The KPMG/SPSL Retail Think Tank has warned the industry that the current retail culture of constant discounting, sales and promotions is unsustainable and likely to lead to increasing numbers of insolvencies. Retail in the UK is at a turning point and requires a new set of strategies to survive.
In its latest White Paper the Retail Think Tank concludes:
- The use of sales, promotions and discounting has fundamentally changed away from a pure clearance role to a range of more tactical and reactive purposes.
- Sales, promotions and discounting affect shopping behaviour in a way that can be detrimental to the sector. It also has the potential to erode both retailer brands and the in-store experience.
- There is a lack of transparency of the level of the effect of promotional activity on retailer health or future prospects.
- If discounting programmes continue on their present path, the situation runs the risk of becoming untenable for retailers in the longer term.
- Sales growth by value has slowed while sales by volume have increased. This has meant negative price inflation in some sectors, obliging retailers to sell more items just to stand still let alone grow.
- A more scientific approach to pricing strategy is called for, which optimises demand against price throughout the product life cycle.
The retail analysts recommend that retailers make efforts to add value to drive sales rather than reduce prices, predicting that those who focus on their value proposition and use sales and discounts/promotions as a planned, strategic tool are most likely to be more successful.