Entertainment retailer HMV and DIY specialist Focus are two of the companies facing a particularly challenging year ahead, according to retail expert Neil Saunders.
The Consulting Director of Verdict Research said that companies such as this pair are operating in sectors where there is “arguably too much capacity”, although he suggests that HMV’s main problem is that traditional music sellers are increasingly being replaced by services provided online.
Saunders describes HMV as a “good retailer”, as you can read in his end-of-year retail review on Retail Gazette, but it is evident that the market has changed and the companies that contribute to it must adapt in order to thrive.
“Being a relatively weak player in a slow growth, highly competitive market is not an ideal position to be in at the best of times,” he explained.
“In the relatively weak environment of 2011, it could well prove to be disastrous.”
HMV this week named experienced media company finance professional David Wolffe as its new Financial Director, and the new recruit acknowledged there will be plenty of challenges ahead to ensure the business is sustainable.
What is encouraging is that HMV has been exploring, and is continuing to explore, new avenues of revenue through endeavours such as its music festivals and events venues. With Wolffe’s arrival at the start of next month, there could be even more of a shift towards becoming more of a media enterprise than a high street retailer.
There is more than one sector in retail, however, that will find the going tough in 2011.
A message from professional services firm KPMG earlier this week said “the industry knows it is in for a tough year ahead”.
Retail partners at KPMG Helen Dickinson and Tim Clifford commented: “As well as the VAT rise, customers are tightening their belts because they’re worried about prospects for their own jobs and personal finances in what are likely to be tougher economic conditions in 2011.”
But Verdict’s Saunders identifies another specific group that will be challenged in 2011; those non-specialist retailers without a clear point of differentiation such as WHSmith.
Its travel business aside, the analyst says the high street mainstay “is a classic example of a retailer that if it did not exist would simply not be invented today”.
“These players are easily replaceable in the repertoire of shops consumers use, and the more challenging environment of 2011 where many consumers will be looking more closely at the shops they use is a major threat,” he adds.
Saunders also indicates that “customer centric innovation” will be vital for retailers in the months ahead, and the most successful companies will be those who have a deeper understanding of their audience.
“Next year is one in which retailers will need to work far, far harder to secure a slice of the action.”