Against a backdrop of rising costs, global uncertainties and fragile consumer confidence, the UK retail sector faces considerable headwinds. The risk of business failure is real; according to insolvency specialists Begbies Traynor, the number of UK retailers on the brink of collapse rose 25% in the final quarter of 2024. Retailers cannot afford to simply wait out the storm – they must be on the front foot if they wish to survive.

Nick Enderby, Partner specialising in CEO, Chair and NED appointments within the CEO & Board Practices, considers the state of play in the UK retail sector and looks at how retailers are navigating the challenging conditions. Lessons from the pandemic, the impact of world conflicts, and the ramifications of the latest budget have helped focus strategic mindsets.

The key themes that resonate currently with retail CEOs in Nick’s network are:

• Reduction of operational costs
• Future proofing through innovation
• Increasing prices whilst maintaining loyalty
• Digital transformation and customer experience
• Leveraging customer relationships
• Product diversification and differentiation

Cost cutting alone will not future proof the business

Across the sector, CEOs are relaying that there is an unwavering focus on taking out operational costs in response to upwards pressure on labour, energy and material prices. Retailers are targeting headcount reduction, optimising supply chains, negotiating supplier contracts and improving energy efficiency. However, with low-hanging fruit gone and, in some cases, maximum cost efficiency already applied, retail leaders will need to innovate to drive growth rather than rely solely on further cost-cutting. This includes adopting new technologies, streamlining operations, and exploring new business models which, whilst costly in the near-term, is vital to future-proof the brand. There is a danger that persistent economic and political uncertainty can lead to a paralysis over business decisions and strategy – a ‘deer in the headlights’ reaction. But uncertain times require strong, purposeful leadership and a focus beyond the here and now.

Managing the ‘price rise versus discount’ dynamic

Whilst retailers are doing all they can to absorb rising input costs, it is inevitable that some inflation is passed on to customers through price increases. At a time when consumers are cutting back on non-essential spending and closely comparing prices between brands, any price rises need to be carefully managed. The GfK consumer confidence index fell sharply in January to minus 22 the lowest level since the end of 2023 suggesting consumers’ purse strings are tightening – this is a challenge that all retail CEOs voice. Retailers must price intelligently in order to maintain customer loyalty with targeted promotions and discounts balancing price rises. Knowing when and where discounts are needed and when brand loyalty is strong enough to survive price rises is crucial – effective collection and analysis of customer behaviour can be instrumental here.

Digital transformation is more critical than ever

A consistent narrative that I hear from retail CEOs is the drive to embrace e-commerce and enhance the online shopping experience. The impact of COVID on shopping habits has led to a sustained change in consumer behaviour with online sales as a percentage of UK retail sales sitting at around 26% last year up nine percentage points from 2018. Retailers are investing in mobile apps, improving website functionality, and offering faster delivery options to meet changing customer expectations.  As unprofitable stores close, an effective and seamless omnichannel customer experience across all touch points has never been so important. In a fast-moving environment, there is no room for complacency – getting the digital transformation strategy right and rapidly implemented can be the difference between failure and success of the organisation.

Product innovation is key to diversify and differentiate

This is not the time to rest on laurels – failure to innovate product can lead to a loss of competitive advantage. One CEO told me that expanding product ranges to include more affordable options and private labels is helping to attract cost-conscious customers. An effective product strategy also allows retailers to differentiate themselves from competitors at a time when consumers are choosing carefully where to spend and where to save. Creating a clear and compelling product signature helps drive brand desirability and customer loyalty – something that can also make price rises easier to implement when necessary.

Customer engagement allied with a clear proposition

Building strong relationships with customers through personalised marketing, loyalty schemes, and excellent customer service is critical.  This links closely to the digital transformation strategy with retailers leveraging data analytics to understand customer preferences and tailor their offers accordingly.  As one retail sector CEO pointed out, whilst it is important to be mindful of trends, having a clear core customer proposition is vital – there is no room in the current environment for woolly offerings that are not communicating a reason for consumers to choose them over competitors. Likewise, ill-targeted marketing can be detrimental to brand image and loyalty, once again highlighting the need for effective digital and data leadership.

Despite the evident challenges, there is room for optimism. Retailers are having to double down on innovation and operational efficiencies to survive but that should pay off in the long-term, potentially leading to growth as the economic situation improves.  A firm focus on future-proofing the business, spearheaded by a high-calibre leadership team that is able to blend ambition, entrepreneurialism and tenacity will best enable retailers to navigate the current headwinds.

Nick has an extensive track record in helping organisations access the very best CEO, Chair and NED talent – please do get in touch if you would like to discuss your next steps in confidence.