Helen Dickenson on retail - Hold on tight - it's going to be a bumpy year

Just to make my first column even more of a challenge, the kind people at Marketing suggested that I should open my account by predicting what lies ahead for the retail industry in 2005. Well, here goes.

As I write this in the few final days before Christmas, it is still touch and go as to how sales will pan out; all will be revealed as the trading statements roll in over the coming weeks. However, over the past few months there have been a number of indicators pointing to a slowdown in consumer confidence, and this will provide the backdrop for the retail sector throughout 2005.

We have, after all, seen an unprecedented and sustained level of consumer confidence over the past three to four years, providing the backbone to a strong UK economy. It could not go on for ever. Against this backdrop, and in an environment of rising staff and property costs, there will be challenging times ahead for the retail industry.

As a result, we will undoubtedly see fewer of the private equity deals that dominated the business pages last year. But there is still a chance that one of the much-rumoured big deals could finally happen, so retail will not be out of the press for long.

Retail is, and always will be, influenced by people's lifestyles - whether it is by health concerns, entertainment choices or our desire to follow fashion trends. An overriding theme in 2005 will be what we eat. We will hear more about low-carb diets, levels of fat and salt content, and how food has been grown and prepared. It will impact heavily on what we find on retailers' shelves - particularly supermarkets. What it won't affect so much is the price of goods, because the sector is not only fiercely competitive, but consumers are simply unwilling to pay more, in the same way that they have found it increasingly unacceptable to pay more for organic produce. This will pose a challenge for retailers and manufacturers.

Whatever the problems facing the supermarkets, they will continue to dominate the sector, fuelled by their move into non-food. Their share of total household spend is heading only one way: upward. Verdict Research recently concluded that Asda and Tesco together now represent 17% of the retail market. Their influence on retail dynamics cannot be underestimated.

I also think that 2005 will be the year in which the internet reaches maturity as a retail channel. Christmas 2004 will have shown that some of the supply chain and customer service problems that proved challenging in the past have been resolved. Online's year-on-year growth is now beginning to make real inroads into the sector as a whole. Verdict forecast the internet would account for 6% of retail sales during 2004.

As well as buying more online, we will also see more research done on the internet - especially for high-value goods. I have just bought a digital radio for my parents, but first checked prices online to ensure that I didn't overpay when I made the purchase on the high street.

This is an example of why multi-channel retailers will continue to benefit over the next year.

Technology will be crucial to the sector this year. Retailers will polarise into two camps in a trend best exemplified by the adoption of the Chip and PIN system. Some retailers have embraced it and paid to install a system, while others have ignored it and could pay the price for not doing so if they suffer high levels of fraud as the year progresses.

Likewise, RFID (radio frequency identification) tags will increasingly be used by international retailers, but don't expect to see them used by your local independent corner shop for some years to come.

30 SECONDS ON ... RFID TAGS

- RFID tags are tiny devices (half the size of a grain of sand) that allow the remote storing and retrieval of data.

- The tags remain embedded in products, enabling retailers or manufacturers to track consumer spending patterns, reduce shoplifting and improve stock planning and customer information.

- They are particularly appropriate for use in clothing stores. A retailer is able to link a shirt worn by a shopper (and still tagged) with the credit card used to buy it, and greet that customer by name when they return to the store.

- Shoppers in a store that has tagged its products can swipe an item on a reader and find out which sizes and colours are in stock. A screen located by a changing room can advise the shoppers on items to complement the garment they are trying on.

- The German Metro Group became the first retailer to install RFID technology into its supply chain, in November last year.

This article was first published on Marketing