I am sitting on a beach at Manly contemplating a return to work on Monday 7th January 2019 and my thoughts turned to what retail has in store in 2019. Two articles I just read on the beach has led me to believe we are in for a rough ride and as my daddy told me ” Prepare for the worst, hope for the best”
The first article is Residential Property Declines – The Lessons of History by Philipp Hofflin of Lazard Asset Management dated 4th January 2019 published in www.livewiremarkets.com. The second article was on the death of Blake Nordstrom who died unexpectedly at 58. Blake is an example of the best in retail leadership in times of change .
Let’s start with Australian Property Prices and how they will impact consumer confidence and retail spend in 2019. I will summarise the article below however the full article should be essential reading for all Retail Executive. https://www.livewiremarkets.com/wires/residential-property-declines-the-lessons-of-history
Philipp Hofflin examined five cases where home price falls led to recessions, Japan (peak in 1990), US (2006), Ireland (2007), Spain (2007) and the UK (2007). The lessons were
- Residential markets move in slow motion: “The average house price fall was 34% at an about -8% pa rate… , with the worst year of decline recording an average -16% drop (similar to a typical boom year gain). The declines reversed 4 years of price gains on average and prices took a little more than six years to reach bottom from the peak.”
- The Damage is Front Loaded: “The affected economy went into recession when prices were down only 7% on average and emerged back to growth with prices down 21%, with – on average – a 13% price decline still ahead…. While asset values in residential markets can move in ‘slow motion’ the economic impact of the downward moves often happens much faster. The economic impact arises from the change in expectations of households, from confidence in future growth of their wealth, to fears about declining wealth and indebtedness. Households respond to this change of expectations by increasing savings and trying to de-gear. “
Summary: Philipp summarises as follows ” The international experience suggests that we should not be complacent about the currently still modest magnitude of the residential price decline, nor take much solace from the regulatory catalyst or the present “orderly” rate of home price falls. Furthermore, history suggests that we should expect an early response in household spending to the price declines.”
Bill Rooney Insight:
My Advice is ” Prepare for the worst, hope for the best”.
I am expecting a tough 2019 Calendar Year for Australian Retailers with the exception of the value end of the market and truely differentiated retailers. On top of this, the majority of retailers need to start transforming their businesses in 2019 if they are to prosper in the “New Retail” digital era. See my whitepaper ” Retail CEO’s Horse & Buggy Moment: 2018-2025″ go to https://6one5.com/retail-whitepapers/
This perfect storm for Retail CEO’s of needing to potentially counter declining consumer confidence and at the same time transform their businesses, this will require the leadership skills of a person like a Blake Nordstrom who passed away on the 2nd January 2019.
Blake was an Executive Leader at Nordstrom along with Pete and Erik Nordstrom. Nordstrom is one of the few innovative and successful Department Stores Groups Internationally that have prospered while the rest of Department Stores have declined.
“Blake Nordstrom was, first and foremost, a retailer. His instinct was always to make decisions based on what customers wanted, with one eye on how demand was changing this, along with his view that the business should be run on a long-term basis, meant that Nordstrom was usually one step ahead of rivals on big retail trends like omnichannel, own-label development, and the creation of an off-price spin-off.” according to Global Data Retail Managing Director Neil Saunders as reported in Retail Drive on the 3rd January 2019 by Daphne Howland.
In truth, there are few retail executives with the natural and visionary leadership skills of a Blake Nordstrom, yet we all want to see our retail businesses prosper, so what do we do? The answer is simple – plan before you act, here are 3 easy steps that will set you up for success in these difficult times.
Step 1: Recognise & quantify the downside risk of ignoring potential declining consumer spend and structural changes brought about by retail digital disruption.
Step 2: Develop a business strategy based on ” New Retail ” structures and models, not on traditional retail concepts which are out of date and no longer work. Recognise a majority of retailers are comfortable with the status quo (traditional retail) and find it hard to conceptual “new Retail” concepts, this is why I suggest you use an outside specialist/facilitator who will challenge traditional retail mindsets.
Step 3: Retail Transformation Implementation based on your new strategy that will include creating a competitive advantage through (1) Data/analytics/AI/Machine Learning, (2) Innovation, (3) Digital Marketing, (4) New skills and roles
The first 2 steps are a 4 – 6 week process, are relatively inexpensive and substantially reduces the risk and cost of mistakes in Step 3.
Most retailers are still to get past Step 1
Author: Bill Rooney – CEO of 6one5 Retail Consulting Group