“I am a great believer in ‘not wasting a good crisis’”, writes Robert Hughes, “and the opportunity to do so has never been bigger.” Here, he explains how Hughes Electrical is taking some hard decisions and why it might be time for other retailers to do the same…
It is very easy to pessimistic about retail and, especially so, the discretionary end. The four big levers of profitability are all going in the wrong direction – sales and margin are falling above the line, while overheads and interest payments are rising below it.
Profit tends to be feast or famine in retail as we have high fixed overheads. This makes cash equally volatile, so the action of trade credit insurers to reduce support from the sector is doubly painful. It beats me why our suppliers continue to use these insurers – which are famed for withdrawing the umbrella the moment rain is threatened. It’s no wonder that the share prices of Currys and AO are both 85 per cent off their peak.
The word from the big retailers that sit on the British Retail Council is that we are in for a very difficult six months, after which conditions will ease with green shoots of recovery appearing in Spring 2024.
I monitor the weekly sales of CE, MDA and SDA provided by GfK as it is timely, accurate and comprehensive. These sales collectively peaked in July 2021 at the same time as their consumer confidence index topped out – and our industry has been falling ever since. This would suggest a peak to trough fall of over 10 per cent lasting almost three years – ouch!
However, my biggest concern is the near 10 per cent rise in the living wage due next month. This is a ticking time-bomb. I think the uplift will be repeated in 2024 and then we are well on track to meet the Labour Party policy of a £15 minimum wage – and you can add pension and National Insurance costs to that!
It is right that there should be no in-work poverty but the cost of this falls mainly on retail, distribution and hospitality. Reduced opening hours in pubs and restaurants is as much a recognition of this problem as it is the cost of utilities.
Closer to home, our sector needs two-man teams to install bulky items and sales floor staff to provide advice and prevent theft. These roles cannot be automated. And if we are looking at cost increases in the coming years then we all need to rethink what we are doing. These are the sort of actions Hughes is taking:
• Gaining a forensic understanding of the profitability of all departments and then applying a 25 per cent higher wage cost to them. This exercise recently led to us closing a service facility, as well as four shops and relocating another.
• Increasing the size of our vans and the working day so that more jobs can be completed with the same resource. Done properly, two teams working longer hours can share a van over the course of one week, which dramatically improves efficiency.
• Looking at all low margin activity with a view to raising the price or ceasing doing them. AO has clearly done this exercise, which is why its sales are down but its profitability is up.
• As an industry, we have to speed up the transition from free to low-cost and eventually full-price installation. We also need to address the fact that our labour charge-out rates lag far behind that of other industries; we have been pleasantly surprised at the lack of customer reaction to higher prices.
• Taking a creative approach to costs and, where possible, converting them into revenue. Hughes has always made good money from selling packaging waste, but it has now added sorting and recycling WEEE to the mix… “where there’s muck there’s brass!”
I am a great believer in “not wasting a good crisis” and the opportunity to do so has never been bigger. Hughes is using it to take hard decisions, gain staff buy-in and affect change. And the ticking of the living wage time bomb means that every retailer must do the same.
