The state of British retail: know who your true competitor is, and do what you do better than them

There has been a buzz of activity in the press lately about the state of the British high street. The House of Commons Business Select Committee is conducting an inquiry into the retail sector, examining its current state, the challenges, the tax regime, competitive health and so on. The Centre for Retail Research has recently published a report - 'Retail 2018' - that makes for grim reading. Shopkeepers can look forward to a 22 per cent decline in stores, job losses in excess of 300,000, multiple administrations and an ongoing flight from town centres. The only silver lining is a projected doubling of online's market share (but more of that in a moment).

So in essence, retail is in a bad way, and the fingers of blame can be pointed at online retailers and big stores like supermarkets that are sucking the life out of town centres. For the Daily Telegraph, James Hall argues the true reason for retail's woes lies in crippling taxation and regulation. Another bit of research released this week by accountants PwC lends credence to Hall's retort, showing that the tax burden for Britain's leading retailers has gone up by 65 per cent since 2005, thanks to an 80 per cent increase in taxes other than corporation tax (e.g. rates).

What's the truth? As always, it isn't clear-cut, but my instinct is that people are coming to the right conclusions for the wrong reasons. Yes, rates (and rent) are cripplingly high, and making otherwise good businesses unsustainable. A friend's wine bar and shop had to close recently for that very reason. The Association of Licensed Multiple Retailers' submission to the BIS committee inquiry pinpointed over-regulation as a big concern too. Moreover, the influence of big supermarkets and out-of-town retailers is far from benign for the high street.

The solution to the first problem is to sort out the burden of rates and regulation on small and medium-sized businesses. There is some movement in this area but it is painfully slow. Councils are helping the smallest businesses with rate relief schemes but we need more policies to help bring the burden down beyond the pledge to reduce corporation tax to 20 per cent. We can't all be online businesses, and our towns need thriving high streets full of businesses who aren't having their profits taken away each month in extortionate rents and rates.

The solution to the 'big players' problem, or in certain sectors the march of online retailers, is far more difficult and the onus is placed squarely on the retailers themselves, rather than government. Above all, it means being creative with your offer, knowing your customers, and recognising who your true competitors are. There is a case to be made against big international retailers shirking taxes in a manner that small businesses can't afford to; but there is no victory to be found in complaining about heavy-handed dominance. Smaller retailers, whether online or on the high street, whether complaining about customers moving online or away from the high street, often possess any number of advantages they can offer to customers. Yes, people will continue to focus on price, particularly when the economy remains shaky; but people are also very much interested in value. They are also interested in experiences. Can you offer value, and can you offer experiences your bigger competitors can't? In order to answer that, I strongly believe any business has to think long and hard about who your true competitors are. They might not be the obvious ones.

For instance, the London branch of American flash sales company Lot18 made a number of mistakes, perhaps its final one being to blame its demise on "the supermarkets' stranglehold on the UK market".  There is a structural challenge to the marketplace in that the big supermarkets do sell approximately eight out of every ten bottles of wine in this country.  Yet why would a niche online wine retailer such as Lot18 or ourselves consider themself a competitor to British supermarkets?  Why would they even want to try?

The online Business Dictionary defines a "competitor" as follows:

"A company in the same industry or a similar industry which offers a similar product or service."

Red Squirrel Wine does not sit in the same industry as Tesco. However, Red Squirrel Wine is a wine retailer, and Tesco is the nation's biggest single retailer of wine; so there is of course a crossover we can accept. We operate in similar industries, selling similar products. Ish. The comparisons end.

I believe that Red Squirrel Wine offers a personal service the likes of Tesco simply can't. Tesco offers a range of wines that I would never contemplate stocking. We might be fishing in the same generalised pool of 'wine drinkers' (and as a national online wine retailer with customers spread as far and wide as Tesco, in that sense we have more in common than Tesco does with a high street independent). However, we aren't fishing for exactly the same customers all of the time. I am never going to presume customers should get all their wine from us. The innovative Red Squirrel Wine boxes are designed to supplement the midweek pasta supper plonk, not replace it entirely. It would be foolhardy to presume otherwise.

There are times when supermarkets will encroach, such as when Waitrose knavishly claims a wine is "exclusive" to them despite our stocking it at the time along with several other independent wine merchants (they continue to claim so and refuse to provide any explanation why). Supermarkets are also aggressively promoting their own online offerings (though at no minimum order and free delivery over £60, Red Squirrel Wine's delivery terms are far more competitive than Waitrose's minimum order of 12 bottles).

Even then, I don't wake up in the morning in a cold sweat about supermarkets. Red Squirrel Wine's competitors are, quite naturally, other independent wine merchants - and above all, other online wine merchants. The chances of our collectively ever selling 80 per cent of wine in the UK are as likely as Nigerian sparkling wines sweeping the Concours Mondial. Yet that isn't the aim or the point. The types of wines we source at Red Squirrel Wine aren't made in the sort of quantities such ambitions would necessitate - in which case you could argue our products and Tesco's products are essentially incomparable.

To sum up, James Hall is right. Blaming big players like supermarkets is lazy and self-defeating. We aren't going to turn back the clock. However successful Red Squirrel Wine or competitors are, the vast majority of British wine drinkers are still going to purchase most of their wine in supermarkets. Similarly, the vast majority of the reading public are going to continue buying their books from online retailers such as Amazon rather than bricks & mortar booksellers.

Instead - and I believe this applies to any small business - always ask yourself, how can you offer what you offer better and to as many people as possible? Every big business used to be a small business; and by and large they became big because the found the right answer to that question.

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