A brave new world
How can retailers remain profitable?
Following a period of unprecedented change, the retail industry is facing an environment where margins are increasingly under pressure from rising costs, lower pricing power and the need to invest in digital transformation. Retailers are still competing with each other but also face new competitors who have different operating models and cost bases and this rate of change is showing little sign of slowing. Retailers are already responding to a number of structural and operational changes in the market but are they moving fast enough?
The challenge ahead
Retailers enjoyed a strong year of growth in 2016 driven by rising consumer incomes, lower unemployment and falling inflation.
Sales rose by 3.3% in value terms more than double the rate in 2015.
However growth was not shared equally across the industry, with physical stores increasing by just 1.1% and online sales climbing by 19.2%.
Strong growth in sales has not lead to a commensurate increase in profitability. Margins have remained under pressure as prices have fallen for most of the last five years.
Looking ahead, 2017 looks set to be more difficult for retailers, leaving many challenges to consider.
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