It’s tough and it’s only going to get tougher, as the Cost-of-Living Crisis bites further into consumer spending and retailers are rocked by the triple headwinds of inflation, labour shortages and supply chain challenges. Whether we like it or not, Home and Garden expenditure is a discretionary purchase for consumers and with the choice of updating your home or spending money on having a great Christmas or taking another much-needed holiday, I think we all know what’s going to win that battle.
But despite these challenges including the recent political uncertainty in the UK, as we look towards 2023, for the established bricks’n’mortar retailers and merchants I don’t believe the picture is looking quite so gloomy as we might think.
Demand for Trade remains strong
Firstly, let’s look at Trade, where demand remains strong. At the recent Wickes Interim Results presentation in September, CEO David Wood advised that their Trade pipelines were still looking healthy, with 1 in 4 of their trade customers having a pipeline of over 12 months and with almost 60% having a pipeline of over three months. This was broadly unchanged when compared to a similar piece of research from earlier in 2022.
Moreover, despite the growing economic challenges, two thirds of tradespeople have not seen any jobs cancelled or postponed. So, for those retailers and merchants with a strong trade business, it looks like 2023 may not be a disaster after all.
When it comes to consumer demand, although Wickes accepts there is evidence of a scaling-back of some projects as the cost-of-living crisis deepens, their survey suggested only 1 in 10 projects were being cancelled. In fact, their research indicated that engagement in DIY remains high, with 90% of households currently engaged in a project. Unsurprisingly indoor projects are the most popular.
Significant Household Savings
There could also be a clue here in the savings that have been accumulated by households during the last two years of Covid. According to the latest Office of National Stastics (ONS) figures (published in September 2022), UK Households still have £42bn of savings in their accounts. Except for the Covid years 2020 and 2021, that is the highest amount of savings since the data was first collected in 1963.
Although the political and economic uncertainty is leading to lower consumer confidence and in some cases, people holding onto their savings, it’s certainly not the time to batten-down-the-hatches and move into survival mode. On the contrary, now is the time for retailers to convince consumers with a combination of inspirational projects and affordability that it is a good time to invest in their homes, with the knowledge that whatever they do to their homes is likely to add value long term.
The coming e-Pocalypse
In addition to the strong trade market and consumer savings, there’s another reason to be positive if you’re a retailer or merchant with a nationwide store network.
It appears that despite the extreme disruption of Covid, as we leave the pandemic in our rear-view mirror, it’s not quite had the long-lasting impact on the retail landscape that we were all expecting. I’m sure at one point, we all thought Covid had played long-term into the hands of the growing e-commerce businesses. With consumers all stuck at home and buying online, this resulted in two years of unexpected sales, profits and share gains for them. And this all happened as their established bricks’n’mortar competitors battled with numerous lockdowns, social distancing and supply chain disruption.
Although online sales in the UK as a proportion of total retail sales jumped to a maximum of 37% during lockdown (it was at just 20% in January 2020); post-Covid, this has slipped back to only 24%. This follows a similar trend that was occurring pre-Covid, indicating that the Pandemic has had no lasting impact on e-commerce sales whatsoever.
But the impact on ‘store-less’ e-commerce retailers is even greater. With the escalating costs of new customer acquisition, the necessary stock investment and the requirement to compete with faster and more efficient last mile deliveries, their already small margins are being squeezed further.
It’s now almost impossible for e-commerce retailers to compete with the established, digital savvy, physical store retailers in the Home Improvement sector. Even next day or same day delivery from sellers on Amazon or eBay cannot match the rapid one-hour delivery or 30 minute click’n’collect offerings from retailers such as B&Q, Screwfix and Wickes. This is a fundamental shift, caused by these established retailers investing heavily in their supply chains to cope with lockdown demand. More importantly also, the growing realisation that stores are no longer a fixed-cost drain on their resources, but in fact are the all-important point of difference. That means customers can get hold of the products they need faster and far more conveniently than waiting for a home delivery.
This shift has not escaped the influential, US based research firm Forrester, who recently published their annual Retail Predictions for 2023. Under the title ‘Bold shifts in retail models will be the salve for uncertain times’ they recognise the fact that as 2022 comes to an end, the headwinds including inflation, labour shortages and supply chain challenges are dominating the retail landscape.
One of their five key predictions for 2023 is described as ‘Retail’s e-pocalypse’ referring to the Big Squeeze facing the medium to large Pure-play e-commerce retailers. Startingly, they go on to say that mid to large size pure-play retailers have no choice but to choose at least one of the following strategic options: –
- Open their own physical stores.
- Expand wholesale partnerships with other retailers.
- Create shop in shop locations
- Close their virtual doors.
We’ve already started to see moves in this direction in the UK, with a successful online retailer AO.com partnering with Homebase. AO has signed an initial five-year term agreement with Homebase to supply, install and recycle appliances, whilst Homebase has agreed to purchase all their major domestic appliances and audio-visual equipment exclusively from AO.
The agreement provides Homebase customers access to the whole AO range at AO’s “internet” pricing, and to AO’s logistics, including to AO’s recycling scheme – it feels like a perfect match.
Summary
We can’t hide from the challenges of inflation and the impact of the cost-of-living increase on consumers but the established retailers and merchants with a network of stores, should not be fearing 2023 in the same way as other industries. The ongoing demand for trade, the opportunity created by the large reservoir of consumer savings and the ability to now out-play and out-gun online competition for the first time, puts these businesses in a strong, strategic position for 2023 and beyond.
Steve Collinge is an international speaker, influencer, retail commentator and is Managing Director of Insight Retail Group Ltd and executive editor of Insight DIY. You can follow Steve on LinkedIn and Twitter.
