CEO Call Notes | Matt Coode, OC&C | 12 February 2025

• 2024 was a more challenging year for retail than was expected.

 

• Three keys structural trends that the industry is grappling with now and in the coming years:
• Sales volumes - persistently low and not expected to reach pre-2021 levels until 2028.
• A stabilising of the channel balance between physical and digital.
• The capabilities needed for survival are rapidly evolving.
• Whilst retail’s profits have been substantially squeezed in the last 10 years, the profit pool of many brands and suppliers has grown.
• The consequence of inaction would see a 40% reduction in profit margins by 2030 from an industry average of around 4.8% in 2024 to 3.0%.

 

• There were four key areas of opportunity identified for retailers to explore in their efforts for profit relief and recovery:
• Rethinking commercials of brand partnerships: working more strategically and closely with suppliers, exploring efficiencies in raw materials and sourcing.
• Broadening reach in the value chain
• Automation and streamlining: some areas with high scope for automation include labour scheduling, store operations, inventory replenishments and markdowns, and merchandising/planning.
• Smarter data monetisation: for example, through market trends insights and reports or competitive benchmarking analysis.

Q&A

Is the impact of supply chains on profit margins the same across different types of retailers?

There are opportunities for all retailers. The extent to which you deal with branded suppliers has an impact. 

Are there signs of more companies considering moving more operations offshore into lower tax areas, in light of higher costs and increased competition?

This is happening in some cases - but is a short-term solution in a world of rapidly expanding technologies, which may prove more costly in the long run if those operations become increasingly automated.

Where are retailers making the biggest inroads in terms of realising value, across the four different streams identified above?

There are examples of retailers delivering across all four streams. As the largest cost, there is big potential on the supply-side for improved efficiencies i.e. in cost of goods. Digital investment has perhaps had the biggest impact over the past 12 months in driving improved performance. AI is being embraced not as a source of competitive advantage but as an enabler to improve efficiency.

Does anyone have examples of AI use in their company which has been useful in improving productivity and efficiency?

The situation is very fast-moving so best practices are hard to come by. There are some examples of companies embracing the technology to run inventory and supply chain processes, but most are not and this is still in very early stages. The smaller scale and test and learn ethos is prevalent.

On resale - is the customer base similar for those buying new products and those buying second-hand?

Broadly, yes - although there is a slight skew towards young people (45 and under). No longer a socio-economic skew, where this would have been the case 12 months ag. Main drivers are price and sustainability.

What are the implications for skills bases, and how can these changes, particularly with new technologies, be made in a way that empowers people and maintains the support of the organisations?

The industry is suffering from skills shortages and requires greater digital talent for a greater understanding of what is possible and how changes can be championed. More needs to be invested in leadership through transformation/an ongoing period of disruption. And unlocking the skills in the younger workforce is important here as well.

 

AOB

• Join us for our Retail CEO Exchange Forum on 4th March at the Form Rooms. The session, facilitated by AlixPartners, will focus on people, and ensuring a workforce fit for the future.
• Registration is open for our BRC Retail Masters Programme (10th-13th March) and Sustainability Masterclass (2nd and 3rd April) - a great opportunity for senior leaders to build skills in the areas discussed today.
• Upcoming Trade call will be happening soon - hoping to get a representative from DBT to answer questions. Let us know if you would like to join.
• Notes from Helen's meeting with the Treasury Minister on business rates can be found here.
• We are continuing our CEO interviews as part of our 'Buy into Retail' campaign, showcasing the best things about retail and how the industry could do more with the right policies in place - let us know if you would like to get involved.