Simon Geale

16 November 2020
Topics in this article
  • Cost Optimization
  • Retail
  • Risk & Resilience

Christmas is always a crucial time of the year for retailers, but this one is shaping up to be a fight for survival.

Footfall on the high street was already predicted to be down by about 60% in December, so the timing of lockdowns across the UK’s devolved nations has been devastating. The vast majority of retailers are still reeling from the spring lockdown, and they will need to act decisively over the Christmas period to recover the losses that have accumulated throughout the year.

The months ahead will be difficult, and a lot of retailers will not make it through to spring next year, but what lessons have retailers learnt from the first lockdown and how can they ready themselves for the period ahead?

Proactivity is key

The start of the pandemic was a case of watch and wait for most retailers, but proactivity will be key to survival in this next phase. Retailers must take the initiative in devising new ways to interact with their customers and ensure they communicate this effectively.

The pandemic has rapidly accelerated the encroachment of the e-commerce giants on traditional players. It is essential that traditional retailers quickly initiate some form of promotional dialogue with customers to salvage market share and survive the period ahead.

We are already seeing many retailers that traditionally rely on their bricks-and-mortar presence are turning customers towards services like click and collect in an attempt to stave off the “Amazon effect”. All of these businesses will have to push hard on marketing and ensure they have as many open channels as possible over the coming months. We know what to expect from lockdowns now, so retailers will have to fight for share of wallet.

Christmas is coming early

With lockdowns upon us, consumers are using this as an opportunity to get their Christmas shopping done early this year. Retailers will act decisively to take advantage of shifting consumer behaviors, and we are already seeing this in the acceleration of the promotional machine of Black Friday.

Black Friday marks the start of the busiest three months of trading for most retailers, and it will take on more of a festive feel as the discounting starts now and runs through Christmas into January.

The day has become a key seasonal benchmark and can represent huge value for retailers, but it’s up to each retailer to define what that value is. Is it a day to sell off old stock at low margin or is it a day to market hard, protect margins and lead into Christmas trading?

With the extension of the Christmas trading period, retailers may feel constrained by the “pile it high, sell it cheap” image of Black Friday. This may lead to a less aggressive approach in marketing and promotions as they seek to elongate the sale period and protect margins.

Despite the extension of the promotional period, sales will remain lower this year due to lower disposable income; in-store restrictions and the prospect of a less social Christmas. This reduced purchasing power will make the early Christmas period a key battleground for retailers as they look to bolster their books for the period ahead.

Acceleration of digital

The digital shopping experience has made huge leaps during the pandemic, and we expect this to sharpen further as we enter the festive period. In the medium term, all retailers are going to have to be E-tailers and create a virtual experience that is new and exciting for consumers. In a world so dominated by players like Amazon, it is essential that smaller retailers quickly enhance their online offering in order to beat the online giants at their own game.

This is going to take investment, and business models will therefore change, waste will be cut, and supply chains restructured to suit this ‘next-gen model’. In a low margin sector, this means an influx of outside cash will be needed, and we expect to see multiple changes of ownership and substantial new investment through the remainder of 2020 and into next year. These new investors will not waste time in cutting costs and implementing digital strategy.

What will dictate survival?

Three key elements will determine which retailers survive through to Spring: healthy cash reserves; a variable cost base; and a responsive supply chain. These three elements will offer retailers the flexibility to react and adapt their business strategy in line with volatile consumer behavior.

A lucrative Christmas trading period will underpin all of these elements. The next few months of trading will therefore dictate which businesses survive through to the Spring.

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