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Oxford Institute of Retail Management

Oxford Institute of Retail Management


What future for retailing?

Times are changing

A headline in a recent issue of the industry’s trade journal Retail Week verged on the apocalyptic: “100,000 retail jobs cut this year: and the worst is still to come”. Given that this headline was published before the downfall of Woolworth’s and MFI, and before the worst Christmas sales period known to the majority of those working in the sector, many people might be forgiven for thinking that retailing no longer offers the kind of attractive career destination it once used to.

Those people would be mistaken. Whilst retailing in the UK has been in the headlines for all the wrong reasons recently, its medium to long-term prospects remain strong. In any case, a largely hidden role of a recession, as we discovered in the early 1990s, lies in clearing out the “dead wood” of firms that have lost their way, or which have developed increasingly fragile business models. This kind of fallout leads to the fittest and most adaptable surviving, and the generation of exciting employment opportunities by new entrants to the sector.

And for all the doom and gloom, retailing will remain a substantial part of the UK economy. Retail sales in 2007 accounted for fully one fifth of that economy. The sector generated 8 per cent of the UK’s GDP and employed 11 per cent of the total UK workforce in that year; over two million people. Retailing is essentially a local business and benefits local economies. A typical regional shopping mall generates a quarter of a billion GBP in capital spending in a local area from its initial construction and over 50 million GBP per annum thereafter through supplier spending and wage spending by employees - over and above sales generation.

This kind of scale has only come about in the last 30 years. Retailers were once seen as simply resellers of products produced by others, whose only role was to enable the flow of goods and services between suppliers and consumers. Today, retailers are powerful brands and economic actors in their own right and the largest of them are developing strongly internationally. For example, whilst Tesco is the UK’s biggest private employer, with a quarter of a million employees, and is still one of the top ten fastest growing companies in the UK, this is eclipsed by its growth overseas, where half the company’s selling space is now outside the UK.

But retailing as we know it faces several significant challenges, and these are not just as a result of the recent downturn. The retailing that we see today is the product of several main drivers: economic, social, features arising from changing levels of competition and innovation (including technology), and those that come from evolving regulation in areas such as planning and sustainable development.

For much of the past fifteen years, the UK economy’s development has been underpinned by a massive growth in domestic consumption. But recent concern over rising levels of personal debt and more general economic uncertainty has led to that growth faltering. The pressure has therefore been upon retailers to clearly communicate fair, if not low, prices to those consumers for whom it is important. Those retailers which can continually demonstrate ‘value’ in their offer will win out against those retailers with muddled price points or value propositions. At the same time, retailers themselves have been exposed to cost inflation in much the same way as consumers, not least in terms of energy, property and transport. For example, the introduction of the National Minimum Wage, wage inflation and increased staffing levels has meant that the proportion that employment costs comprise of UK retail sales has increased from 10.5% to 13% over the past ten years.

Secondly, disruptive innovations driven by technology, such as e-commerce, have resulted in significant challenges for the sector. Incremental growth in e-commerce, either by so-called ‘pure play’ retailers or by conventional retailers trading through electronic channels contributes to productivity growth, stimulates innovation, reduces congestion and generates a need for higher skilled jobs than have been conventionally offered by retailers. For example, the anticipated annual growth rate between 2007 and 2012 for retail online spending is 14%. The expectation is that online sales in the EU will overtake those in the USA by 2011. New online businesses such as clothing retailer ASOS, launched only in 2000, are growing exponentially. ASOS attracted over three million visitors per month and generated over 80 million in revenue in 2008.

Future challenges

Finally, as in other sectors, retailing has also needed to come to terms with the contemporary challenge of the so-called “triple bottom line”, where they must demonstrate environmental , and not just economic and social, performance. Partly because of their position in the value chain, in being closest to the consumer, retailers have become reference points for their customers with regard to topical socio-economic or lifestyle debates about the environment, health, nutrition or fair trade. It is also in the nature of retail businesses to strive to understand their customers and to quickly respond to new trends, needs or wants and, in the process, retailers’ brands have increasingly to function as guarantors for product quality, traceability, authenticity, safety, reliability and convenience. For example, the values expressed by Lush, the cosmetics grocer, lead it to buying only those ingredients which are not tested on animals, using vegetarian ingredients, made by hand with the minimum of packaging.

There is a potential dilemma for some firms in that the pressure towards providing value for money formats pushes firms towards cheaper, and potentially less sustainable, sources. Getting the balance right in response to consumer pressure is difficult.

So where does this place the potential retail recruit? Faced, it seems to me, with some interesting and exciting opportunities. Firstly, retailing is a "gateway" employer. In its sponsoring of Skillsmart Retail as one of the first Retail Sector Skills Councils in 2002, the Government demonstrated the importance of the sector in terms of job creation. Today, 28 UK universities now deliver 42 retail-specific degree courses. Secondly, it is still possible to go further and faster in a retailing career than in many others. Discount grocery retailer Aldi’s graduate recruitment programme, for example, offers a very competitive rewards package leading to a senior operational management role within two to three years. Finally, innovation and entrepreneurship in e-commerce and multi-channel retailing is leading to new forms of networks and organisations emerging within the distribution sector and new employment opportunities for skilled professionals.

This article was written by Jonathan Reynolds, and was originally published by Inside Careers.