THE UK RETAIL SECTOR Retailing is one of the major economic sectors of United Kingdom, with retail sales of ? 221 billion, employing around 3 million people and operating over 300,000 shops. Within the sector there is a scale polarisation at both the business and the store level. The leading retailers are huge, multinational businesses which dominate the sector. They operate a range of stores from major hypermarkets and supercentres through to small convenience stores. Retailing is also significant it its social dimension as well.
Whilst economically retailing bridges production and consumption, in social terms it effects most of the population every day. It is the rare person who does not go shopping, or indeed has not worked in retailing or been involved in it in some way. For some, retailers offer their major social intercourse of the day or week and act as a social network, setting or centre. The quality of UK retailing and its locations thus has both an economic and a social bearing on the perceptions of the country.
COMPETITIVE ANALYSIS 1. 1 Political Structure and Trends The activities of retailers and thus shoppers are affected by the political structure and trends in a number of ways. It would be wrong, however, to see this as a direct relationship derived through a body of legislation specifically targeted at retailing or shopping. Instead, trends in retailing and shopping are more dependent on a number of national debates and initiatives that have been developed recently by various levels in the political process.
The main direct effect that politicians have on retailing and shopping is through their exercise of power over location through the levers of the land-use planning system. Whilst land-use planning is a local authority activity, national government can intervene to provide directions and guidance on the assessment of development opportunities and proposals. Whilst land-use planning towards retailing in the 1980s allowed decentralised activity, since the early 1990s there has been a growing consensus on the tightening of restrictions on off-centre and green field evelopment. Thus it has become much harder to obtain planning permission for developments away from existing town centres and newer forms of retailing such as factory outlet centres and regional shopping centres have become harder to accommodate. This consensus has emerged through a general concern with the health of town centres and a desire to see town centres as vital and viable parts of the urban structure, fulfilling traditional nodal activities, including providing a focus for shopping.
Whilst land-use planning affects the location of retailing, other instruments of government can affect the operations of the business, although as we note there is no overall retail trading legislation. Instead, shoppers are affected by a battery of public policy which attempts variously to regulate competition, safeguard consumer interests and to regulate trading conditions. Recent changes in this arena have seen an easing of restrictions on trading hours for example but a strengthening of powers over retail selling and employment practices. Concerns over public health have led to tighter regulation on food stores.
In essence the approach could be summed up as ensuring that retailers do their jobs properly and that there is as much a level playing field as possible. Again there is no reason to suspect that this will change, though the scale of the legislation will change as globalisation continues in this market. Big retailers will be created on a pan-European level and will be subjected to standard operating conditions across for example Europe, which safeguard consumer interests. The European dimension obviously has another political aspect as well, most notably in terms of the Euro.
Whilst decisions about the Euro are beyond this report, retailers as a key service sector, will have to deal with its introduction (or not). For some this is already anticipated through their acceptance of Euros in the UK, their Irish and continental European experiences and in their forward planning of technological (eg POS) investment. Smaller retailers in particular however may be less prepared for any positive decision. Overall there will be costs in implementation, as well as potential trading disruption depending on timing of introduction. 1. 2 Economic Structures and Trends
To a considerable extent, the economic structures and trends driver for change operates at such a macro-level of the economy that it is very hard to consider it in any detail. The general economic position of the country will condition to a great extent the outcomes retailers experience from the shopping activity. Thus the volume and value of retail sales is of importance in this arena, but it is hard to be certain of magnitudes looking forward. Political policy can have an impact by its promotion of certain sectors and locations in the economy, in pursuit for example of greater social inclusion and a fairer distribution of wealth.
However alternative policies could equally be considered. The economic structure also has an affect on the retail landscape through the encouragement or otherwise of the construction of landscapes for consumption. Businesses have to be willing to invest in the built environment and to feel comfortable that such investments will make a return. Probably the only safe assumption to be made is that the broad economic structures will remain in place and that in the future Britain will be economically approximately ranked similarly to where it is now in the world.
Taking this assumption, then it would seem that we can expect many of the trends we have seen in recent years to continue. Thus, there would seem to be scope for further growth in retail sales, if we take a broad definition of retailing. There will be developers wishing to invest in the UK in commercial property, but much of this development may take the form of redevelopment or enhancement of existing locations. The exceptions to this might be purpose built new facilities in areas of identified deprivation, though the exact form of these facilities will be open to question.
The economic structure has an impact on retailers and retail structure. British retailing is dominated by large corporate chains, many of which are head-quartered outside the country. Whilst there is in a sense a requirement to improve local knowledge to meet consumer needs, large retailers have demonstrated that computing power can be used to understand markets. Knowledge management becomes a key element in the future economy. There does not seem therefore to be any particular reason why current trends towards bigger and foreign retailers (eg.
Wal-Mart) dominating more of the market should not continue, although they will probably structure some of their activities on a national (ie. local) basis. There will be opportunities for local and new retailers, but overall the market structure is likely to remain dominated by such big and increasingly global players. The interaction of the political will and the economic situation of the country and locations and individuals within the country will be important in determining the affluence of otherwise of the population, and thus the attractiveness of sites for retailers.
This personal disposable income is critical to the future of locations, though it is tempered by the aspirations and lifestyle choices, and the costs of these eg. monthly rental of satellite television reduces out-of-home shopping. Most recently there has been announced major investment in the country’s infrastructure, funded in part by increased tax and NI revenues. This could affect perceptions of affluence and personal disposable income for years to come. More worryingly perhaps is the possible pensions timebomb which is currently being exposed through the switch out of final-salary schemes.
Continuing concerns over mortgage payments based upon endowment policies and the high level of credit in the economy reinforce these worries. Socio-Cultural and Lifestyle Aspirations Changing socio-cultural and lifestyle considerations have fuelled much of the change in shopping and retailing in recent years. Attitudes and beliefs as well as wants and needs have been transformed. They continue to develop and further change can be expected. In particular, attitudes to work and leisure are worth identifying separately as they are potentially so important.
Modern consumers are a mass of contradictions, many of which are inexplicable on any rational basis. Some travel miles by car, damaging the environment, to refill a plastic bottle which costs virtually nothing, or to place bottles in a bottlebank located on a superstore car park. Branded products with a conspicuous logo are purchased in preference to identical generic products selling at a vastly reduced price. People pay 50% more for a 30% smaller microwaveable pot of baked beans rather than have to open a tin and heat the product ‘normally’.
Ready-washed salads or chopped vegetables in their millions are purchased to ‘save time’ or to cover up for lost culinary ‘skills’. Understanding and predicting change in this arena is therefore a little difficult. What can be said is that there is a tension in this aspect of shopping. On the one hand consumers have ever broader experiences and expectations that have been increased by their exposure to new events, horizons, ways of doing things etc. So holiday experiences are brought back and combined with UK products and behaviours. Things that are seen in TV programmes become available in local stores.
On the other hand, the very nature of the global experience, particularly through leisure products such as TV and cinema, tends to reduce things to the lowest common denominator – Pringles, Coke, Gap, Nike – and it is no coincidence that the majority of exemplars are American. This differentiation/similarity paradox will also emerge in other ways, and in particular in terms of the attitudes and belief statements of individuals and the way they translate these into shopping actions. Single-issue causes are fundamentally important now and look set to remain a force.
Attitudes to corporate or government activities may lead to both small-scale individual behaviour changes but possibly to more aggregate corporate behaviour changing movements. The ‘battle’ over GM foods and the rapid development of organic food sales are examples of the start of this rather than the end. Consumers and businesses will spend a lot of time in the future working out their positions on issues and changing behaviours appropriately. However, the number of individual positions by their very nature will outnumber choices available.
This points to a continuing fragmentation of much of consumer demand, but overlain by certain common themes. For retailers, identifying these themes early will be critically important and reacting quickly will be vital. The issue of mobility is complicated. It is clear that people’s understanding of mobility has been transformed in a number of directions. The overall perception of mobility has extended significantly. This extension is both in terms of the mental view of locations and travel and a dramatic extension of what may be possible and also a willingness and ability to actually travel.
The location of holidays and the influence this has on price perception and product purchase is one example of this. The willingness to travel longer distances to shop on a regular or an irregular (shopping centres) basis is another. It is also the case that as we are spending more time ‘on the move’, our needs in consumption terms have changed. We need to be able to consume as we go (food, music, information etc) and retailers have changed locations, products and shop formats to adjust to this. 1. 4 Demographic Structures and Trends
Shopping and retailing are obviously heavily dependent on people, both as an industry, but also as the basic consuming unit. Changes in the population structure and the location of this population, as well as the make-up of the households in which people live, are fundamentally important to retailers and to understanding the shopping future. For example, population growth in specific locations or of age-groups of people encourage or discourage retailers to construct the retail environment differently.
The ‘baby-boomers’ or ‘Generation X’ concepts have their reality in the shopping behaviour each group carries out and the demand for experiences and products they exhibit. Similarly, the growth of children as consumers and acknowledgement of the spending power of the “tweenies” represent new foci for retailers and service providers. Similarly, the breakdown of the nuclear family and the rise of single person households changed the consumption landscape, both in non-food because of the absolute number of households, but also in food due to pack size issues and so on.
More but smaller households will have an effect on the type of products and services purchased and the shopping trips undertaken. In short, understanding likely future demographic structures and trends provides a good base from which to examine future shopping, and because of the nature of population dynamics provides us with a solid foundation of understanding. New births notwithstanding, we have good estimates of population demography for the next twenty years.
Population estimates for the UK suggest that there will be in the next twenty years an extra 4 million people in the country on the current base of 58 million. It is forecast that current trends will continue leading to a substantially older composition of the population than at present. There will be significant growth in the 45+ age groups, many of whom will be young in body and mind and will be able to finance their consumption (a group of time rich/cash rich). There is within this also an increase in the 75+ age group which will present significant issues for the delivery of shopping opportunities.
The ageing of the population will present an opportunity to target older consumers, but it would seem to be likely that the differences within this group will be as great as differences between the 45+ age group and other groups. The ageing of the population has another dimension of interest to retailing. Retailing is a traditional user of young people and the workforce in retailing has been seen as being more youthful and transient than many other sectors. With a decline in the youth cohort and a large increase in older consumers, retailers are going to have to question their hiring policies.
Some retailers have been aware of this for some time, but it is going to become a wider phenomenon. Older consumers are going to want to be served by older well-informed staff and retailers are going to have to draw on this older workforce in order to keep their stores staffed in the first place. Willingness to work and the expectations of work for these groups may be much changed in the future. 1. 5 Product and Process Innovation Of all the drivers of change, the one that is most obviously in the news with respect to shopping and retailing is that of product, or more particularly, process innovation.
The rapid development of the digital revolution, linked on occasions to the development of electronic commerce has caught the imagination of many, but perhaps blinded them to some of the pitfalls. Despite the fall from grace of the B2C Internet, most large retailers have a web site and are seriously exploring the opportunities or dangers of this new channel. The implications of this wave of experimentation for home delivery and for the very nature of retail organisations needs to be considered.
In short, is the Internet the new way of shopping and retailing, which will eventually conquer all, or is it a small additional channel of limited impact? Whilst it is crucial to consider the possible implication in this area, it is important to emphasise (unlike perhaps the UK Foresight process) that retail futures are not all technologically based or driven. Product innovation is almost impossible to predict due to the rapid development and innovation of technology and other components. There are some possible ‘straws in the wind’ associated with developments in miniaturisation, communications and digitisation.
Books, videos, films and music may all be transformed by product changes associated with new mechanisms for making, storing and communicating such material. Beyond that however it is almost impossible to predict what new products will be around and futile to attempt to predict in any detail what we will be buying. Process innovation is however another matter. The process of shopping has for well over a century been composed of multiple channels, but process innovation in the form of e-retailing is challenging the balance amongst these channels, chiefly because the nature of the medium has changed.
In addition, the current implementation of e-retailing has the scope to change the nature and cost structures of retail activities. The “traditional” model – in which the customer via self service undertakes most of the shopping tasks (and bears the costs) -changes with many tasks and the associated costs transferred to the retailer. The retail business economics of e-retailing differ from those of store based retailing. Predicting the extent of Internet or e-retailing take-off is foolhardy given the breadth of experimentation and the pace of change. It is however worth reflecting on the use to which the new format is being put.
It would appear that e-retailing is being used in three different ways at least for shopping. First, there are sites and opportunities that are essentially price driven. The focus is on getting the cheapest price for the product. Secondly however some sites are being used to provide a form of service delivery. In this case, products are sought because they are special, unique, different or distinctive or because they are hard to find and thus a broad data source is needed. In short, the Internet can allow the breadth of retailing to be consulted more quickly than might otherwise be the case.
It is possible to identify a third type of use, namely the time-saver, when basic components of shopping (provisioning? ) are routinised into some form of home delivery service. These three illustrations are themselves further (and this time ‘virtual’) examples of the categorisation of shopping behaviour outlined earlier. With the exception of downloadable digitised products such as video and music, most products purchased remotely will require some form of home delivery system. Shopping in the real world, with the exception of mail order places the onus for this aspect primarily on the consumer.
However, Internet retailing separates these activities and thus reinforces the distinction between purchasing and obtaining. In order to obtain virtual purchased goods, home delivery points will probably be needed and solutions will need to be found to the problems of delivery timings, people absent deliveries and the like (though other solutions are possible focusing on local stores/distribution points). It is also the case that one of the conventionally perceived benefits of Internet retailing, namely the removal of many car journeys, might be obviated by the expansion of local home (or workplace) delivery services.
In terms of process, the emergence of the Internet has also had effects ‘behind the scenes’. 1. 6 Environmental Changes and Trends The UK is a congested set of islands, although this can be overstated by those living in the South East of England. As such the environmental aspects of shopping and retailing are particularly important given that the sector is a large user of land and the consumers are travellers to and from locations. Retailing of course is not only about consumers moving products, as shops are the commercial end of an entire supply chain.
The way in which land is used for retailing and the retail supply chain have not remained static and there is good reason to presume that this will continue. Similarly the design and architecture of retail locations is not static and plays a considerable role in both the construction of the ‘feel’ of the retail location and experience and also, in environmental terms, its efficiency and effectiveness. Retailing uses land and locations for its physical activities. Consumers tend to travel to the store or shop components of this system.
Space use by retailers has changed dramatically with broad trends towards the polarisation of shop size. In the main this has not led to any particular problems over space although many retailers have sought the prime locations. However some problems have been felt in secondary locations as concentration and competition effects have washed through the system. All the pressures being identified thus far suggest that there is not going to be a dramatic increase in space needs but rather that it is the quality of the space that will be most important. Current estimates of retail space, from CB Hillier Parker, suggests a stock of over 1. billion square feet of gross shop floorspace, which translates into 524 million square feet of net floorspace. Of the total gross floorspace 17. 7% is in “managed” retail environments (town and out-of-town shopping centres and retail warehouses), compared to 13. 5% in 1990 and 8% in 1980. Longer term however, it might be that existing space may be more problematical leading to either wholesale transformation or re-use as something else. Retail Sector Structure Size and Scope of Retail Sectors As has already been indicated, the definition of retailing has become more problematic.
The horizontal and vertical blurring of activities and boundaries means that putting precise dimensions on the sector as a whole, and any component sub-sectors, is more difficult than before. Many examples of the issues abound, but we could for example contrast the coffee shop in the local Tesco, to the purchase of take-away sandwiches at Pret-a-Manager and the purchase of sushi for lunch at Sainsbury. Are they all retailing? Similarly Tesco sell pre-packaged insurance at the store but the same ‘product’ is available via the telephone and from banks and brokers. Where do we draw the line for retail sales?
Even Delia Smith’s cookery programmes on the BBC could conceivably be seen as a retail activity, given the direct correlation between transmission and product purchase. The boundaries of retailing are highly blurred and volatile and government conceptualisations and statistics focused on product are not necessarily the most appropriate or helpful. There has been growth in product purchase, though of course in most cases the products themselves have not been static. New products have been introduced and dramatically changed categories, as computers replace typewriters and sunglasses, watches and fashion jewellery are sold by clothing chains.
In non-food we can point to new products such as CDs and mobile phones, and in food ready meals would be a simple example. Furthermore in most product categories the range and choice available has expanded Organisational Structure and Competition As major retailers have grown in scale, so they have expanded their activities into new domains. With emerging scale has come a greater degree of knowledge and power in the channel. The pace of growth of retailers has been greater than for many manufacturers. Allied to operational changes such as the development of retailer brands and the better knowledge of consumer atterns and trends, retailers have reconstructed the traditional supply chain. In essence a dominant retail organisational type has emerged, characterised by strong vertical power which has been used to control, administer and command supply chains. Major retailers have also been involved in the use of horizontal power through their construction and reconstruction of the retail landscape. Where retailing locates and the form it takes has been transformed by the activities of major retailers and developers. Decentralisation is a key theme in this, and ‘waves’ of off-centre or out-of-town development have been identified.
In most cases, these developments represent retail formats (eg. the food superstore and non-food retail warehouse) that can not readily be accommodated in existing centres. Such new locations tap into consumer needs, but have an impact on existing retailers and customers not able to travel to them. Moreover, they are in virtually all cases operated by major retailers and thus reinforce the competitive imbalance amongst organisational types. International Opportunities and Threats British retailers have had a chequered history in terms of international operations.
At the same time, Britain is an open market and retailers who wish to enter the market can in most cases do exactly as they wish. The exceptions to this are those formats eg. Supercentres, which are constrained by land-use planning on the grounds of space use and various dimensions of impact. Essentially though the UK is a retail supermarket with the best bits of many retailing cultures. This open market is illustrated by the growing presence of many non-indigenous retailers in British retailing. This presence has been generated both by organic growth and by takeover.
It encompasses most, if not all, retail sectors and formats. An increasing proportion of UK retail sales is therefore being captured by non-UK businesses operating here. This inward investment is a threat to the main ‘British’ retailers in competitive terms. Whilst international activity is risky, the retailers coming here are entering in many places a cosmopolitan market and one used to purchasing non-local products or travelling abroad. As such it seems not to matter to consumers where a retailer is from or who owns whom. If however competitive action combined with technological change eans that more imports are then generated and managerial head office positions, including research and development, are located outside the country, then these should be issues of concern for the country. For retailers entering this market, they have to adapt to a different (generally higher) cost structure and this can create difficulties for their positioning and performance. It is not likely that the pressure from overseas retailers will subside. Britain is a large market with a relatively small number of major cities and centres.
For retailers looking for organic growth and being town or shopping centre-located, entry is relatively easy. More problematic is the entry for free-standing or off-centre stores, where sites may not be as available. More likely however is entry via take-over. Given most major UK retailers are publicly quoted, such an entry is available at any time at the ‘right’ price. Whilst it is true to note that British retailers have not been overwhelmingly successful when they have internationalised, there is emerging evidence that some leading UK retailers are now seeing success.
In a number of sectors, leading retailers have expanded across the globe, but particularly into Europe and Asia. Some of this expansion is due to opportunities to buy companies at reduced prices, and some is due to knowledge gained as international sourcing has expanded. Retailers such as Kingfisher, Tesco, and WH Smith are well known international retailers and have imported some of their experiences abroad back into their UK formats. Other smaller chains have also internationalised capitalising on niche strengths (eg Signet, Courts, Body Shop, Lush, Carphone Warehouse, Game, Thomas Pink).