Our first story this week comes from the troubled lands of UK retail. ‘Tis the season of Q1 results and many of our favourite retail heroes have started publishing their performance updates. First up was Kingfisher sharing some not so straightforward results which saw the company sales increase by 1.7%. However, this is mainly attributed to the better weather this year compared to last year (and not to mention the mixed results from the different parts of the business). It would sound better if the improvements were driven by innovation and a consistent growth strategy rather than the lack of adverse atmospheric conditions.
Moving to the more positive side of the spectrum, we have Morrisons whose LFL sales rose by 2.3% in Q1. And while the better weather certainly influenced these figures as well, it was mainly the strong performance of newly introduced or improved ranges. Morrisons is also backing up its growth with an updated digital agenda which sees the retailer not relying solely on Ocado to grow its online business. This could see Morrisons partnering up with the likes of Amazon, Deliveroo or Just Eat to enter new markets proving that digital, unlike physical retail, is somewhat less prone to get affected by the (un)predictability of British weather.
At the time of writing, we are still waiting for Asda to publish its Q1 results. The expectations are for the retailer to continue its unbroken streak of 7 LFL growth quarters. While it might sound impressive, one of the main factors contributing to this is the profit relief agreed by its parent company Walmart which allowed Asda to slash prices in 2017 to compete with the German discounter menace. Another reason for keeping the profit relief and ensuring positive sales growth results could potentially be to increase the attractiveness of a future Asda sale after the Sainsbury’s affair came to an end. It is interesting to see how factors ranging from failed M&A deals through Brexit to the British weather can impact retailers’ bottom line. The question then is, how can one be prepared for everything?
Well, one area that normally doesn’t care too much for political borders or how sunny it will be this weekend, is online. Some interesting developments have been happening on this front. It involves a very familiar antagonist – Amazon and its claim to the Iron Throne of ‘Retail-steros’ It has recently come under quite a lot of pressure from Walmart launching free, one-day shipping on 220,000 items in the US (for purchases above $35). As a response Amazon has committed to $800 million in fulfilment centre upgrades to offer the same to their Prime members. It seems that the tables have turned – Amazon will be trailing a competitor rather than the other way around. It shows that the great retail war is far from over, but only in this war, the civil population (a.k.a. consumers) are very much benefiting from the clash of the behemoths. Other companies such as Target are joining the race, albeit only in the US so far, but if it can be done in the vast land of the free, why shouldn’t it be as economically viable in the smaller and very much well-connected Europe.
The battle against Amazon spans across multiple fronts, not just fulfilment. Loyalty schemes are seen more and more as a differentiating factor in the Amazon era. A plethora of US retailers are spending billions of dollars to overhaul their loyalty programmes to become more attractive to their members but not at the expense of their bottom lines. So if you want to boost your next quarterly results, you’d better start reading your customers’ needs and wants better through their data in order to offer them something that is not for sale on Amazon – emotional connection and regular moments of delight through your products and services. Bargains and speedy fulfilment will soon become hygiene factors as shown by Amazon and Walmart. After this happens the question for retailers will be: what do we do now? Well, see above…
Senior Consultant, Customer Engagement