Finding a competitive advantage during global uncertainty

Brian Walker & Vikki Weston

7th Jul 2016

“Knowledge is an unending adventure at the edge of uncertainty.” –  Jacob Bronowski

With all the uncertainty in the world right now, from the unexpected Brexit vote, the uncertain Australian election result and the potential that Donald Trump may become America’s next President, it is no surprise that the retail sector is feeling the effect of consumer uncertainty.

However we must remember, now is actually the time to look forward, be proactively growing, and a great opportunity to gain significant competitive advantage in the long run. With the new financial year upon us, it’s time for retail owners and advisors to get to work and leave the politicians to their state of limbo.

Consumer confidence will always be fragile during a prolonged period of political instability. While consumers may tighten purse strings and realign spending priorities, they will not stop spending altogether. Therefore, retail leaders must reassure their workforce, and use the prospect of impending change to think afresh.

By way of example, our British partners tell us that the biggest risk around Brexit comes from the accelerated fragmentation of Europe affecting supply chains. In order to keep prices down and to deliver the best possible choice for consumers, retailers’ top priority in the short term must be to ensure the continued ease and minimum additional costs of importing EU goods into the UK for sale to customers.

Retail Week editor in chief, Chris Brook-Cater, was quoted quite rightly saying, “For all the turmoil wreaking havoc in markets today, a new path can be found. And the short-term uncertainty must be met with confidence and a sense of purpose that a liberal, prosperous, progressive future is in our grasp”.

Taking a look at recent reports on consumer confidence, it becomes clear that retailers need to lead consumers on the journey of looking forward. It was reported that the ANZ-Roy Morgan consumer confidence index fell 1.7 per cent to a level of 116.8 during Brexit week, but it remains above the monthly average since 1990. of 112.8. as Australians take heart in the domestic economy rather than worrying about the Brexit.

ANZ head of Australian economics Felicity Emmett commented that low interest rates and the ongoing strength in the housing market are supporting households healthy assessment of their own finances. “The slight drop in confidence in the week was largely driven by deterioration in consumers’ views about the short-term economic outlook. Respondents were 9.0 per cent less optimistic about economic conditions in the next 12 months, however they were only 0.9 per cent less positive about conditions over the next five years,” she said.

Emmett did warn that despite most local consumers remaining upbeat, Australia was still vulnerable to the fortunes of the global economy. Global volatility is the biggest driver of local uncertainty and therefore consumer confidence is certainly something to monitor.

The interrelationships in a fit retail business are tightly interconnected and the effect of change in one component, such as the supply chain, efficiency can have dramatic effects on areas such as merchandise assortment, stock turn, depth of range and market positioning. The response to market conditions are always the hallmark of a successful retailer including:

• Their continued focus on their specific point of difference within the marketplace – not spreading too thin and being all things to all people.
• Growing profitable sales with a more engaged customer through a great in store experience coupled with the building of consumer communities.
• Ensuring that their buying, inventory forecasts, Open to buys and ratios all reflect increased inventory productivity.
• Cash rather than credit are king in these times and managing cash flow is even more important than ever.
• Understanding the productivity and drivers of their business in more detail than ever before, increasing investment in the right areas and reducing in the less productive areas are essential to success in any economic cycle and more particularly in the current cycles.

Even the most successful retailers will have stored profits that a diagnosis process will identify require unlocking. None of these stored profits are likely to have anything to do with the external economy.

While there is significant uncertainty, there is no reason why this financial year can’t be your strongest yet. By looking inside your business, undertaking a detailed diagnosis and constantly evolving and implementing your strategy from these insights, you have the power to lead your stores and customers into a more positive and profitable future.

Brian Walker is founder and CEO of Retail Doctor Group and can be contacted on (02) 9460 2882 or brian@retaildoctor.com.au. Vikki Weston, co-author of this column, is part of Retail Doctor Group’s Retail Insights team and can be contacted via email at vikki@retaildoctor.com.au .