it has upped the competitive ante for retailers. Most cannot raise their prices for fear that their neighbour will stay where he is, thus in effect undercutting him.

Customers’ expectations on value have sharpened: regular trips abroad have heightened price consciousness. And we have more genuine choice today than ever before. If consumers do not see what they want at a price they find acceptable, they simply go to the shop down the road.

All this has produced the most intensely competitive retail climate seen in modern times. It has delivered negative retail price inflation – something that is not going to disappear but will stay – forcing retail profit margins down into the future. Retailers do not have the option of simply turning on the space tap to grow their businesses. They must sell more through their existing space.

Meanwhile, consumers now have the real power. Retailers in this environment of negative inflation must sell more. Achieving this is only possible through really understanding customers and translating that understanding to the shop floor.

Are we getting bored? Well, we are certainly getting harder to please. We have more choice than ever before over what to spend our money on, where and how to spend it, and whether to spend it at all. The challenge to retailers is clear: they have to make us actually want to buy.

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