I was not surprised at this morning's headline. Consumers are choosing to save more and spend less. Wow! Why, am I not surprised to hear that the British and American savings rate is now over 5% (compared to around 0% until just recently) and the French ratio is up to 16.5%?! After a decade or so of partying and the subsequent financial hangover, this is not shocking - just rational behaviour...at last.
However, this deleveraging of personal balance sheets is a disaster in the making for retail. Why? The financial arguments speak for themselves and don't need elaboration here. Despite the QE money presses, I'm convinced that we are in for a prologed period of deflation.
But let's get beyond the financial. The fact that consumers around the world are tightening their belts is a disaster for retail because it comes on top of a deeper social malaise. Put bluntly, retail has become increasingly out-of-touch with society and the road back will be long and steep.
Here are 3 killer arguments to illustrate:
1. The biggest social trend we know today is the Feminisation of Society. But retail is mostly run by men, designed by men, stocked by men. When I worked for Boots The Chemist in the late 1980s, we had 90% of British women crossing the threshold of our network of stores at least once a month. And only one Board Director was a women - and she was a Non-Exec! Have things improved much today? Hardly.
What does this macho culture lead to? It gives us, for example stores run on purely functional, rational lines. Men like rationality, so that's normal. But women prefer emotionality. Relationships count for more, than, for example, efficient queuing. Retail is getting its service priorities wrong.
2. The green revolution is growing, as we all know, and ecological policies are entering all sectors of our lives. From future environmental taxes to the possibility of legislation to enforce loft insulation, the social and political forces are provoking fundamental change. Retail is particularly
vulnerable with its vast property portfolio and it's out of town landgrab. Surburban malls will become 'stranded assets' in next to no time, when the green lobby chips away at consumers' use of cars. America's retail will be especially hard hit when consumers drive shorter distances and 'slumurbia' takes root. Retail is getting its location priorities wrong.
3. For years now, I've heard the argument that retail will survive the onslaught of e-tail because people will always need to touch and feel the merchandise and, in any case, retail is 'an enjoyable day out'. What planet do these commentators live on? For all but a few (young) shoppers, retail is a painful, frustrating experience. It's increasingly boring too! For all the talk of retail theatre, we have clone High Streets, copy-cat 'white box' designs and similar merchandise. No chain retailer is taking any risks - and it shows. But a key social trend is pleasure seeking! No wonder, people are diverting their money into holiday experiences and away from retail. What use is French Connection when I can have France itself? Retail is getting its mission to innovate wrong.
I could go on and on. Retail today is in fundamental mis-alignment with more than 10 social dynamics. For years this went unnoticed as the tide of easy money raised all boats. Now that the tide has gone out we can see who has been swimming naked - and most retailers have their bums showing! They need a kick up those same bare backsides. And in these straightened times, the need for a shake up has never been greater.
The message to all retailers, then, is that you need to rejuvenate! You must align with today's cultural motivations and you need to future-proof for the social trends to come.
