- Too much focus on price
- Online strategy fails
- Image issues
- Organisation: too Small scale
Too much focus on price
More and more retailers are trying to boost their volume by cutting prices: in many shops, discounts are getting bigger and bigger and periods with promotions are getting longer. At many retailers, for instance, the clearance sale starts as early as early December, instead of only after the holidays.
However, those discounts come at the expense of margins and in the long run it also loses its effect. "After all, if the whole sector focuses on price, its distinctive feature disappears," ABN Amro writes in its sector update. Still, many retailers will have to go along with the trend, otherwise they risk losing customers.
In the short term, price pressure also means that the recovery visible in retail volumes is not yet reflected in sales statistics. ABN Amro therefore finds the continued focus on price worrying, as "the retail sector is eroding itself with this."
Online strategy fails
Falling volumes have also exposed structural changes within retail: the rise of online retail and its integration into consumer shopping behaviour. In recent years, the share of online spending in total consumer retail spending took off. While retailers' offline sales declined in 2013, online product sales increased by 12%. Online spending now accounts for 6.9% of total retail spending.
This seems like a low percentage at first glance, but appearances can be deceptive. In fact, there is a big difference between industries. For instance, consumer electronics already has an online share of over 20% of spending. For clothing, it is 8.5%, but for prepacked food, it is only 2%. The latter category in particular, which accounts for a large share of offline spending, is pushing the overall share of online retail down sharply.
Image issues
For a brand, it is important that it stands for something and evokes a feeling. At Mexx, for example, that was quirkiness and exclusivity at an affordable price. When companies abandon this brand image, it ends up costing customers.
It is often a choice to position yourself as a price fighter or a premium brand. Businesses like V&D, Blokker, Hema and Intratuin hang in between. They do not offer enough luxury to compete with the top and have shops that are too expensive to compete on price. So they are overtaken on price by shops like Action and Lidl and lose customers on quality to the specialist shops. Consumers are increasingly willing to pull out the wallet for consumer goods from which they derive their identity. The expensive speciality shops, such as Apple shops, are benefiting from this. (Source; Volkskrant)
Organisation: too Small scale
The losers operate on too small a scale. Both Mexx (315 shops in Europe) and Halfords (102 shops) are companies of large scale, but lose out to the large retail chains of Spain's Zara (100,000 people employed) and Sweden's H&M (3,400 shops in 55 countries). These types of large chains can do everything in-house and therefore innovate their product range faster, creating new demand from their customers. Their financial strength means they are not dependent on other parties, which saves them time and money. The solution to this is better cooperation between smaller retailers in purchasing and distribution. (Source; Volkskrant)
