Key developments and trends in retail

Retail never stands still and keeping pace can be challenging, particularly in the ever-evolving digital world. Below is a selection of recent key developments and relevant trends.

Commercial

Online retail domination

Traditional bricks and mortar shopping remains under threat with the further growth of online channels, including exclusively online offerings. Fuelled by smartphone use, the trend for “anytime, anywhere” shopping continues to increase. According to the Office for National Statistics, as of May 2018, online spending for food, department and clothing stores has achieved new record proportions of total online retail spend, hitting 5.8%, 17.4% and 17.6% respectively.

Automation and robotics

Investment in robotics continues to gain pace in Retail. Not just behind the scenes, in the form of warehousing and stock management, for example, Ocado’s recent multi-million investment in warehouse robotics, but also at the point of sale. AI chatbots and AR-functionality allow purchasing through smart speakers or smartphone cameras and have introduced a totally different landscape. This is heavily linked to improving shopping experiences. Ultimately these will be powerful weapons in the drive for retailers to become more efficient and stay relevant.

Retail M&A

Although the number of retail acquisitions in the UK fell 56% in 2017 compared to 2016, 2018 looks set to buck the trend with some high profile deals, particularly in the supermarket/food retail space. For example the recent acquisition of Nisa by the Co-op and the proposed tie-up between Sainsbury’s and Asda, which remains in progress. Much of this recent activity is a reaction to margin compression and driven by a desire for greater economies of scale.

Company Voluntary Arrangements (CVAs)

The use of CVAs has continued to be a key trend in an increasingly distressed retailer market. In recent months CVAs have been approved or considered by, amongst others, New Look, Mothercare and Select. This spike in CVAs has been matched by increasing disquiet amongst retail landlords who are often the most impacted creditor in a CVA. June saw the British Property Federation call for an urgent review of the current operation of CVAs and there appears to be an increasing appetite amongst landlords to challenge CVAs.

Regulatory

Compliance with CAP rules regarding High Fat, Salt and Sugar products in advertising

Retailers must continue to be aware of and comply with the Committee of Advertising Practice (CAP) rules regarding the advertising of High Fat, Salt and Sugar (HFSS) products to children. The rules which came in from July 2017 apply across all print, cinema, online and social media. This means that ads directly or indirectly promoting any HFSS products cannot appear where children make up over 25% of the likely audience. Alongside this, use of promotions, licensed characters and celebrity endorsements also continue to be strictly controlled. However, such use is permitted to promote healthier options. Which products are categorised as HFSS will be determined using the Department of Health’s nutrient profiling model.

Retail data breaches

With the recent advent of the General Data Protection Regulation (GDPR), as expected, more data breaches are coming to the fore, with Dixons Carphone and Under Armour being two of the latest victims. All retailers (online or otherwise) need to stay alert but this isn’t always easy, particularly if old legacy systems are in use. Most businesses are now alive to the operational and reputational risks but this will continue to be a steep learning curve for many.

ePrivacy Regulation

Originally expected in May 2018, this regulation is now likely to come into force in late 2018. Retailers with a strong online presence and/or those that engage in direct marketing in any form of electronics communications services should be aware of the planned changes. It will be essential to review and update consent mechanisms (including for cookies). Failure to comply will expose such businesses to large fines which will mirror those for breach of the GDPR (the higher of up to 4% of global annual turnover or €20m).

Requirement to report on payment practices

The Reporting on Payment Practices and Performance Regulations 2017 requires large businesses to publicly report on their payment practices. This includes standard payment terms, maximum payment periods and a requirement to provide statistics on average time taken to pay invoices. Despite the regulations coming into force from 6 April 2017 and normally requiring two reports per financial year, many large retailers have still not published any reports. In addition to the adverse publicity, a failure to report is a criminal offence by the business, and every director of the company (or designated member of an LLP).