Knowledge & Insight

UK Retail - a rapidly changing landscape

Tue 21 March 2017

Like many of the UK’s core economic sectors, our retail industry is experiencing a period of rapid transformation, and the pace of change seems set to accelerate even further.

Diverse challenges

UK retailers face a combination of pressing challenges, from rising costs and aggressive new market entrants, to the much-publicised decline of the high street. Many assets and capabilities that once gave brands a robust competitive advantage have quickly turned into potential liabilities, as disruptive new operating models have shifted the goalposts and forced some of the UK’s most high-profile companies to review and revise their long-term strategies.

Rising costs

Retailers’ margins have come under pressure on multiple fronts, from rising real estate rents to rising employee costs due to increases in the national minimum wage and the implementation of the national living wage. Whilst a sharp fall in the value of the pound since the Brexit referendum has pushed up purchasing costs from key suppliers. These factors have combined to squeeze margins across the board, and faced with competitively priced new markets entrants and heavy seasonal discounting, many retailers have struggled to find ways to defend margins.

Online sales continue to grow

Until recently, shopping was seen as a key component of day-to-day life in the UK, and the shift to online purchasing represents a genuine social revolution. This change in consumer behaviour presents a serious existential threat to many of our traditional retailers, yet those who have been willing to embrace and invest in new technology have been able to reap rich rewards. Whilst the shift in consumer behaviour has also created an opportunity for new players to steal market share.

New technology

New technology presents both a threat and an opportunity for retailers. Forward-thinking brands have harnessed technology and social media to find new and exciting ways of engaging with their customers, to streamline internal processes, to create richer customer experiences, and to leverage customer data to create tailored product offerings. Yet firms that fail to invest sufficiently in new technology can quickly fall off the pace, both in terms of operational efficiencies, marketing reach, and in their ability to meet the rapidly evolving needs of their customers.

The emergence of “big data”

Innovative use of “big data” is likely to be a key differentiator in the retail space of tomorrow. And while the pile-it-high-and-sell-it-cheap strategy can still win the day in many sub-sectors, some retailers are finding ways to deliver greater personalisation in their products and in the customer experience they provide. “Big data” is enabling firms to engage with their customers in ways that match individual preferences, which can build greater loyalty and ultimately drive higher margins.

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