How to win the profit fight in 2023Thursday, January 19, 2023 | News
As the dust settles on peak trading, the column inches will be devoted to the retail industry’s top-line trading performance.
Indeed, the winners and losers will be defined by the outside world by market share and sales growth over the golden quarter. Early indications suggest that, for many, will prove resilient relative to expectations.
Yet do not be surprised if Christmas trading is not a perfect barometer for retailer health as we enter a sobering trading period for the first half of 2023. The British Retail Consortium has indicated that retail sales in the first half of the year will grow between 1% and 2%, while the latest consumer price index forecasts appear to be converging on 6% to 8% inflation – leading to a 5%+ real decline in sales and pronounced volume compression.
The Confederation of British Industry reported in late December that forward-looking supplier orders are falling approximately 20% per month as the industry prepares for this challenge and continues to grapple with high stock levels.
While not disputing that maintaining a focus on resilient top-line performance is a valid obsession for retailers as we navigate 2023, it will not be anywhere near enough. The retailers that put all their eggs in the basket of defying the gravity of industry volume decline will find the going tough and likely put their profits and balance sheets under significant short-term pressure.
The 2023 profit fight will in fact be won on the less visible and – to some – less sexy battlegrounds of operating model resilience and agility.
The retailers that most adeptly weather the storm will have a clear sense of their cost to serve and how best to insulate, and even grow, their margins through unpredictable and volatile conditions. They’ll also ensure right sizing on the down swing and will be fast to seize the opportunity from the anticipated volume recovery that follows as we enter the autumn.
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