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Retailers must innovate their way out of recession, says the MCA

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2010 will continue to be tough for retailers, according to a new report from the Management Consultancies Association (MCA), and retailers must switch their attention away from cutting costs to innovating new products and services to recover and prosper post-recession.

The MCA surveyed consultancies which have a particular expertise in the retail sector for its ‘New Norms’ report. Value retailers will continue to prosper in 2010, the researchers found, and are likely to increase their market share. Large supermarket chains, meanwhile, may seize the opportunity to move into new product areas such as cars.

The retail sector will never be the same again, the report concludes, and online retailing will continue to outperform high street shops. Consumers, keen to socialise as well as shop, will also continue to flock to Westfield-like shopping malls.

“Our survey shows that retailers are willing and able to innovate, but many lack the cash flow and are nervous about the future,” says Alan Leaman, chief executive of the MCA. “We are entering a period of great change within the sector, even against a background of continuing low levels of growth.”

“The Christmas period will be critical,” adds Tony Nugent, head of retail solutions at HCL-Axon. “There are a lot of investment decisions waiting for final approval at the moment, but no one’s going to sign anything off until they’ve seen the actual figures.”

The ‘New Norm’ for retailers is likely to see an extended period of marginal growth or contraction, with almost half (47%) of consultants predicting that retail sales growth could stagnate or contract by up to 3% in 2010. In addition, the report identifies the following factors for the ‘New Norm’:

  • The big will get bigger — Those retailers with cash are better able to innovate so the big retailers will gain ground.

  • A shift to ‘social shopping’ — Consumers wanting to socialise as well as shop will be more likely to travel to shopping centres, although how much they will spend remains unclear.

  • Multichannel retailing will become a reality — A quarter of all retailing could take place online within the next ten years, so traditional retailers need to become multichannel.

  • Quality of service will be key — The focus on costs during the recession has resulted in widespread dissatisfaction and lack of engagement among frontline staff, but quality of service will be critical to keeping customers.

  • Retailers must stimulate demand, rather than relying on governments — Substantial cuts in public expenditure will reduce consumer spend and an imminent change in government leaves the future uncertain for retailers.

Despite this bleak outlook, consultants consider the UK retail sector to be quite well positioned to meet its challenges, and opinion is evenly divided on how this compares with the situation in other countries. But, the researchers warn, retailers must be ready to adapt to changing consumer demands and behaviour.

“Retailers will have to start looking beyond conventional ideas of service,” says Philip Michell, consulting director at Vertex. “Customers want solutions, not products, and the successful retailers of the future will understand they have to anticipate customer needs, not just react to them.”

“The key to success in the future will be for retailers to become demand, rather than supply, driven,” advises Richard Hyman, strategic retail adviser to Deloitte . “Already we can see a difference between the retailers who are genuinely tuned into consumer behaviour, and the difference between them and less competitive companies will become clearer over the next year.”

Readers can download a copy of the full report, The New Norm, from the MCA’s website.

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