It’s been a tough first quarter for the British retail sector. Last month it was reported that Carpetright was on the verge of seeking a company voluntary arrangement (CVA) – an agreement that would enable it to close loss-making stores and receive rental discounts on the remainder of its estate. The news followed New Look securing a similar arrangement, Mothercare speaking to its lenders after poor trading performance, and the collapses in February of Toys R Us and Maplin.
There has been further bad news in the food and beverage space with numerous operators, such as Jamie’s Italian and burger chain Byron, also shutting sites. These closures have already cost thousands of jobs and analysts anticipate further retail collapses.
So what’s caused this crisis and what role can HR departments play in ensuring their retailer doesn’t follow suit?
In simple terms the problem facing operators is a combination of spiralling operational costs and sluggish sales as consumers rein in their spending thanks to ongoing uncertainties surrounding Brexit and the UK economy. Additionally, over the last couple of years the National Living Wage has gone up, there was a business rate review that led to eye-watering increases, and the cost of importing goods rose thanks to the collapse in the pound.
Increased competition from online-only retailers hasn’t helped, says Elizabeth Houldsworth, course director of the MSc in international human resource management at Henley Business School.
She says that Toys R Us’ UK sales fell by 52% from 2007 to 2016 and Rebecca Yusuf and Tomomi Hayato – students on the international human resource management course – have identified a number of different issues in their research.
“They point to the pressure of the living wage and increased competition from low-cost providers,” says Houldsworth. “At the same time, the usual ‘warehouse’-style store location that was favoured now looks outdated.
“Although Toys R Us had innovative plans to reverse the decline, seeking to position the stores as ‘hangouts’ and family leisure venues – for example for birthday parties – it seems to have been too little too late and the pressures of competition, hierarchical culture and poor staff morale have taken their toll.”
A similar set of unique circumstances led to Maplin’s demise, according to Kate Hardcastle, founding partner and retail expert at Insight With Passion. She says that when Maplin was bought by a private equity house in 2014 there was a great opportunity for the retailer to capitalise on the expertise of its shop floor workers.
“There are all of these people out there who are technophobes,” says Hardcastle. “No-one really understands technology and yet it has become part of our everyday lives – home security systems, smartphones, drones: you name it everything has got technology. So I thought it [Maplin] was going to be an absolute hero.
“However, when I heard the news [of Maplin’s collapse] I went and interviewed consumers and one of them said it was like a pub disco with boomboxes and lights. And if you looked at the service ratings in most stores they were really poor so it wasn’t connecting the dots.”
While each of these respective collapses had unique contributory factors, there are commonalities between them and some of the other retailers currently struggling. Arguably the main one is the fact that they all sit in the mid-market, which has been dramatically eroded, says Hardcastle.
“It’s the centre of the apple core,” she explains. “Toys R Us, Maplin and BHS. If you look at others
that are struggling – New Look, Debenhams, Claire’s – they all sit in the middle market. They’re not new and niche and exciting and they’re not discount, which we know is thriving. It’s a really hard place to be right now because what’s going to justify the cost? Nothing. You don’t have the impeccable service, or the best products, or the best price.”
So is there a role HR departments can play to help these companies ‘pivot’ their offer? According to one HRD who works for a leading UK company that operates a number of sites nationwide, and who wishes to remain anonymous, “it’s essential” that HR helps businesses transform and stay relevant. But he isn’t confident there are enough HR people who have the tools to do this. “Most HRDs are the least innovative people I know,” he says.
Lacking the relevant skills is one issue – the other challenge is to get involved early enough to “highlight the people issues required for successful transformation, starting at the top with strategy, leadership style and climate,”
It’s a view shared by Keely Rushmore, senior associate at SA Law, who believes a company’s HR function can play a huge role in helping their business avoid a crisis.
“Strategic workforce management is increasingly important, and HR professionals have the ability – if given the appropriate support and resources – to influence at the highest level and to introduce significant change projects and new initiatives,” says Rushmore. “An HR director or manager who is proactive and interventionist can assist an organisation to improve efficiency, performance and cost-effectiveness.
“This could be, for example, by way of introducing incentive schemes, undertaking innovative restructures, or making changes to terms and conditions – or practices – to ensure that the workforce is agile and responsive to changing market conditions. This could stave off a crisis or, even better, avoid it altogether.”
Hardcastle agrees. She says the key is empowering staff: “It’s about realising the potential that there is [within your business] and using it. Shop floor staff have got so much knowledge and expertise so HR has got to be the bridge between that expertise and the boardroom.”
An HR director for a leading global retail brand, who also wishes to remain anonymous, concurs. “Change is the new normal,” she says. “HR departments need to work with their employees to help them navigate uncertainty. Creating a culture where people can speak up will encourage a sense of belonging, helping people feel
they are not alone.”
However, at the moment Rushmore says far too often HR is “relegated to a reactive role”.
“HR can only achieve its potential if its value and contributions are fully appreciated and endorsed,” she adds. “Of course, things are never that simple and HR alone is unlikely to prevent an organisation from becoming insolvent. However, they are a key part of the bigger picture, and it’s crucial that an organisation’s HR objectives
are aligned with corporate objectives and sanctioned at the highest level.”