PatelMillerRetail Predictions 2019: What will this year bring? Instalment 3

Instalment 3

Welcome back to the final instalment of Retail Predictions 2019. We have developed 6 predictions for 2019 with our market knowledge and we have had the chance to discuss them with retail leaders at our last round table. This instalment will focus on predictions 5 and 6.

Prediction 5: The retail market – Better together

Retailers, big and small, will need to collaborate rather than compete to survive the coming years.

In 2018 we saw an upsurge in retailer collaboration. The harsh retail environment has driven historical rivals together in a bid to expand their reach and build a buzz. Next’s new Oxford Street store is an example of retailers sharing space to create a lifestyle destination. Set up almost like a department store, the space features a Costa Coffee, Lipsy, Dutch discount chain Hema and Paperchase stores, each with their own distinct brand areas set within the wider Next environment. Lipsy even has a separate entrance.

Joining forces can also expose you to new ideas and tactics, which you can test before doing a full-blown integration into your business. H&M have a track record in this area. It recently partnered with Moschino and has released its new collection in partnership with Eytys, a Swedish based brand, known for its empowering unisex shoes and street apparel. This approach has extended H&M’s offering, boosting the reach of both brands and creating a training ground for designers across compatible products.

Small brands are also working together to strengthen their position against the eCommerce behemoth Amazon. Whilst some have cut their losses and joined forces with Amazon directly, others have joined companies such as iServe, an umbrella wholesaler which strengthens the collective bargaining power of its constituent brands. By doing so it can improve the terms on which the products are marketed and sold on the site.

In 2019, PatelMiller envisages the spread of inter-company networks and platforms as retailers seek reach new customers and to stimulate demand in a new and innovative way.

Prediction 6: Promotions – How to get off the discount drug?

It has been a record year for retail casualties but also a year when extreme discounting has seemed more prevalent than ever. 2019 must be the year in which retailers realise that the two are linked. Brands have become hooked on a discount drug, chasing a constant improvement of last year’s sales.

Non-stop sales and back-to-back promotions have meant that consumers are increasingly reticent to pay full price. Erik Nordstrom president of department store Nordstrom notes “Where we're seeing a big miss is in our clearance and promo… the clearance and promotional environment is really noisy." Retailers have been doing battle for too long on price, rather than focussing on how they can be attractive year-round.

Brands must differentiate from the competition beyond price alone.

We predict in 2019 the best retailers will focus on their product and service offering at an everyday fair-price, chasing long-term profit over like-for-like sales. However, to come off the discount drug, retailers must distinguish themselves in the market place and focus on their core proposition. This is especially important at a time when new entrants are chasing sales to secure the elusive IPO, even if it means running at a loss.

Next have already used this to good effect, posting strong results in 2018 off the back of keeping a relatively consistent price point and resisting the urge to chase like for like growth.

As IKEA put it so well "Our ambition is to offer everyday low prices all year round, which is why we don't take part in temporary discounting events.”

Primark Finance Director, John Bason, said “We did nothing for Black Friday, no special events, but we saw increased footfall on the high street and not surprisingly we gained from that”.

If you haven’t already done so, do not miss instalment 1 and 2 where we discuss UK consumer confidence, retail restructuring, physical retail and the retailer-landlord relationship.