The 2018 consumer economy: retail trends
The retail economy
The retail sector in the UK accounts for a significant proportion of GDP, with total annual sales summing to over £400 billion in 2017.
However, the sector has been struggling in 2018. Year-on-year retail sales volumes growth stood at 1.5% in February, which is below the averages for 2017 (1.9%) and 2016 (4.8%). The key reason for the lower growth in retail sales was falling real incomes, caused by high inflation since the Brexit vote.
Traditional bricks and mortar vs online shopping
While bricks-and-mortar shops suffer from the widespread decline in numbers, overall UK retail volume growth remains in positive territory, driven increasingly by the number of online shoppers. Online retail annual growth has been above 10% for nearly every month for the past five years.
Retailers who want to improve their online presence should invest in more user-friendly websites, offer free delivery and returns, or even allow customers to try before they buy (where consumers pay if they decide to keep the item, rather than when ordering).
The idea behind experiential retail is that the retailer offers something more than just a good to purchase, such as an impressionable activity or event. Examples include interactive mirrors at clothing shops, or hosting sports classes in a sporting goods retailer.
The aim of omnichannel retail is to provide the customer with a seamless shopping experience whether they are shopping online – from a desktop or mobile device – or in person in a shop. This includes matching information such as stock availability online and in store. If retailers can engage with their customers through every channel that is used for shopping, then they are more likely to captivate the consumer and achieve a sale.
Convenience of delivery
Customers understandably expect the process of receiving their parcels to match the ease of shopping online. One-hour delivery, free next-day delivery, a choice of thousands of collection points – all of these are options customers have become accustomed to and expect to see. However, giving consumers access to this level of convenience is something that is often expensive and time-consuming for retailers to do. Innovative retail technology providers such as HubBox have the potential to develop solutions that solve these pain points for retailers. They can also play an important role in the journey to provide increased customer flexibility and options when it comes to delivery.
Mergers and Acquisitions
In what is a consolidating consumer economy, M&A should be used to help acquire new capabilities, expand product portfolios, access new customers and increase geographical reach. Aggressive and acquisitive businesses should be on the look-out for potential targets to help develop newer and bolder strategies.
Any consumer business targeting investment should prepare its business well in advance and produce a full business plan complete with an NDA for an investor to review. Timing will be key and you may need to gain appropriate consents and approvals from various parties including your Board, HMRC and the CMA. Ensure your accounts are up to date and that you have considered the appropriate structure, including whether you would accept deferred consideration or an earn-out.
To achieve a smooth exit, minimise risk and realise maximum value potential it is imperative that you get everything organised early and prepare for due diligence. Take time to understand both yours and the buyer’s key priorities as well as their business intentions. Ensure material contracts are documented and key employees have suitable contracts to give the business confidence going forward. Well-organised deal rooms and full disclosure is also imperative.
Wherever you plan to take your business, our friendly and professional Corporate Finance team can help.