Minimum wage increase has disappointed retailers says BRC

The National Minimum Wage increase of 21 pence per hour has disappointed retailers who had hoped for an increase in line with inflation, according to the British Retail Consortium. NMW rose from £5.52 in March to £5.73, but the BRC says it had called for this year's rise to be no more than the rate of inflation.

Stephen Robertson, the BRC's Director General, said: "Retailers had to cope with a £2.7 billion hike in wage bills caused by the 2005 and 2006 above-inflation minimum wage increases. We are facing very difficult trading conditions, while energy prices, rents, rates, and service charges are all on the increase. We need an end to the annual uncertainty on minimum wage rates. There should be a real-terms freeze while the Low Pay Commission reviews future direction."

For more information visit the BRC website here

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Fairtrade for the future

Fairtrade retailing is a defininte trend for the future, according to figures published by the Fairtrade Foundation. Fairtrade products retailed for an estimated £493 million in 2007, a staggering 81 per cent increase on sales in 2006 of £273 million across all retail sectors.

More importantly still, in 2007 the real volumes (by weight or number) of produce more than doubled over 2006, which is great news for the producers whose Fairtrade premiums are based on these volumes.

The Fairtrade Foundation's message for Fairtrade Fortnight 2008 (25 February - 9 March 2008) is that, whilst sales of Fairtrade products continue to soar, change is still not happening quickly enough for the millions of the world's poorest farmers who remain trapped in 'trade poverty'. With 2 billion working people earning less than US$2 a day and many of these producing the products we put in our shopping baskets, the Fairtrade Foundation believes that it is critical to increase the momentum for change through Fairtrade in 2008.

"The fantastic increase in sales of Fairtrade goods in 2007 shows the UK's public's huge and growing appetite for Fairtrade," says Harriet Lamb, Executive Director of the Fairtrade Foundation. "After years of chipping away, Fairtrade supporters are finally beginning to make some significant impression on the way companies trade. Increasing numbers of people in the UK are buying Fairtrade goods as a practical action everyone can take to help tackle poverty in the developing world. And that's good news for the seven million people, growers and their families, around the world who benefit from the Fairtrade system, as well as the thousands of people in this country who have been campaigning since the early 1990s to make trade fairer".

Sales of Fairtrade products have been increasing by over 40 per cent year-on-year since 2002.

For more information visit the Fair Trade website here

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Discounting - Conclusions

Given the RTT's belief that the current landscape of discounts and sales is untenable in the longer term, it discussed how it sees the situation developing. The RTT believes that retailers which use promotion and discounts more strategically, as opposed to tactically, will be more successful.

The group agreed that value will be the key pillar of retailers' strategies going forward. To maintain and improve its prospects, a retailer's focus must be on plans and actions which enhance stakeholder value. Price is only a part of the value equation; product, brand and the environment are equally important.

Across the market as a whole, there is a need for retailers to become more scientific in their approach to pricing.

Tim Denison observed that: "This is traditionally the least 'sexy' part of the marketing mix and yet it is business critical." Retailers are increasingly placing more emphasis on price strategy, development and planning; such as impact assessment, price sensitivity, optimisation research and price-increase management.

The RTT concluded that the retailers which are successful in the future are those giving more attention and dedicated resource to creating their value proposition for consumers, and developing and managing a price strategy with the emphasis on margin maintenance rather than sacrifice, where promotion management and compliance can add more distraction than inherent value.

The appropriate relationship between full price and sales and discounts is a fine balance to optimise price and demand over the long term. If that balance is achieved it will drive value enhancing customer behaviour, such as building loyalty.

As such, the RTT believes the successful retailers in the future will be those who:

• Are committed to adding value to the consumer buying experience.

• Have refocused much of their in-house effort which has previously been put into discounting and promotions into more value-adding activity.

• Hold sales, promotions and discounting activity only at specific, tightly controlled 'sale' times or with very clearly defined objectives which are not 'derailed' by the actions of competitors.

• Look broadly across all channels open to them in considering their price strategy. For example, separating promotional or marked-down goods into outlet stores or using other channels e.g. jobbers, which the RTT observed some retailers do with success and with only very limited damage to their brands.

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Discounting - The future

The RTT believes that the current levels of discounting and promotions in today's financial climate are untenable long-term; unsustainable; and unhealthy for the retail sector.

The situation, the RTT warns, is now one of a self-perpetuating, vicious cycle, where margins for the retail industry as a whole - as well as those of their suppliers - are being negatively impacted.

Richard Hyman of Verdict Consulting highlighted this when he said: "2008 will be yet another year when rises in retailers' costs will outstrip growth in their sales. Following years of cost cutting, most of the low hanging fruit from this source has already been picked. Driving top lines will increasingly determine retailers' fortunes going forward. Since the opportunity to further drive sales volumes as in recent years is clearly receding, and since we have seen negative price inflation in the non-food sector, sales at higher price points are essential. However, this cannot happen without improved added value." This is clearly contrary to the situation currently being seen in the sector, outside of food, in the UK. Mark Teale agreed, saying that it seems there is a current mindset that: "If prices don't change (downwards), stock won't move."

Regulation, however, is not the answer, says the RTT, despite it being commonplace in some other European countries, where local or, indeed, national government determines when a sale can be held or has pre-set rules which require all items to be sold above cost.

However, the RTT firmly considers that a 'rebalancing' is required.

Vicky Redwood, Capital Economics added: "There is some merit in a return to the traditional model, with sales being used primarily for clearance purposes." Not that this means that those whose proposition is based squarely on price will not have a place in the retail sector, particularly at times of difficult trading, such as now. It all is rooted in the basic proposition: 'you get what you pay for'.

It was also noted though that there are instances where discounts and promotions can be useful in facilitating behaviour change. "Discounts and promotions can be used in a positive way," stated Prof. John Dawson of the Universities of Edinburgh and Stirling. "For example, discounting or promoting fruit and vegetables as part of the five-a-day initiative can help to encourage healthier eating habits. No-one can argue against that."

The RTT absolutely concedes that the use of discounting and promotional tactics have a place in modern retail and can be beneficial to consumers by increasing competition between retailers and ensuring prices are competitive. Equally they can create confusion for customers, a less satisfying in-store experience and diminish brand value. From the point of view of retailers, sales and promotions can be very valuable if used in the right way as a strategic tool with a clear objective. However, when used purely as a reactionary tactic, particularly under current market conditions, sales and promotions may not achieve the intended result and should be scrutinised more closely.

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Discounting - The City view

The RTT agrees that the City focuses very heavily on like-for-like sales growth figures as a barometer of the success of retailers.

Tim Denison of SPSL summed this up when he said: "The City should be encouraging retailers to increase margins, not sales at any cost. Retailing is a business like every other. Unfortunately it's far too easy to be fixated on sales figures."

The group feel that the City is, on the whole, unimpressed by 'blanket' discounting, but views discounting for strategic purposes somewhat more favourably. "It can be an art," said Nick Bubb. "The City admires the sales and discounting process if it has the right effect on the bottom line." The RTT observes that many retailers are admired for 'holding firm' and having a very structured sales 'season' and still using sales to move surplus stock.

It is however, quite understandable why the City concentrates on sales-derived performance. It simply does not have the benefit of transparency in the relationships between retailers' revenues and their gross margins and therefore cannot make fair comparisons between different companies and their tactics. Helen Dickinson observed: "There are no requirements for retailers to disclose gross sales before discounts or the impact of discounts on their gross margins and there is little consistency between what costs over-and-above the cost of sales retailers include in their margins."

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