Mark Price margins mustn’t come at the expense of innovation

  • Mark Price: “Downwards pressure on margins mustn’t come at the expense of innovation as retailers reboot”

    As lockdown continues, many retailers are moving out of the ‘survive phase’ and into the ‘reboot and reopen’ phase, according to ex-Waitrose chair, Lord Mark Price, who was speaking as the keynote at the RetailEXPO Virtual Conference last week. Whether that’s retailers, including Quiz, Schuh and Next, who are tentatively opening up their ecommerce operations by implementing order limits and new processes to keep staff safe, or B&Q reopening stores with dedicated shopper flows and an increased click-and-collect operations run out of stores.

    While the impact of covid-19 continues to cause economic uncertainty, potentially negatively impacting consumers retail spend in the long-term, for retailers to come out stronger on the other side of the pandemic, Price warned that downwards pressure on margins mustn’t come at the expense of innovation.

    The discounters will grow market share, meaning downward pressure on prices and margins “When your costs have risen in the past,” said Price, “you will have increased your costs to protect your margins. But the reason this is harder now is that the discounters have a really strong hold of the UK consumer – the food discounters have gone from being ten years ago 5-6% of the market, to 30% of the market today. Consumers are not going to feel richer post-covid, given that our unemployment rates will increase, the platform will be there for those discounters to grow their market share again, whether in food or clothing. So, I expect there will be even greater margin pressure than there already has been over the last decade.”

    But despite the downward pressure on prices and an even tighter squeeze on retail margins, now is not the time to pull back on investment in technology and innovation, Mark suggests. It should in fact be the opposite in light of the digital acceleration caused by the pandemic and the need to differentiate Intellectual Property (IP).

    Lockdown and the acceleration to digital With the advent of lockdown and social distancing, and as non-essential retail businesses’ stores remain closed, many retailers have been forced to accelerate the move to digital.

    Newly appointed CEO of H&M, Helena Helmersson, hinted the Swedish fashion brand would need to take ‘forceful measures’ that would ‘lead to a fast shift towards digital’ after 50% of its global sales were wiped out in March as it shut 75% of its stores worldwide. Meanwhile, those with more established ecommerce channels have looked to move store capabilities online – for example Dixons Carphone this week announced the launch of ShopLive, a personal shopping service that connects online customers with in-store shop assistants via a video link.

    Whilst the shift to online is a necessity as the UK remains in lockdown, when non-essential reopens, lots of legacy retailers, particularly the multiples, will have to think harder and harder about the store space, according to Price:

    “Boots has hired an extra 500 drivers to deliver prescriptions, apparently before covid they were making 700,000 prescriptions deliveries and it has now gone up to 1.5million. So, the question to ponder is, post-covid, do Boots or other retailers who have taken on more drivers to deliver, do they lose those drivers assuming people will go back to the shops, or do they keep them on and continue to have a move from shops into purchasing online from home. Whatever happens, lockdown has got more and more people used to shopping from home.”

    Innovation – the expense that can’t be spared as retail defines its new normal “I would spare no expense at the moment on innovation and IP,” said Price. “Owning your own IP will become more and more important. What the internet has done, as you all know is to commoditise goods. If you sell the same goods as the retailer next door, it is simply a battle to the lowest costs. You can add in service as a differentiator but what we find in every piece of research we do is that it is not that much of a differentiator.”

    “When I was running Waitrose, I always used to consider how much I can charge for a can of Heinz Baked Beans versus Tesco. And my honest answer is not very much more. But a Waitrose steak or Waitrose produced fruit and veg does have a premium to it, and so the whole issue on what is premium-ised, what IP you own and control and how you innovate will all be key in having a differentiated strategy against what the discounters are doing or, frankly, what Amazon is doing."

    Concluding his session, Price was upbeat around the future of retail, suggesting the retail industry will emerge stronger, and that global evolution will be driven by the innovation of British businesses. “Retailers need to find a new way through, embrace the change and create a new era of retail, much like the era of old retail, which will be imagined and born in the UK and spread around the world,” he said.

    Watch the whole of Mark’s keynote presentation on-demand here.