6 key themes impacting small business retailers

Retailers are under great pressure on multiple fronts. Inflationary pressures, supply chain issues, the rise of flexible working, and the constant march of technology are all presenting unprecedented challenges. 

Despite this backdrop there are opportunities for those retailers that keep abreast of the wider market dynamics and actively source solutions to navigate the ever-changing business landscape. 

To help retailers on their journeys we’ve highlighted six of the key themes impacting their sector. 

1. The return of stores

One thing we’ve learnt over the years is that people like shopping in physical stores. When asked about their shopping frequency over the last 12 months across different channels, consumers chose shopping in-store as the most popular channel, at 43%, while use of mobile phones and smartphones was next at 34%, followed by PCs at 23%, according to a survey from PwC. 

This love of the shop has been recognised by retailers such as Gymshark,  which has opened a high profile unit on London’s Regent Street. Ben Francis, founder & CEO of Gymshark, has indicated that the long-term future of the brand involves a move away from its online-only roots. “When we take a step back and look at building a truly long-term brand, I think it is omni-channel. There’s a big opportunity to step into the offline market in physical stores,” he says.

This move will be followed by the forthcoming opening of a new HMV store on Oxford Street, which represents a return to the location following the closure of its original flagship four years ago. Hot on its heels will be the much-awaited IKEA store on Oxford Circus. 

The trend for pop-ups from independent brands also continues as part of the evolving high street with major landlords often offering preferential rentals for such businesses whose unique propositions are seen as positive footfall drivers.

2. Focus on supply chains

Regardless of the size of the business, supply chains are critical for ensuring products can be sourced in a timely manner. There has been even greater focus on this area by the fashion companies that are also having to take into account environmental and ethical factors.

At a recent conference Boohoo Group revealed how it is working on breaking down its supply chain in order to better understand the end-to-end processes involved. This includes considering all potential avenues for sourcing such as buying more goods from suppliers nearer the UK as well as investigating vertical integration. 

Retailers are increasingly investing in technologies to help them more effectively handle the changes across their supply chains. According to a survey from Blue Yonder 44% of executives are investing in warehouse management systems, 39% in order management systems, 36% in supply chain visibility tools, and 30% in transportation management solutions.

One area receiving much attention is RFID technology. Not only does it give much greater visibility of stock in the supply chain – from a typical 60% up to 98% – but retailers are also using it to improve the customer experience in-store. Uniqlo and River Island are among those using RFID-powered self-checkouts that can give 100% accuracy on the instant scanning of a whole basket of items thereby reducing friction and queues.

3. Re-evaluating the Direct To Consumer (DTC) model

During the COVID-19 lockdowns the only way to sell was online and the direct to consumer (DTC) digital retailers enjoyed a massive surge in sales. But many have since experienced a reversal in fortunes with online sales having experienced two full years of declining sales post-pandemic. In April 2023 they fell 3.5% year-on-year, which follows the year-on-year drop of 11.8% recorded in the previous April, according to the IMRG Online Retail Index.

Highlighting how things have changed is the news that Nike is back-tracking on its direct-to-consumer (DTC) focus and instead building back its wholesale business as it reengages with third-party retailers that it had distanced itself from when it initiated its ‘Consumer Direct Offense‘ strategy in 2017.

Nike had cut 50% of its wholesale partners since it introduced its DTC initiative and limited its wholesale operation to involve only 40 ‘strategic’ retail partners. Many other retailers, especially small independents, were effectively frozen out of receiving any stock from Nike. This is being reversed.

4. Ongoing innovation

Innovation is a never ending journey and the most recent hyped innovative technology is without doubt artificial Intelligence. Although it has been around for many years it has been deemed too out there for adoption by smaller retailers.

That is until ChatGPT launched and arguably made AI accessible to all businesses, with the most obvious area being for enhancing customer service through the likes of chatbots. Speaking at a recent digital transformation event Emma Siveyer, head of digital & experience at Three UK, confirmed: “AI is huge for us right now. Customer expectations are so high since ChatGPT came out.”

More traditional innovation is being seen around the store. Self-checkouts are an especially active area, with Aldi, Tesco, and Amazon among the many retailers to have implemented various versions of cashierless stores that use cameras and weight-sensitive shelving.

Also around the checkout there has been some experimentation with age verification and facial-recognition-type solutions but there remains much sensitivity around this area and retailers using the technology such as Frasers Group and The Co-operative are treading very carefully. 

There has also been a return to in-store digital media with retailers installing connected digital screens that can use stock and customer data to run real-time tailored promotions. These can generate incremental revenues, reduce waste, and drive advertising income.

5. Pricing sensitivity

The ongoing inflationary environment has created some tensions between retailers and their suppliers, with Tesco pointing the finger at some of its FMCG partners and suggesting they have been profiting from the cost of living crisis with their price rises. Needless to say the FMCG companies have argued strongly against such accusations but it is evidence of a fractious marketplace.

What is not in any doubt is the changing behaviour of shoppers. Exactly half of consumers are extremely or very concerned about their personal financial situation, with 22% extremely concerned, according to research from PwC.

It also found that as many as 96% of consumers surveyed intend to adopt cost-saving behaviours over the next six months, with 42% expecting to significantly decrease their spending across all retail categories. 

Against this backdrop shoppers are more likely to switch to cheaper brands of a particular product or even go without an item that they purchased regularly. This trend encompasses the significant shift to consumers buying more own-label products, which has certainly given the grocery retailers a much welcome boost to margins. 

6. Environmental 

Greater recognition of the environment is leading to retailers increasingly adopting circular economy models that encompass resale and rental. This is particularly prevalent in the clothing category.

The market for pre-owned goods reached $100 billion in 2022 and it is forecast to hit $250 billion by 2027, according to the Ellen MacArthur Foundation. This means, at that point, it would account for 23% of total retail sales.

Clothing retailers have been investigating a variety of circular initiatives including setting up their own marketplaces on their websites for customers to sell through, working with recognised third-party platforms such as The Real Real and ThredUp, tying-up with the peer-to-peer marketplaces including Depop and Vestiaire Collective, or using the technology of the likes of Trove and Reflaunt, which handles all the back-end infrastructure for trade-in and resale.

The other exciting area is rental, with GlobalData forecasting that the UK clothing rental market will grow by 62% this year and a cumulative 164% in the years up to 2026. This will take the market size well beyond its current $4.9 billion.

Further reading around retail:

• Theo Paphitis: “AI has the potential to revolutionise the way retailers operate”

• Best 7 CRM for retail businesses

• 7 best retail POS systems for shops

Glynn Davis

Glynn Davis is a business journalist specialising in the retail and food and drink sectors. As well as writing for publications including Retail Week, Ecommerce Age, Propel, Caterer and Retail Bulletin, he’s also the founder and editor of Retail Insider and Beer Insider.