The retail sector is a pivotal and positive element of the Irish business ecosystem; creating employment and generating commercial activity in every town and village nationwide. Unfortunately, the majority of the narrative in respect of Irish retail in recent months has focused on stubborn inflation levels, rising interest rates and depressed consumer sentiment. While these remain critical issues, given the breadth and scope of the sector (on a subsector, location and format basis), a more nuanced and balanced commentary is appropriate.
As I engage with retailers on a daily basis, it’s heartening to see progressive operators continuing to invest in their store network, omnichannel framework and energy efficiency – while delivering a robust financial performance. To succeed and thrive, retailers must focus on becoming “future fit” in 2023 as they position their business model, marketing, stores, and operations to overcome and grow through the economic issues outlined above. The following areas will be key in shaping this development of the retail sector:
Leading Irish retailers now recognise that they need to be channel agnostic – able to serve their customers through an integrated mix of online and physical stores in an efficient, swift manner. As customers, our expectations are increasing every year – we want to be able to browse online and in-store, get real-time pricing and next day delivery for a wider range of products.
Irish retailers are now delivering best in class “end to end” systems – providing us the consumer with options to click and reserve, click and collect, walk through virtual showrooms/stores and personalise products. Retailers that deliver a user-friendly, reliable hybrid model utilising the best of online and physical stores are best positioned to maintain loyalty in a competitive marketplace.
A good example of this is a retailer who recently invested in their management systems integrating all stores with their online portal. Now when a customer orders a product – instead of being fulfilled from a central warehouse if the retailer has a physical store within 50km of the customer’s address – the order will be fulfilled from this store instead. This reduces delivery time, fuel costs/carbon footprint and creates a better customer experience. Expect to see more retailers utilising their physical stores as “micro-fulfilment hubs” – with the in-store and online strands acting in concert.
In a low unemployment environment, the recruitment and retention of personnel remains a critical challenge for the sector. People development strategies that deliver upskill and career progression opportunities need to become embedded within the retail ecosystem. This people focused framework should be proactively supported by the smart use of automation to create a better work environment and more engaged staff.
Retail focused technology can absorb non-productive labour intensive tasks allowing staff to engage with customers, generate more sales and nurture loyalty. Next year will be a game of brinkmanship between driving efficiencies and maintaining service levels/staff engagement. Automation has a key role to play in this respect.
Retailers need to clearly communicate their “value” bona-fides both in-store, online and in their marketing material. What is the current consumer view of their store/brand? Sometimes a market perception of being “too expensive” can be based on the layout or the look and feel of the store, or even the tone of advertising material. This may not align with the reality of the proposition.
I expect 2023 will see even more Irish retailers broadening out their Irish and EU based supplier network – effectively on-shoring their supply chain
Independent, family-owned retailers in particular need to demonstrate that “value” has many constituent parts – quality, provenance, accessibility, after-sales service and price. The adoption of a price-only led offer can lead to a discount spiral and is unsustainable in the long-term. An appropriate “own-brand” offering can be used to meet the price element of a “value” message while also bolstering range and preserving margin during inflationary times.
Brexit and product sourcing difficulties, driven by Covid-19, triggered an examination by many retailers of their existing supply-chain model. I expect 2023 will see even more Irish retailers broadening out their Irish and EU based supplier network – effectively on-shoring their supply chain. Given rising energy, fuel and transportation costs – this will support retailers in addressing the dual objective of managing their overheads while reducing their carbon footprint. Along with these benefits, it will also ensure that these retailers meet Government, supplier and customer expectations in respect of carbon emissions into the future.
As supply chain systems evolve and require more investment in robotics – retailers are faced with two choices – own it or outsource it. International retailers such as American Eagle Outfitters and Gap now offer “supply chain as a service”; orchestrating manufacturing, transportation, or storage execution to share capacity with other brands. Some retailers will opt to outsource completely – moving resources, talent, and capital into areas such as sales, marketing, customer experience, R&D and data analytics.
The retail sector globally has been slow to implement Environmental, Social and Governance (ESG) strategies within its core strategic framework. If the retail sector is to continue to act as the preferred link between more ESG focused brands and consumers, it has to step up on ESG performance or risk being removed from the equation. Retailers are a key bridgehead and have a vital role to play in educating consumers about the story behind their products, where they are sourced and their environmental footprint.
Responsible retailing is here to stay, and Irish retailers need to ensure they capitalise on this opportunity in a proactive manner. Rising energy costs have triggered widespread investment in energy efficient systems and equipment – this progress needs to be maintained to deliver a rounded ESG strategy focused on the preservation of environmental, societal and community values.
Owen Clifford is head of retail sector at Bank of Ireland
