The State Of Retail In 2018: How Are SMEs Faring?

SMEs in the UK are finally in their prime.

After the devastation of the financial crisis and the stringent measures banks put in place which seemed to attack the smaller business, the state of retail in 2018 is starting to look rosy for the small to medium-sized enterprises.

In 2017, 70% of SME online retailers said that they experienced an increase in sales that year. Furthermore, 74% said that they are confident that their sales will grow further in 2018. Perception seems to be that the state of retail is on the up, but is that really the case?

Retail in 2018: The Good

One of the main benefits that SMEs have is the fact that they are agile.

Businesses with a smaller, therefore flexible nature, have a distinct competitive advantage. With customer demands changing so rapidly in 2018 and beyond, SMEs can capitalise on this compared to more prominent brands that are slower to adapt. In fact, 45% of SMEs believe their customer-centric approach and agility in the market is a significant driver for future growth and revenue.

Another benefit for retail in 2018 for the smaller enterprises is their ability for international expansion. While 30% of UK SME online retailers do not currently ship internationally, there is a demand and potential for growth which many other SMEs capitalise on. In fact, in 2018, 64% of UK SME retailers have a goal to increase their international revenue. It is with strategies like this that SMEs can grow, expand and even dominate the global market.

Retail in 2018: The Bad

Dominating the headlines for the last few years has been the discussion of Brexit. It is no wonder that it takes up a great deal of media coverage due to the potential implication and repercussions that affect almost everyone. One aspect that is detrimental to SMEs is the fact that Brexit has resulted in an increase in import prices. SMEs now have the challenge of trying to absorb these costs within the business, or having to raise their prices to cope which can impact the customer.

It is no surprise that economic and political uncertainty plays a significant part in business risk analysis reports. In fact, 54% of SME businesses rank the uncertainty as a threat to their business.

Another consideration is for the SMEs with physical retail stores. The online retail sector is growing, and with that, it is taking a significant proportion of the market share from the high street. It is firmly believed that the continuing growth of online sales will result in a decrease in physical stores which could detrimentally impact towns and cities across the nation. In a study comparing retail trends, high street footfall fell by 1.2% in February 2018 compared to February 2017. Footfall in shopping centres also fell by 0.9%.

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Retail in 2018: The Challenges

In order to cope with the negatives and capitalise on the positives, there are a number of challenges facing UK SMEs. For many businesses, the priority is to increase operational efficiency within their organisation. In fact, 47% of UK SMEs want to consolidate their operations into a more cost-effective and efficient model.

By streamlining the business, organisations hope they can improve their long-term financial performance, have a stronger business model for growth and have the continuing opportunities to adapt to market changes as they take place.

Another challenge in 2018 for the UK SMEs is the fact that costs are not only higher in terms of import but prices are rising regarding advertising, logistics and purchases too. The knock-on effect of increasing prices in a range of sectors often hits the smaller businesses harder. The fact that fixed-price contracts are rare for smaller firms means they are affected by the fluctuation much more than the big brand competitors.

In fact, 27% of UK small businesses are concerned about making a profit in 2018, despite the fact that many SMEs are optimistic about what this year will bring.

For SMEs to succeed, it is essential to stay in touch with the latest retail trends. For example, the high street shoppers are now looking for an experience while they shop. This experience is the unique selling point that online shopping cannot bring. For physical stores, considering a way to make the shopping experience more interactive and entertaining is critical. For online retailers, the primary challenge is to expand the business and tap into the international market where there is a potential for substantial profit opportunities.