Retail: fine margins
Making changes
Top five actions to improve cash position in the next six months
Encouragingly, brands have plans in place to address these hurdles and improve or grow their cash position. A third (32%) plan more price rises for customers and distributors. However, this will be tight rope to walk – there is only so much that some customers will pay for certain goods, and so far that household budgets will realistically stretch during a cost-of-living crisis. A trend that we’ve observed is customers prioritising perceived or actual value for money in their purchasing decisions. Many are willing to pay more if it means getting more in return. Where brands can’t add this in terms of the physical quality of the products being sold, brands may have success by adding value to their product in new ways – for example, combining a clothing range with a virtual styling service. This can help justify price increases and even contribute to a product’s competitiveness in the long-term. Elsewhere, a fifth (20%) of retailers will look to extend suppliers’ payment terms, whilst almost a quarter (23%) will look to change suppliers. Switching suppliers won’t just be a decision taken on price – in clothing retail, for example, we’ve seen a clear trend in brands onshoring and nearshoring suppliers to improve their supply chain’s resilience, and to help become more responsive to changes in the market. When it comes to contract negotiations, it is essential that retailers have a clear understanding of suppliers’ terms – which can be complex and take a variety of different formats – and that they strike a deal that meets the needs of both parties. A healthy supplier base is key as a failure of a key supplier can be costly. No retailer wants empty space. In terms of supplier relationships, there are a limited number of situations where it may actually be beneficial for businesses to absorb short-term costs in exchange for better future terms or conditions. For example, when agreeing to a price rise with a new supplier, brands could make it contingent on receiving privileged service levels going forward. Notably, a further fifth (20%) plan to turn to their landlords to re-negotiate rental agreements – something we’ll explore in detail later in this report. One in six (15%) will look to permanently reduce headcount, while almost as many (14%) will look to change staff contracts or working hours. Just over one in ten (13%) will stop contributing to pension funds. Only 17% plan to change their commercial energy supplier in the future, suggesting most who were planning to do so already have. Meanwhile, just under a fifth will be taking on new debt (18%), revising the terms of debt repayments (15%) and deferring VAT or tax obligations (13%), and two thirds (68%) plan to approach shareholders and/or lenders for more financial support in the next six months.
32%
Increase prices for customers/distributors
23%
Change product suppliers
20%
Extend terms with product suppliers
20%
Re-negotiate/change rental agreements
18%
Take on new debt
*Results based on responses from 250 senior decision makers from retail businesses, who each selected all steps that applied to their business.
Rents and returns
For the final section of this research, we sought to shine a light on two current big issues in retail: rents and returns. Both these factors are strategic focuses for retailers as they represent significant cost challenges, and are symptomatic of tectonic shifts in the retail landscape and customers’ buying habits.
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