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Retail trade: time to renew processes (and grow green)

Author: ICAEW Insights

Published: 18 Jan 2022

As retailers are forced to change processes to counter supply chain blockages and rising costs, they should take the opportunity to make sustainability part and parcel of the way they work, says Catherine Kelly, Head of Retail, Cooper Parry.

The last two years have hardly been an easy ride for the UK’s retail sector. It has faced supply chain disruption and spiralling costs due to Brexit and the pandemic, not to mention changing customer behaviours – all against a backdrop of huge uncertainty. It’s an environment that has pushed many in the sector to breaking point. According to the ONS, total retail sales volumes in 2020 fell by 1.9% compared with 2019, the largest annual fall on record.

Of course, headline figures don’t tell the full story. More granular analysis shows that while clothing and fuel volume sales remain below pre-pandemic levels after large falls of 21.5% and 22.2% respectively in 2020, others are seeing sales pick up.

Sports retailers have done well, buoyed by sales of sports equipment to help while away the lockdown hours. The combination of a buoyant property market and a disproportionate time at home have benefitted retailers specialising in DIY and home improvements. And the return to the office and the opening up of hospitality is forcing us to up our sartorial game, resulting in an upturn in consumer spend on fashion.

With numbers for the end of the Golden Quarter – the period that includes Black Friday and Christmas – suggesting better than expected performance, Catherine Kelly, Head of Retail at accountancy firm Cooper Parry, believes that many in the sector have cause to feel cautiously optimistic.

But any suggestions of a return to business as usual would be woefully misplaced, Kelly warns. Footfall is down, as anyone braving the elements to hit the high street for their Christmas shopping will no doubt have noticed. The latest ONS figures for the week to 8 January 2022 found that overall retail footfall in the UK was 78% of the level seen in the equivalent week of 2019.

Kelly isn’t alone in thinking that a return to pre-pandemic footfall levels may never materialise. According to consulting firm Alvarez and Marsal, just under a third of European consumers think their shopping habits will change permanently because of COVID-19, with a significant and permanent shift towards online shopping. This is particularly true for apparel, homewares and electricals. In countries such as the UK, the permanent change in shopping habits rises to almost four in 10 shoppers.

“Those behaviours are set in stone,” Kelly says. “What’s going to be important is that retailers get to a position where the channel of retail doesn’t matter to consumers. Whether that’s online, physical or click and collect, it needs to be frictionless. Consumers will pick a retailer, but how they make that purchase will be less important.”

Eventually, instore and online experiences will converge. In the meantime, a good online experience is key to sorting the wheat from the chaff, Kelly says. In practical terms, that boils down to knowing your market, slick marketing and getting fulfilment right. And yet even household name retail giants make fundamental mistakes along the customer journey that damage their experience – sometimes irrevocably.

“Over the next year, companies are going to have to start redesigning their processes around the new customer experience and supply chain, and accountants can play a big part in streamlining process and improving efficiencies. There are only so many excuses of staff absences and COVID consumers will put up with for a suboptimal experience,” Kelly says. “We’re running out of patience for that.”

Supply chain issues remain a reality, and those companies successfully capitalising on an upturn in consumer spend are hiding those bottlenecks from the customer, Kelly says. “Empty online shelves where the website tells you ‘stock delivered in 4-6 months’ are becoming increasingly widespread. If you were in a physical shop you’d see empty shelves. We are already starting to see less choice and availability of some products and the ones they have are going to cost more. Some retailers are changing what they buy because things are too expensive, or they can’t source products in time.”

Supply chain disruption isn’t getting any worse, but nor is it easing substantially, Kelly warns. She believes the associated costs are likely to be baked in for the next 18 months to two years. The need for new ways of working to counter the disruption they face is an opportunity for retailers to put sustainability at the heart of everything they do. “You’re going to have to redesign your processes because of supply chain issues and everything is costing more – so make it greener in the process. It’s a win-win.”

For example, slashing energy usage makes environmental sense as well as saving money. Near-shoring can help to mitigate the risk of global supply chain disruption and reduces transport miles. Accountants have a pivotal role to play to ensure that sustainability is at the forefront of any decisions and that businesses are tracking carbon as well as profit in a meaningful way, Kelly says. “We should be doing it; customers expect it and it makes good commercial sense.”

Despite the challenges, Kelly says it’s an exciting time for retail. The opportunities for accountants to help clients weather the storm are plentiful, particularly those who can embrace innovation to help clients look at the world in a different way. Collaboration will also be essential to helping find quicker solutions to common problems, particularly when it comes to solving them in a sustainable way, Kelly says. “This is where we all need to be pulling together, rather than working in silos.”

But as the relative excitement of the Golden Quarter dies down, Kelly is muted in her optimism for the coming months. “The Christmas quarter was positive but the quarter after that is always a slower time for retail businesses,” she warns. “We’re now hearing about rising energy prices, inflation and interest rates – people have less to spend and confidence will diminish as a result. I’m cautiously optimistic that we can retain some growth but I don’t think the pandemic is behind us yet.”  

Trade: clean growth and tech

Clean growth and the application of major emerging technologies to existing sectors are two key characteristics of trade in 2022. Add to these levelling up supported by foreign direct investment, and there are exciting future prospects for business and the prosperity of communities globally.

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