The Changes and Actual Strategies in the UK Retail Sector - Coursework Example

 Retail Report This report is divided into two sections. The first part of the report details the changes taking place in the UK retail sector, while the second part of this report examines strategies that may be valuable to retailers in dealing with these changes. One of the most significant changes that are impacting upon the UK fashion retail market is the deteriorating state of the economy. Since the U.K. is currently going through a recession, like for like sales are likely to decline in 2008-9 by at least 1%, because customers are pulling in their horns and reducing their spending in the atmosphere of economic uncertainty that prevails (www.verdict.co.uk). The unemployment rate has increased to its highest level in 17 years, as a result disposable incomes will remain flat in 2009 and consumption is forecasted to reduce by 1.2% in 2009 with credit being hard to get. (BBC News Report, 2008). The reduction in disposable income may impact negatively on the fashion retail market, because people tend to curb spending on fashion items in favor of necessities such as food. On the positive side however, it is also possible that with the increasing difficulties in obtaining credit, more people will be unable to purchase big ticket items such as homes and will opt to spend their money on clothing and footwear instead. In a restrictive economic environment, supermarkets marketing fashion apparel are likely to enjoy higher levels of customer support as compared to specialist fashion outlets. (www.verdict.co.uk). With rising costs of gas and less of disposable income, consumers are likely to target their purchases to a supermarket where all goods are offered under one roof. Specialist fashion retailers may be faced with rising costs in rent, etc added to which the costs of sourcing products from China are likely to increase which could further decrease the margins available to specialists. (www.verdict.co.uk). Since the U.K. economy has been declining throughout the last three successive financial quarters, the value of the pound has been falling, thereby giving rise to outsourcing exchanges with smaller margins of profit. In such an environment, there is likely to be an increasing squeeze on midmarket retailers, many of whom may be forced to exit the market, since they offer neither low price for competitiveness, neither do they offer special value for their brands. Howard’s decision model shows that consumer purchase behavior is a component of (a)brand recognition (b) attitude towards the brand and (c) confidence in judging the brand, all of which make up the buyer’s image of the brand.(Kent and Omar, 2003). Fashion retailers with top brand names like H&M with a 2008 brand value of 10,366 million Euros and Zara with 4112 million Euros(Interbrand, 2008:26) are likely to retain their market niche despite the recession because of their strong brand value but the tightening credit market may cause significant problems for midmarket fashion retailers. In the tightening environment, there is an increased focus on brand image, because it is only the strength of the brand that can function as a spur to retain sales in an economically restricted environment. Hence, those retailers with a strong brand image are more likely to survive the turbulent financial environment. Specialist retailers are predicted to also benefit from the increasing space that is becoming available through new shopping developments that are set to open, such as Liverpool One, London’s White City and the Bristol Broadmead extension. (www.verdict.co.uk). A trend has been emerging for specialist fashion retailers to move into larger outlets because they are increasingly beginning to market a more diversified range of products; this trend appears likely to continue in the coming years, despite the recession, although the rate of expansion may be slower. Fashion retailers tend to target fashion conscious young consumers, but the demographic composition is the population is changing, with a higher percentage of mature consumers. Additionally, demographic changes that are forecast for the next decade suggest that mature consumers will become more important for the industry.(Birtwhistle and Tsim, 2005). As a result, retailers may need to target this section of the market and understand its needs, so that they can target products to mature consumers. Recommended Strategies: In order to provide the impetus for sales in a restricted economic environment, improving brand image through innovative means is a vital factor. Since increased space availability has also been forecast, fashion retailers may be able to effectively combine both these elements to design their store formats in such a manner as to provide the customer with an enhanced shopping experience that is more likely to result in a sale. For example, Apple’s new store In New York’s Fifth Avenue has no shop front at all. Rather a huge transparent cube has been constructed on the curb, which invites shoppers to move down under the ground to enter the store.(Interbrand, 2008:21). Similarly, the Sephora store designs are only in black and white, with black denoting perfumes and white denoting cosmetics – which are the only two products the store sells. They are arranged in simple, alphabetical fashion, making it easier for consumers to locate products and thereby improves the shopping experience and provides a spur for sales. Another strategy for fast fashion positioning is to adopt QR or CM. QR or Quick Response involves the supply chain and aim to achieve an improvement within the supply chain systems. It is triggered by the sales of products, which in turn activate a sequence of events within the supply chain tailored to ensure that a quick response is provided in meeting the requirements generated by the sale. QR is termed as such because its focus is to improve efficiencies within the supply chain in order to achieve profitable levels of growth. Essentially, it involves bringing about changes in the way retailer-supplier relationships are managed and involves a collaborative effort between them.(McGoldrick, 2002) Category management also requires a collaborative effort but this may differ from Quick Response because it often requires internal restructuring of the retailer. (McGoldrick, 2002). Management is required to take a broader view of market opportunity and the manner in which the traditional business functions should be interrelated. The heart of retail based management is the intersection of buying, merchandising and marketing; hence under the CM system, the customer will be placed at the centre of business decision making. Adopting a CM and/or QR approach could be helpful to retailers trying to cope in an economically restricted environment, because it may be successful in stimulating sales by understanding customer needs and tailoring the chain supply system to be responsive to those needs. Under the CM system, each product category must reflect the manner in which each retailer’s consumers define that particular category. Based upon information collected from consumers on each category, retailers can then tailor their products to reflect the optimum range preferred by their customers, because these are most likely to generate sales. It is also important for fashion retailers to understand the fashion needs of mature consumers, because they are likely to continue to form a dominant section of the U.K. market. Category management provides the opportunity to understand the needs of these customers and what kinds of fashion products are likely to appeal to them. If the supply chain is then modified to generate products reflecting these tastes and preferences, this vast market can be successfully tapped to improve productivity of the retailers. Another strategy retailers can adopt is to participate in international retail. Since the domestic market in the UK is stagnant or saturated, and there is increasing brand recognition of fashion products in foreign markets, retailers may be able to survive in business and even become profitable by targeting other markets. (Kent and Omar, 2003). In the global economy, many countries are now open to the entry of foreign firms and retailers may be able to successfully capture markets in those countries. But on an overall basis, improving productivity within the UK market in the near future will require that the mature consumer market is effectively tapped, retail space creatively designed to meet consumer needs – especially by gathering products under one roof to enhance convenience for the consumer –and supply chain management improved to generate greater efficiency. There are two vital factors that must be taken into consideration by retailers and action taken on these factors to be successful. These are (a) placing the customer at the centre of decision making (b) collaborative relationships between retailer and suppliers. For example, the clothing retailer Zara is successful precisely for these reasons. Its products closely match customer needs and expectations and there is a close relationship between suppliers, designers and customer service personnel at Zara, all of which helps the retailer to successfully market its brand. The Company produces fresh designs periodically and stocks its stores with fresh clothes every week on a data known to customers. It does not offer clearance sales and removes clothes which remain unsold within a specified time period. It transports products in small quantities, using transportation that may not be cost effective from a traditional supply oriented perspective, but this generates huge profits in sales for the retailer because of the variety and limited availability of its products. Hence, such strategies are likely to prove beneficial to deal with the changing UK market. References: * BBC News Report, 2008. “U.K. economy already in recession”, BBC News, October 20, 2008, http://news.bbc.co.uk/1/hi/business/7677436.stm; * Birtwistle, Grete and Tsim, Cayan. (2005) “Consumer Purchasing Behavior: An investigation of the U.K. mature women’s clothing market”, Journal of Consumer Behavior, 4(6): 453-464. * Interbrand, 2008. “Brands that have the power to change the retail world: Top performing European retail brands 2008”, http://www.interbrand.com/images/studies/Interbrand_EuroRetailReport_030408_web.pdf; * Kent T. and Omar O. (2003) 'Retailing', Houndmill, Basingstoke: Palgrave MacMillan * McGoldrick, P.J. (2002) 'Retail Marketing', Maidenhead: McGraw Hill * UK retail Futures 2012: Clothing and Footwear: Annual forecasts to 2012.”, http://www.verdict.co.uk/Marketing/dmvt0441m.pdf; Read More