Retail Transformation: causes and effects on business operations


Howard Kennedy's Retail and Leisure team recently hosted a panel discussion exploring how businesses have been forced to reconsider their operations in light of Brexit and COVID-19.

Vernon Dennis, Head of Business Advisory and Restructuring and Insolvency, hosted the session and was joined by a panel of industry experts including:

Lydia Christie, Legal Director in Employment at Howard Kennedy

Gary King, Managing Director at Collins King & Associates

Marc Voulters, Senior Partner at SRLV

The panellists discussed several key themes including:

1. The effects of the cost of living crisis, inflation and Brexit

2. Staff shortages and attracting and retaining talent

3. Supply chain disintegration

The cost of living crisis, inflation and Brexit on the hospitality industry

The panel started by exploring the factors contributing to rising costs associated with running a business in the hospitality industry. Wage inflation and increasing food and fuel prices, as a result of Brexit and the war in the Ukraine, are eating into profit margins. The panel attested to a high number of vacancies across junior hospitality roles due to a decrease in migrants from Europe as a result of Brexit. Demand for hospitality workers is outstripping supply also due, in part, to a lack of service culture in the UK. The panellists agreed that this could be tackled by fostering a prestige around service positions, as is more common on the continent.

Raising awareness around hospitality as a viable career path is one long-term solution. In the interim, restaurants and recruiters are working with charities like Clink, Only a Pavement Away and Springboard to resource non-traditional candidates.

The panel highlighted how this is not an industry where salary increases will guarantee staff. There need to be financial rewards as well as non-financial incentives to work for and stay working for these businesses. Covid-19 has caused a need for flexibility and businesses are having to adapt and give work an attractive nature.

Supply chain disintegration

The world has moved to a 'just-in-time' way of working, where warehouse holding costs are kept to a minimum. The panellists agreed that the major disadvantage to this model occurs where there is a weak link in a supply chain. 'High street successes like Zara control their supply chain, keeping it within driving distance to avoid waiting for products to be delivered from places such as the Far East. The panel noted that business long-term visibility is a problem as you cannot forecast what the business will need in the long-term.

Businesses also are failing to deliver to consumer demand. There has long been the conversation surrounding the 'death of the high street' however shops are increasingly becoming a place for customers to return the products rather than purchase them. Consumers are also concerned about the environmental and ethical impact of businesses. The panellists noted that these issues are not new but have been exacerbated by Covid-19 and Brexit.

The Modern Slavery Act, for example, only requires that businesses publish a statement stating that they do not adopt this method of practice. It is likely that in the near future consumers will demand more evidence and regulation to ensure that company compliance is verified.

Pressure is on retailers and restaurants to increase prices to maintain profit margins, but they run the risk of losing customers. With no snap solution to inflation and rising living costs on the political horizon, businesses are struggling to deliver quality products at the same costs. Delays at the border mean businesses are using preservatives to prolong the shelf-life of produce, which is contrary to consumer demand. Many businesses are changing to British suppliers to avoid delays, but this requires slimming down menus.

 Future Developments

The panel reiterated that there is a need for permanent change in platforms, such as brand values, but that these are always going to have to adapt to consumer demand and the economy.

They discussed that the accelerators for change are dictating a need for customer experience. Many brands in the sector are focussing on their customer experiences in their stores and restaurants and the panel agreed that there needs to be something more from retail. This will attract customers as well as staff. The panel reflected on the changes made at Tottenham Hotspur Stadium to enhance guest experience and increase dwell time whilst still aligning with quality and value.

From an employment perspective, commentary was of the view that this change is likely to be more permanent. The public's mindset has shifted to what people want from their place of work and businesses are going to need to adapt and be more flexible. There was also a call for hospitality to be 'sold' to children as a career whilst still at school.

Finally, issues surrounding Brexit and the war in Ukraine have caused a huge impact on the accessibility of visas. The majority of the hospitality workforce are from overseas, so the panel reflected on alternative options such as the sponsored visa scheme or graduate visa scheme in order to boost a return.

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