In a 2 July LinkedIn post, British Retail Consortium (BRC) Chief Executive Helen Dickinson said that outlets are starting to see the fruits of switching up their spending strategies to cope with macroeconomic shocks. It was encouraging news for a sector that has weathered its fair share of storms in the past few years.

Drawing on figures from a BRC report, Dickinson wrote that retailers’ efforts to invest heavily in improving their operations and supply chains were clearly paying off. In the 12 months to the report’s publication, shop-price inflation had risen by just 0.2%. In particular, food inflation had dipped to its lowest level since 2021, a trend helped by falling prices for key products, such as butter and coffee. At the same time, discount initiatives to drive sales had sent non-food prices deeper into deflation, with TVs flying off shelves amid ‘Euros fever’.

In Dickinson’s view, the Labour government is benefiting from retailers’ work to cut costs and prices, easing the cost-of-living crisis for millions of households. She stressed: “The past few years should serve as a warning that where business costs rise significantly, consumer prices are forced up, too.”

As such, policymakers must address some of the major cost burdens currently weighing down the retail industry, including the broken business rates system and inflexible apprenticeship levy. “By doing so,” she wrote, “retailers can invest in lower prices for the future – helping to reduce the cost-of-living pressures that many families face.”

‘Annus horribilis’

Dickinson’s post paints a much healthier picture of the retail sector compared with last year. Covered on Insights in an article in March 2023, figures from The Centre for Retail Research (CRR) showed that the sector began last year with a spate of redundancies that affected almost 15,000 shopworkers. While the article put those layoffs in the context of rapid evolution in the sector in response to the pandemic, it was hard to avoid a general air of gloom.

However, there is something different, even bullish, about the BRC’s messaging. One expert who sees merit in that sentiment is Jonathan Whitwam: CFO of global fashion agency, showroom and luxury retail business Rainbowwave, and Deputy Chair of ICAEW’s Retail Community Advisory Group.

“If we think back to 2019, overall, the sector felt really good,” he says. “Then we hit 2020 and 2021, and things were about as bleak as we could have expected, given the extenuating circumstances. However, we did see a massive shift to online and, in 2020 alone, everyone’s digital strategy advanced by 10 years. That was great to see and showed that the sector had the technology right at its fingertips.”

However, by the dawn of 2022, from a wholesale perspective – certainly in his specialist field of fashion – the success of the online surge had spawned a distinct overconfidence. As a result, retailers had bought far too much inventory.

“Pure-play online outlets in that market had arrived in 2022 overstocked and overstaffed,” Whitwam points out. “That affected physical retailers, too. In efforts to compete with online, they were also heavy on stock and staff, and had gone deep on discounts. As a whole, then, fashion retail was heavy on costs and low on price, which led to quite a lot of losses being reported. At the end of that year, outlets realised they were in a lot of trouble. So, they spent 2023 right-sizing their operations.”

Whitwam spent much of last year working on that very mission for Rainbowwave. He even went so far as to use the phrase ‘annus horribilis’ (horrible year) to describe 2023 in his management accounts. “We did everything we could to get back on track, and we’re returning to a healthy and profitable business in 2024,” he says.

On a wider level, Whitwam says that as far as his market is concerned, if consumers are presented with the right products at the right time – and with excellent, knowledgeable service – they are buying. “We sell more than 30 brands to more than 1,000 retailers globally and we’re seeing some great success stories,” he says. “I’m not feeling doom and gloom – I’m feeling that 2024 is a much better year.”

Tough decisions

While Whitwam describes last year as “really tough” for himself and his tight-knit team, he feels that ultimately the more testing times help finance professionals to become better business people. When it comes to the practicalities of right-sizing, he stresses, the commercial finance team should be right at the forefront of managing a retailer’s costs. This means scrutinising what each and every employee brings to the table.

“If you look at the sales ratio for every member of staff, you will soon see who is generating profit and who is not. And you have to make some very tough decisions,” he says. “Look at what people do on a monthly basis, then work out the cost per day of their time. Is it worth having all those people doing all those jobs? Think about streamlining legal, HR, property management – even your own team. There’s nothing you shouldn’t be looking at.”

As part of that, Whitwam urges retailers not to be overstaffed at the top. “It’s very easy to have a big management team that isn’t generating much income,” he says. “Tough decisions in that area are arguably even tougher because you all make decisions together.”

Once the finance team has done its people costs, Whitwam says, it should look at travel expenses. Could you centralise booking? Could you have daily limits? Is it necessary to stay in the hotel closest to a client or industry event, or could executives stay a little further away and commute by Uber? “People don’t always do those sums,” he notes. “But some of the expenses I’ve seen are, say, four nights in Paris for £1,000, when Booking.com is charging £500. That’s just wasteful.”

He mentions a friend in a non-retail business that was recently taken over by a private equity firm. Shortly afterwards, the company froze travel for a month. “If your business spends £3m a year on travel, you’ll save almost £300,000 per month.”

Another crucial area to examine is building service charges. “If you’re not looking at every utility bill and going back to your suppliers looking for better deals, you’re not managing your business,” Whitwam says. “We recently halved our gas bill across a number of sites.”