The Current Economic Climate

3. 0The Cur crosscurrent Economic Climate * Our research clearly shows that retail merchants believe consumer sp deathing leave continue to be constricted throughout 2012. The fear of unemployment, oddly for those working in the public sector, exit continue to depress consumer sentiment. Combined with fanf be range that will outstrip lock increases, and consumers continuing to pay deck debt, it makes top-line growth difficult. RW 2012) * While the figure continues to tick up, and unemployment among the young in particular impacts on the retailers who serve them, the threat of unemploy- ment depresses the spending of many a(prenominal) more than. (RW 2012) * Several forces at play are making life difficult for those who want to promote high up gear up passs not least the continued growth of online gross revenue, plus the summate costs of high channel property compared with footf that and sales densities. (RW 2012) (RW 2012) * Inflation has squeezed disposable incom es, particularly among the C2DE socioeconomic groups. RW 2012) * 32% The percentage of British shoppers who feel they dedicate no cash to spare, jibe to the BRC and Nielsen in August 2011 (RW 2012) * Coming at a time of squeezed income by heightened inflation in essentials such as food and petrol, one might shit expected consumers to cut their cloth. Yet, a number of sources including the Office for National Statistics confirm consumer spending on habilitate increased by more than the rate of inflation in 2011 Mintel estimates total dress spend grew by 4. 7%, well outpacing CPI for the change state category.Despite the economic context, consumers therefore grew their clothing spend significantly in real terms in 2011, suggesting an underlying resilience in the market clothe shoppers may be deterred by rain, scarcely they are very noncompliant to cut their purchases in response to a deterioration in their spending power. (Mintel 2012, clothing sell). * Economy slowly recov ering falling headline inflation and fresh falls in the number of people unemployed suggests the economy is showing signs of recovery since the start of 2012. Mintel 2012, clothing retail). * Double-dip recession * export * The UK economy is officially substantiate in recession. The erratic economic growth seen in 2011 up 0. 5% in the early quarter, down 0. 1% in the second quarter, up 0. 6% in the third quarter ended down 0. 4% in the final quarter of 2011. This socio-economic class the downward trend has been more sustained. Firstly, contracting 0. 3% in the first quarter and then by 0. 5% between April and June. It is the same story for year-on-year GDP growth, which has fallen from 1. % in the first quarter of 2011 to -0. 5% in the second quarter of 2012. Attempts to stimulate economic growth stomach been grownly thwarted, despite a sustained period of historically low beguile rates and quantitative easing measures. The unresolved euro-zone debt crisis continues to imp act on the UK economy, hitting both jobs and growth. * (Mintel 2012, clothing retailing). * 3. 1 The UK retail environment. * after many years of erosion, bankruptcy and mismanagement, whatsoeverthing I felt was destined to disappear forever. (MP, 2011). out-of-town retail has drained the traffic and retail offer from our town aggregates, (MP, 2011) * With town centre vacancy rates doubling over the last two years and total consumer spend away from our high streets at a time over 50%,(MP, 2011). * The number of town centre monetary funds fell by al near 15,000 between 2000 and 2009 with an estimated further 10,000 losses over the past couple of years2 (MP, 2011). * Nearly one in six shops stands vacant3 (MP, 2011). * Excluding Central London, high street footfall has fallen by most 10% in the last three years4(MP, 2011). the overarching strategy for most retailers in 2012 is termination to be presenting a great customer experience and its successful execution will depend on delivering a rake perfect performance in all areas of the business. (RW 2012) * One operations director suggests that the Portas report is too late to reverse the decline I think the substitute(prenominal) high streets are holy, because you cant sustain a store in a market where nobody wants to shop. What could happen in a low-rent high street is that new forms of retail entertainment will spring up. (RW 2012) The operations director of a major retailer explains I think the secondary high streets are finished, because you cant sustain a store in a market where nobody wants to shop. What could happen in a low rent high street is that new forms of retail entertainment will spring up. (RW 2012) * Research I have seen shows that even by 2020, 87% of all customers journeys will involve a store at somewhat stage So I think talk of the high streets demise is nonsense, says the question executive of a department store. (RW 2012) * Change isnt coming its come and moved on (Sibun, 2 012).RMR * In the UK, several forces at play are making life difficult for those who want to promote high streets, not least the continued growth of online sales, plus the total costs of high street property compared with footfall and sales densities. (RW 2012, P. 58) * One operations director suggests the Portas report is too late to reverse the decline I think the secondary high streets are finished, because you cant sustain a store in a market where nobody wants to shop. What could happen in a low-rent high street is that new forms of retail entertainment will spring up. (RW 2012, P. 58) High-profile retail failures cannot be taken as indicative of the sectors health. Consumers may be under pressure financially, but there is little sign of them cutting their spending on clothing. Retailing is a remarkably robust sector and any retailers failure to secure growth is by consequence down to their own failings. * John Mercer, Senior Retail Analyst (Mintel 2012, clothing retailing) . * Figure 1 Clothing specialists sales (? m, incl. VAT), 2007-17 * * * In-store technology designed to enhance the multichannel shopping experience is a key theme among major retailers innovations (Mintel 2012, lothing retailing). * Marks & Spencer is reportedly investing ? 100 million on improving its digital offering to encourage customers to browse and learn more about products. The retailers new 151,000 sq ft outlet at Cheshire Oaks in Ellesmere Port includes a host of in-store innovation including HD display screen showcasing product, browse-and-order screens, and staff equipped with iPads. (Mintel 2012, clothing retailing). * Oasis has introduced an in-store iPad shopping facility enabling customers to order clothes from the stores fitting room and have them delivered to their basis.Shop staff equipped with iPads can check garment availability from anywhere on the shop floor. (Mintel 2012, clothing retailing). * Debenhams is launching free wifi in its 167 shops. Customers wi ll be able to use their smartphones and mobile devices to access Debenhams information and special deals as they walk around the shop. Customers can check for sizes and availability and if it isnt in store, scan the barcode to order it for home delivery. (Mintel 2012, clothing retailing). * 3. 2Threat of the lucre. * But new technological developments now mean that the net income is one of the key threats to retail on our high streets.Although internet sales currently account for less than 10% of all retail sales some estimates suggest that e-commerce accounted for nearly half of all retail sales growth in the UK between 2003 and 2010, as internet access has suffer more general And we have seen dramatic growth in m-commerce sales over mobile devices of more than 500% in the last two years. (MP, 2011). * De Kare Silver argues that this is, gradually ceasing to be a bricks and mortar world9 and shows that a 15% drop in store sales of most high street retailers pushes them below wear even and into loss.Its not just the small retailers many businesses on the high street are feeling the pinch. De Kare Silver M (2011) e-shock 2020 How the Digital engineering Revolution is Changing Business and All Our Lives(MP, 2011). mp 2011 * One retailer comments that if you want customers to come into store then you have to treat them really well, early(a) than why wouldnt they just go and buy from Amazon. (RW 2012) * * RW 2012 Shows that the strain is moving away from purely focusing on new channel, looking to utilise quick channels too aka stores. Its perhaps easy to blame the high streets problems on the continued growth in online sales. But really as retailers have begun to deliver more integrated multichannel helpers they have found that online and mobile channels benefit stores. Industry body IMRG estimates that 10. 4% of all UK online retail sales in August to October 2011 were fulfilled through click-and-collect services. At the top end of the scale, retail ers such as Halfords say click and collect is control 85% of web customers to store. (RW 2012) * Mintel 2012, forecast that the total UK expenditure on clothing and footwear via the internet will procession 86% to ? . 4bn by 2016. (Past Disso, SJG) * VM will become even more important as retailers will have to excite and entertain customers who are being distracted through a forest of other media (Glen Folley, Head of VM T. M. Lewin. VM 2020). * Growth of online sales will prove a challenge to VM in capturing the customer in store. (Sarah Bailey LCF, VM 2020). * Stores currency will be rooted in providing spectacle, wonder and kinship as well as authority and expertise beyond what can be found online (Lorna Hall, Retail Editior WGSN) 2D will never be as fulfilling as 3D (Andi Grant, Creative Director SFD Inspired Retail Design. ) * The latest challenge is the internet, shopping from home is easier, price competitive, price of place (Tony Morgan VM) * With the rise of online shopp ing and consumers spending less time in store (Bell and Ternus, 2006), (RMR) * The latest challenge to in store retailers is the internet with online shopping. Shopping from home is easier and price competitive. Retailers are under more pressure than ever to insure customers return and spend. (Morgan, 2008, p. 15). RMR) * Despite what we are being told about significant growth online, revolution rates online still tend to be substantially lower than in traditional bricks and mortar stores. Retailers believe this is due to the customers inability to physically interact with an item online. (Retail Week, 2012a). RMR 20 percent of people never buy fashion online, while 40 percent do so once a month or more. (Retail Week, 2012a)RMR * Primark is a good example of a brand that is incorporating technology within their stores rather than jumping onto the multichannel band wagon (Pert, 2012).Primark is yet to have a transactional website because it wouldnt fit within their brand ethos. Pr imark has a highly successful model and its choosing technology that helps support, enhance and replicate this model (Pert, 2012), rather than going fully online. RMR * * Peter Cross, business partner of Mary Portas and manager of one half of her retail consultancy Yellow Door, said Retail theatre is not a new thing, but the sheer power of the internet and its efficiency inwardness that so much transactional retailing can happen online, so shops have to up their game. ttp//www. independent. co. uk/news/business/analysis-and-features/retailtainment-the-future-of-shopping-2303942. html * * Offline shops have realised they have to do something else other than simply sell you stuff. http//www. independent. co. uk/news/business/analysis-and-features/retailtainment-the-future-of-shopping-2303942. html * Karl Lagerfeld Prefers Bricks over Clicks * published Feb 13, 09 References nymag * Karl Lagerfeld prefers the physical part of shopping in person vs. the visual part of shopping onli ne.Lagerfeld was meeting with the EU opposition commissioner to discuss the loosening of restrictions of selling sumptuousness goodsread anything designed by Karl Lagerfeldonline. * Lagerfeld extolls the pleasure of purchasing where one can feel the fabric and see colors in natural light. Lagerfeld is not a Luddite with the help of his assistant, bodyguard and sometimes model Sebastien Jondeau he will sometimes buy CDs and books from Amazon. com. But And I still like bookshops, and not because I have one, he said. (Lagerfelds store 7L sells photobooks. * http//www. trendhunter. com/trends/karl-lagerfeld-embraces-bricks-over-clicks * Figure 3 Main shops used for clothing in the last 12 months, instore or online, July 2012 * Base 1,968 internet users decrepit 16+ who have bought clothing in last 12 months * * (Mintel 2012, clothing retailing). * How are online and in-store working together? We have argued that consumers make less and less feature between the two. Even so, the mess age of the next figure is that they treat shopping trips separately.Overall, however, the results tie in with the fact that only around 10% of clothing is change online and that buying in-store is much the most popular route. * Figure 4 How consumers made their most recent clothing purchase, July 2012 * Base 2,000 internet users aged 16+ * * (Mintel 2012, clothing retailing). * Our consumer research found nearly half of Next and MS shoppers had bought online yet, clearly, their online sales make up a far lower proportion of their total revenues, suggesting their customers are selectively mixing in-store and online shopping.Meanwhile, overall, 18% of womenswear shoppers and 19% of menswear shoppers had used the internet as part of the browsing or purchase process, but a large proportion of this was in conjunction with store-based browsing and shopping. * Indeed, it tends only to be struggling retailers that are using the justification of a migration to online shopping for planned o r mooted store closures French Connection, New Look, and some of Arcadias fashion fascia, for example. * (Mintel 2012, clothing retailing). * * * (Mintel 2012, clothing retailing). Key analysis It is already obvious that consumers use in-store and online interchangeably as buying media. But there is still a bias to the young when it comes to researching online first. (Mintel 2012, clothing retailing). * Retailers who ignore a channel of distribution do so at their peril. A store based retailer must have a complementary online offer. But purchasers of branded goods from an online only retailer have probably seen the product first in a store. The online retailer only makes a sale because the customer has decided not to buy it in-store immediately. Mintel 2012, clothing retailing). * * Mintel estimates online clothing sales increased 18% to ? 4. 6 billion in 2011, and we expect growth of 14% for 2012 victorious the online market size to ? 5. 2 billion, equivalent to 13% of consumer sp ending on clothing. * Mintels consumer research for our Fashion Online report found that consumers are buying online more frequently and the popularity of internet shopping is gaining ground on in-store shopping. Over a fifth (22%) of consumers now buy more clothes online than they do in-store, compared to just over one in ten (12%) in 2010.For full consumer research findings, and market size data for online fashion including footwear, see Mintels report, Fashion Online UK, March 2012. * think with the nature of the high street and the amount of companies going into administration Online is the way forward. Independents are being hit with high rents for bricks and mortar and are having to close after just a short period. (Surfdome Interview) * 3. Are surfdome purposely an online brand or is it because it is cheaper to concern online. would they branch out to having a highstreet presence). We wouldnt branch out to open on the high street. We are already seeing amazing growth onlin e, 2012 finished +76% vs 2011 (Surfdome Interview) * * 3. 3 Store Closures * Where retailers used to imply 400 or 500 shops to touch the length and breadth of Britain, with the sheer power of the internet they now need far less. For example, as I write Sir Philip Green, CEO of Arcadia Group, has announced the reduction of his own retail estate as leases expire(MP, 2011). At the time of writing, Barratts valuable had just fallen into administration, and HMV had issued results alongside a warning that the future of the business was open to question. (RW 2012) mp 2011 * Retailers at the value end of fashion have particularly found themselves exposed to the problem of too many stores in places where footfall cant achieve the sales they need to cover their costs. Several we r to warned that their store portfolios will likely constrict during the year, and other retailers said they would reposition stores and look for better rent deals even if they dont intend to shrink store numbers overall. RW 2012) * The businesses named as those in trouble are the ones likely to have too many stores. But property costs arent the only reasons mainstream fashion retailers are struggling to adapt to the realities of the market. Some are still running their buying operations as though it is the boom years. (RW 2012) * But retailers outdoors of these four struggling sectors are not immune from problems And indeed any business with too many stores, poor cash flow and large debts to service will face challenges to survive the year. RW 2012) * UK stores have become more important, and as later chapters of this report show, despite the fact retailers are reviewing the number of stores they need in a multichannel world, they are prepared to invest in those they keep open. (RW 2012) * The rate of highstreet shop closures is increasing due to rises in VAT, income tax and rent, high levels of inflation, and lower wage growth, meaning that consumers particulary in the middle class sector have less disposable income and are changing their spending habits. Past Disso, SJG) * The Economist Intelligence unit, predict e-sales will make up a third of all retail sales in Britain in ten years time (Sibun, 2012). With online retailing proving such a success, many individuals have voiced concerns that the Highstreet is dying when face with the virtual onslaught (Pert, 2012). It has been reported that a slew of shops have been closing stores to focus on their online offering (Blackden, 2012). RMR * RW 2012 * However, its clear that there is a space shift on the cards.The chairman of a fashion retailer says his business may close 100 stores in 2012, as it wants fewer, larger stores which he says are difficult to find. We will only open stores in exceptional locations such as Westfield We have far too many expensive leases and we are having negotiations with landlords at the moment. (RW 2012) * Another fashion chief executive, who is happy with most of his stores which are i n run aground locations, adds There are a few sites in difficulty. But when a shop is in trouble we run it on a cash-for-cash basis. If the property is taking more cash than it is costing, then the store stays open.If not, it closes. We may look at the lease renewal and then take a view as to whether to close, to renegotiate or to resite. (RW 2012) * Retailers are falling into administration with the total number of retailers in England and wales increasing by 11% from 165 to 183 in 2011. (Past Disso, SJG) * Web retailing will have taken its toll by the year 2020, leaving highstreets and malls vacant of many of todays recognised brands. (Tanya Reynolds, Creative Director. Proportion London. VM 2020). * recorded 32 stores closing per day in the UK. (Sibun, 2012). RMR) * On Monday, clothes chain Jane Norman became the latest high street casualty of the recession, as it moved into administration. And as the internet threatens to guzzle up the profits of remaining high street retailer s, perhaps it may take an outstanding shopping experience to stir droves of people from their chairs and into the shops. variant phrases have been used over the years to describe the enhancing of shopping stores retailtainment and entertailment are obvious word plays. http//www. independent. co. uk/news/business/analysis-and-features/retailtainment-the-future-of-shopping-2303942. tml * Failures expected to decline, but will rise in retail sector * The number of business failures will fall over the coming three years but remain above pre-recession levels, match to a forecast by the accounting firm BDO. * It estimates that the number of failures will fall to 20,536 a year by 2015, from a peak of 26,196 in 2009. BDO identifies a squeeze on the disposable income of UK households as one of the primary reasons for the slow recovery and concludes that retail and personal services companies are likely to be the most severely affected. BDO predicts that the number of retail sector failures will rise by 12. 5 per cent to 3,104 in 2011 from 2,759 in 2010. It expects the personal services sector, such as hair, beauty and consumer goods repairs, to see an increase in failures of 2. 8 per cent to 1,288 in 2011, up from 1,252 in 2010. * http//www. independent. co. uk/news/business/news/failures-expected-to-decline-but-will-rise-in-retail-sector-2364863. html * The store will remain your key asset, use it to showcase your brand and generate maximum profitability by addressing issues at individual store level (RW 2012, P. 58) * 3. 3UK brands vs US brands financials (The need for UK stores) MP 2011 * adapt to reap the major benefits from localising their product offers. (RW 2012) * Again, this is a trend where UK retailers can be proud of what theyve achieved, as their private-label developments are among the finest in the world, and in some cases give manufacturers a run for their money (RW 2012) (RW 2012) * Retailers with international appeal are asking themselves how much of a return theyll get from opening one more store in the UK compared with one abroad, especially one in the fast-growing emerging markets. RW 2012) * I would say not, we are a global brand on a global stage, we see ourselves as retail leaders, but would be influenced by any great retail idea not just from the USA. (Selfridges interview) * 1. Yes, Ted bread maker is portrayed as a very British brand. Ted Baker is still considered out of the ordinary with strong UK roots. (Ted Baker Interview) * 3. 4upper middle market retailers. (lack of british brands in this sector) * The fact is that the major supermarkets and malls have delivered highly convenient, needs-based retailing, which serves todays consumers well. MP, 2011). * Woolworths is a prime example. They simply hadnt realised how to talk to the new value-conscious consumer and allowed the pound shops, many of which are seeing astronomic levels of growth, to pile in and steal their market share. A fact made all the more painful w hen one knows that Woolworths was in fact the original pound shop offering all its merchandise at a fixed single price. (MP, 2011). * Primarily this is 16-25 year olds. They are faced with much greater higher education costs than previous generations and rising unemployment.And also C2DE socioeconomic groups those on benefits, the elderly and low-paid have been at the sharp end of rising inflation during 2011. Even if, as many predict, inflation slows during 2012 the damage to their spending power has already been done. (RW 2012) * And the director of a premium fashion retailer is mindful that her competition is likely to grow, so its not a time for the business to scrimp on what makes it attractive to customers, as the new competition sure wont be. The international brands that are coming in from the US, France and Australia have got quite a bit of money to invest, she says. RW 2012) * Unemployment stands at 8. 3%. twain the rate and level of youth unemployment stands at the highe st it has ever been, with 22% or around one million economically active 16 to 25 year olds not in employment. (RW 2012) * Clothes buying still a priority for under-25s 61% of under-25s a key market for clothing retailers still include clothing and footwear within their top five biggest areas of expenditure, with fashion the ultimate spending priority for 15-19-year-olds, according to Mintels Youth Fashion UK December 2011 report. Mintel 2012, clothing retailing). * Under-25s demographic group shrinking The number of under-25s a key market for clothing retailers is contracting as a percentage of the population. The UKs ageing population means the number of 15-19-year-olds is predicted to shrink by 7. 1% between 2012 and 2017, while the number of 20-24-year-olds is expected to fall to 5. 3% during the same period. (Mintel 2012, clothing