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Retailers Face Challenges from Online, and Informed Consumers
- 23 September 2013
The retail industry is in a state of flux. Marks & Spencer have recently closed four Irish shops with the loss of 180 jobs, citing “difficult trading conditions and poor outlook for the retail sector” as the reasons for same. In 2011, we saw major retailer Superquinn was involved in a pre pack receivership sale to Musgrave, the first of its kind in Ireland. Superquinn, which had traditionally positioned itself as a high end retailer, struggled to keep pace with the increasing downward pressures on supermarket prices. The subsequent sale to Musgraves, who own the Supervalue chain, demonstrated the confidence in the buoyancy of the Irish supermarket sector, despite the increased competition.
Other global retailers such has Debenhams and Tesco appear to have enjoyed great success in the Irish market, although this can be difficult to assess, as most Supermarket chains in Ireland do not reveal their profit figures for Irish operations. The figures published tend to reveal turnover, and the waters are also muddied by the inclusion of wholesale activities for the likes of Musgraves. This makes it difficult to calculate the profit margins applied by the Irish supermarkets. Tesco claim that revealing their profit margins will place the retailer at a competitive disadvantage, but there are strong claims that the margins of retailers in Ireland are much higher than their British counterparts.
The lack of knowledge in this area is a rare anomaly in consumer trends however, as the continued growth in smart technology and internet shopping has resulted in consumers becoming more informed than ever about their products. It is natural that a consumer will seek the best price for their product, and the internet has, for a long time, assisted in this aim. However, the emergence of smart phones and consumer applications has made it much easier to perform these comparisons.
One such example is the new “Publin” app, which provides price lists for the local pubs based on your location, as well as allowing users to submit reviews. It encourages participation from the public and indeed the pubs themselves. Large supermarket chains are also availing of such technology, with LIDL, ALDI, and Tesco apps all informing mobile users of special offers as well as directing you to your closest store. While these retailers appear to be embracing such technology, the amping up of loyalty programmes indicates that the battle for customers is at its most competitive. Others have been less adaptable, and high profile business failures such as Kodak, demonstrate the perils of failing to invest in research and development. Kodak did not recognise the opportunities in digital camera technology early enough, and despite eventually investing heavily in the area, the company had lost too much ground to competitors.
In addition to moving online, highstreet retailers must also provide increased incentives to bring customers into the bricks and mortar of their stores, or risk losing market share. Apple have done particularly well in this area, by providing a customer experience investing heavily in their design and layout. Despite the changing model, certain business can still entice customers into their stores. Jones Lang LaSalle published a report last year, which illustrated the importance of locating luxury stores in cultural areas containing high end restaurants, hotels and art museums. In order to compete with their online counterparts, physical shops and their employees must now become more tuned in with consumer needs, thus adding value for those who make the effort to visit their shops.
Hodges Figgis in Dublin appear to have managed to differentiate themselves significantly enough to compete with their online rivals. Their aim is to provide a high level of customer service, with informed staff and by hosting different signing events with well known authors. It has allowed them to continue in business despite being in an industry which is surely one of the most vulnerable to online competitors, such as the monster that is Amazon.
Hughes & Hughes booksellers succumbed to the pressure of this increased competition, and were placed in Receivership in 2010, with debts of €9 million owed to Ulster Bank. However, Derek Hughes, who founded the stores was able to acquire the naming rights from the Receiver later in the year, and this year announced that they will become a franchise of the Easons & Co. with three new shops set to open in Dublin and Clare.
There is one clear winner in these trends, and that is the consumer. As they become increasingly informed about price and product, it is up to retailers to provide value for money and a high level of customer service in order to retain their market share.
Looking at the figures, retail corporate insolvencies to end of August this year stood at 133, a 10% drop compared to the 149 recorded during the same period last year. Despite this positive year on year comparison, the overall KBC Ireland/ESRI Consumer Sentiment Index decreased to 68.2 in July, from 70.6 in June which suggests confidence is still fragile and very vulnerable.
Source: InsolvencyJournal.ie - Retailers Face Challenges from Online, and Informed Consumers
