Fashionista was very sad to read the news last week that Gap is to close all of its Banana Republic stores in the UK. The majority of its eight stores are due to close by the end of the year and further illustrate how tough the UK landscape has become for retailers. The news has since been followed by PriceWaterhouseCoopers’ findings that fashion and clothing stores have been hardest hit on the high street, as the UK high street continues to shrink.

Possible reasons for the current tough environment include: the dominant presence of online retailers; over supply of stock (further exacerbated by the unseasonal weather which the UK has been experiencing); consumer uncertainty; changing consumer tastes (as consumers are increasingly preferring to spend disposable income on nights out or experiences, rather than goods); a rise in supply side costs for retailers (such as the national living wage and business rates); and turbulent exchange rates.

Blur movement of city people worker, shopping on Street in hongkong

Retailers, faced with this challenging landscape, have to carefully plan their next steps. Enthusiastic shoppers may have noticed that some retailers have begun offering sales promotions over the past few weeks, which is uncharacteristic for this time in the retail calendar. Sales promotions are a classic way in which to try and entice shoppers in the short run. However, some commentators have argued that UK shoppers may have reached “discount fatigue” and are now trained to want discounts, and so the impact of holding promotional discounts is reduced. Being solely reliant on discount promotions may not therefore be entirely advisable, as retailers become embroiled in a race to the bottom in order to provide the best price for customers.

Holding sale promotions will also further exacerbate the impact on retailers of the weak pound and rising business costs. Retailers need to show great strength in resisting the temptation to lower prices and pursue high stock turnover, at the expense of profit margins. Keeping prices steady, in the current turbulent market, may feel counterintuitive but may also result in healthier profit margins in the medium term.

Business people blur.

This is not to say that businesses should avoid examining their price offerings over the next few weeks. The effect of the weakening pound and higher business costs mean that prices are likely to rise for consumers. Retailers may only be able to absorb these costs in the short term and, as commented by The Entertainer founder and chief executive Gary Grant, retail prices may jump 10% next year because, quite simply, if supply costs go up, retail prices will go up.

Another possible tactic is to refocus on brand identity and target market. The falling popularity of Banana Republic may arguably be part attributed to its unclear role within the retail market and its difficultly in identifying a clear group of target customers. Confusion over its identity meant that the retailer was also unable to justifying charging a premium on its clothing, which a shopper would expect from Reiss, Hobbs or Jaeger. Retailers should note, however, that refocusing on brand identity is a resource and time heavy initiative, which would likely only generate rewards within the medium to long term; so this may not be an immediate shield against current market pressures.

Retailers can also look to alternative strategies, such as greater customer engagement and improving their stock management, however it remains very clear that the upcoming months will remain tough for retailers.

By: Emily Dorotheou
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