Caution should be retail’s watchword

1 June 2011
A late Easter, sunny bank holidays and royal wedding fever made April a rose among thorns in recent UK retail sales. According to the BRC UK Retail Sales Monitor, most sectors saw a significant sales uplift on the previous April and quarterly performance. But in spite of this, experts have warned the long-term forecast leaves little room for ongoing celebration within procurement teams of high-street companies. Professionals say retailers must remain cautious for the rest of the year. The monitor showed the three-month average heading downward with 1.8 per cent total and 0.1 per cent sales growth for February to April compared to 2.7 per cent total and 0.8 per cent for the three months to January. A recent study by Deloitte showed the risks; the number of insolvencies in retail during the first quarter of 2011 increased by 30 per cent compared to last year. There were 60 retail insolvencies in the UK during Q1 compared to 46 for the same period in 2010, which is the highest quarterly number for two years. Take it as read that the mood among retail procurement teams will already be one of extreme caution over their management of goods for resale contracts, spending and wholesale supply. Among the best negotiators in the industry and with the buying role so central to their business, you can guarantee anyone surviving on the high street will be doing everything necessary to protect their margins on revenue. But is this extreme purchasing efficiency in resales mirrored in every retailer’s operational spending? Often this is the area where the retail sector, although generally competent, could make some fine tuning in procurement that would protect their bottom line, improve cash flow and reduce the risk of insolvency. There may be very little that they can control in terms of sales and growth, but in terms of survival and remaining profitable there could well be room for manoeuvre in indirects. In other industries like manufacturing where operational spending is huge and complex the profitability of efficient operating is everything. But retailers have large indirect costs too – facilities management, catering, uniforms, logistics, branding and packaging to name a few. For many, reviewing the efficiency of their goods not for resale contracts and making it easier for large, distributed purchasing communities to buy off contract at the right price, could make all the difference. In a recent Wax Digital retail report, an indirect goods purchasing director at one of the UK’s top high-street brands affirmed that recruiting from other industries like manufacturing, where indirect purchasing is a fine art, had been central to its goods not for resale spending success alongside other factors. “Manufacturing industry sourcing and value engineering skills enabled us to streamline without impacting end service,” he said. With consumer spending strained, retail procurement organisations continue to face stark challenges; sales forecasts remain weak and guarantees of topline growth are reduced. Making savings to meet bottom-line targets must, therefore, become the new trend. ☛ Daniel Ball is director of Wax Digital
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