How does the high street adapt and protect itself against risk?

Howden UK Group

The Dixons Carphone data breach and the collapse of Maplin are the latest in a series of bad news stories involving the retail sector.

High profile examples like these are causing retailers to look at their operating models and security systems.

But what can be done to protect the future of the industry? Poor sales figures for retailers this year have been blamed on a range of issues, from the rise of internet shopping to poor economic conditions, and even bad weather.

But the demise of big-name stores have certainly added to fears that consumers are turning their backs on physical shops and spending less as a result. Even Marks & Spencer, a UK giant, recently said it will close 100 stores this year because of tumbling profits [1], while Mothercare is closing 50 stores and House of Fraser has commenced restructuring.

Why is this happening? Experts believe there are a range of drivers but a significant change in the way people shop is certainly a part of it.

Economic conditions

Consumer spending, which makes up 60 per cent of GDP, has been badly hit by inflation, which went up 3 per cent in 2017 and also by a slump in sterling following the Brexit vote. Wages have been slower to rise, despite recent pay hikes in the public sector, and so household spending has been squeezed. Richard Hyman, an experienced retail advisor, said in an interview with

“I’ve been warning about this crunch for retailers for 15 years. The writing has been on the wall. It’s quite simple: there’s not enough spend and too many mouths to feed.” [2]

Growth of online sales at the expense of physical shops The overall percentage of ecommerce retail sales are, perhaps, surprisingly small at around 9% of sales in the US and 17% in the UK, but with sustained and rapid growth. [3]

Younger generations increasingly see shopping as an online experience and it has never been easier or more accessible.

Retail expert Richard Hyman added: “Online retail hasn’t made the pie any bigger – it’s just been cannibalising it.”

Online retailers are also enhancing their proposition to make shopping as easy and as quick as possible.

Big online brands are offering free delivery and free returns, whilst some big online stores, such as Amazon, offer same day delivery.

ASOS even offers a ‘try before you buy’ service, allowing shoppers to order clothes online, try them on and either send them back or pay for what they’d like to keep.

Business rates and taxes Against a backdrop of poor sales and weak economic conditions, business rates have continued to rise, accentuating the gap between retailers in the high street and those like Amazon, which operate entirely online or using out-of-town fulfilment centres paying lower rates.

Cyber attacks

The industry is also under scrutiny due to a number of cyber-attacks and data breaches.

Only recently, Dixons Carphone admitted a breach of 1.2 million data records and 5.9 million payment cards. [4]

This led to shares falling by over 3% and could leave them with a hefty fine, leading to greater pressure on the margins for the already strained retailers.

What are retailers doing to fight back? Enhancing the physical shopping experience Retailers are looking to move away from just ‘shopping’ and into leisure activities and experiences to drive engagement and increase footfall.

This includes areas for buyers to eat, drink and relax, not just shop.

Westfield Corporation Board Member, Don Kingsborough, confirmed this in an interview on “To me, the future of retail is about creating memorable experiences that you can’t get simply by going to a website. The more engaging the experience, the more consumers will start to shop more in these physical environments.” [5]

It is not all doom and gloom in the retail sector. Many businesses continue to flourish, especially those which successfully balance online and physical stores and that keep track with changing technology and consumer demands.

Technology Retailers are using technology to help the physical shopping experience mirror what consumers are used to online. This includes quicker payment systems and artificial intelligence to improve customer experience.[6]

Retailers are uniting both the online and the physical world of shopping by installing tablets within their stores, enabling users to sign into their online accounts and retrieve physical items that they have previously saved online.

Due to recent data breaches, and because the industry is using more technology, retailers should look at their cyber security and consider cyber insurance.

This will help to mitigate against the threat of a cyber-attack both online and in physical stores, and can protect retailers from both reputational and financial damage during an already difficult time.

Investing more in online services

A recent report suggested many high street brands had underinvested in their online offering and suffered as a result. Marks & Spencer, for instance, admitted its website is too slow. [7]

Some retailers are going one step further and completely re-launching their online proposition.

This looks likely to be the answer for Maplin, with a bid from Buy It Direct currently on the table for the brand.

If a bid is accepted the brand will be resurrected as an online store with a staff of 30 (having previously operated 200 stores with up to 2300 employees). [8]

Retailers looking to move online will need to think about the implications this will have on their insurance.

Large amounts of stock will most likely need to be held in one area and retailers should consider building and contents insurance for their storage.

Supply chain changes might also mean modifications to insurance policies.

Reinforcing risk mitigation strategies

With so much uncertainty in the sector – and with huge challenges and opportunities driven by new technology – businesses need to prepare for all eventualities and should be looking to minimise risk.

Credit insurance can protect suppliers from unforeseen risk and loss due to customer protracted default (failure to pay contractual debt), insolvency or bankruptcy.

The recent failure of Palmer & Harvey was certainly a shock to the UK business community but for some not unexpected.

Although the situation was unforeseen for many, credit insurance risk departments had been carefully monitoring the position of the UK major wholesaler for some years in view of its significant debt burden and reducing profitability.

This coupled with economic conditions and a momentous change in the market (their major customer, Tesco, collaborated with a competitor) meant their position became even more challenging. [9]

Nevertheless, credit insurers remained supportive and protected a large number of suppliers on the announcement of the collapse.

This demonstrates how being proactive in anticipating mitigating risk can successfully overcome unforseen circumstances.

If you would like to find out ways in which risk mitigation strategies can benefit your retail business please contact Roberto Simone.

[1] Independent [2] Independent [3] Smart Insights [4] BBC News [5] PSFK [6] Telegraph [7] The Guardian [8] The Retail Gazette [9] Telegraph