AO… let’s go!
AO, the Bolton-based online retailer that sells household electricals and appliances across the UK, has come a long way since it was founded back in 2000. Find out how they’ve built a resilience culture, fuelling growth.
Retail resilience
How well does your business navigate through challenges?
The UK retail industry is highly resilient and has overcome many challenges in recent years. It's a dynamic and creative sector, continually adapting to technological, economic, and social trends. Despite a common perception of struggle, the reality is that UK retail is full of endeavour and innovation.
This report presents a framework to help retail brands answer the question: ‘How resilient is your business?’. The research includes insights generated from a survey of retail leaders in the UK and proprietary data covering the top 100 UK largest retailers.
Our report features three main sections
Evolution of resilience in UK retail
The retail industry forms a vital part to the UK economy (5% GVA). It is highly diverse with the combined annual sales of the UK’s top 200 retailers accounting for less than 80% of total retail sales. It created 2.7 million jobs in 2022 and generated sales of around £510 billion in 20231.
The sector has shown great resilience from ongoing disruption over the last two decades, overcoming a recession, Brexit challenges, a global pandemic, and is now working through a cost-of-living crisis. Furthermore, the rise of ecommerce has led to many structural changes. For example, the role of stores has evolved to embrace a more complex omnichannel customer journey which offers more connected experiences for customers. Within Europe, the UK is a leader when it comes to ecommerce with the highest online sales penetration in 2023 at c26.6%1. Digital transformation has been central in achieving this.
As the industry evolves, lessons learned from past disruptions will be useful in strengthening the sector’s future, ensuring that UK retail remains a vibrant and integral part of the economy.
To help assess the resilience of UK retail, we analysed 100 of the UK’s largest retailers* (includes some car dealerships). By ownership, 32% were privately owned, 32% publicly owned (PLC), and 36% UK subsidiaries of foreign retailers. The analysis revealed the following insights:
- Collective global sales from the latest reporting year = £350bn
- Average founding date = 1950 (suggests shoppers value established brands that have survived challenging times, implying trust and reliability)
- The majority (87%) of companies are currently profitable on an operating basis.
- 13 out of the 100 companies reported a loss in their latest financial year and have not achieved a cumulative operating profit over the past three years
- Of the 13 reporting a loss, 7 are public companies
- Of the 13 companies, 5 are online-only retailers.
Understanding resilience:
In today’s business environment, building resilience is essential for retail success. Retailers face a range of challenges, from rapid technological advancements to environmental issues. This means retail boards need to take proactive steps to manage risk more effectively.
Our research presents a ‘Retail Resilience Framework (RRF)’. The framework features seven key pillars and is designed to help retail brands better understand risks in order to benchmark their operations for increased resilience.
It’s important to note that these pillars operate in conjunction with one another and are impacted by external factors such as demographic shifts, time, economic shocks, and workforce dynamics which impact levels of confidence in the ability to manage a particular risk.
For example, demographic shifts can impact consumer behaviour and market demand, while economic shocks can disrupt financial stability and supply chains. Similarly, social trends and workforce dynamics can influence brand reputation and operational efficiency. Time also plays a critical role in strategic planning and regulatory compliance.
Assessing the pillars of resilience
Cyber and data security risks, along with operational risks, are viewed as the most immediate and well-understood, given their placement in the short-term, high-importance, high confidence area.
Financial risks, regulatory compliance, and reputational risks lie in the medium-term, confident range, reflecting their persistent and manageable nature.
Environmental, social and strategic resilience areas, occupy the long-term, low confidence area, indicating their emerging significance and the challenges in predicting their impact.
A high 70% of respondents ranked cyber threats among their top three concerns over the coming 12 months, with one in three (34%) suggesting it was their top concern. Although the effectiveness of cyber-attacks has risen in recent years, the majority of retailers surveyed felt they were prepared in this area.
Regulatory issues and compliance was reported as the next most important pillar of resilience by 52% of respondents. This reflects more complex policy, including areas such as data protection, financial reporting obligations, and environmental requirements. Here, retailers feel sufficiently prepared to meet compliance demands but note issues with resource and expertise.
Environment and social risks indicate a growing recognition of sustainability and social responsibility as stated by 24%. However, as seen in our research, lower levels of preparations highlight more effort is required to integrate environmental and social principles into operations. This aligns with global trends where stakeholders want greater transparency and commitment to sustainability.
Areas of retail resilience
The research highlights the different areas of retail resilience, and where immediate threats are balanced against evolving long-term challenges. Here are three key themes:
Theme 1: balancing immediate priorities with long-term vigilance
The necessity of balancing immediate priorities with long-term vigilance is critical. While retailers are rightly focused on addressing today’s pressing issues, failure to acknowledge tomorrow’s risks could lead to problems.
Cyber security is the biggest, immediate concern. On the other hand, environmental and social risks are expected to become much more important over the next five years, although viewed as less urgent now. As such, environmental and social risks are often not given enough attention today with retailers feeling like they lag behind their competitors. This is potentially risky because ignoring these long-term concerns could leave businesses unprepared for future challenges.
To build resilience, retailers could try to be more forward-thinking, such as developing strong environmental and social practices today to reduce future risks (e.g. working with industry bodies, meeting forecast regulations and customer expectations). Including long-term goals into daily decision-making helps businesses stay ready for market changes and new trends. Also, regularly updating risk assessments to cover both current and future scenarios ensures a more robust approach.
Theme 2: investing in resilience
Investing in technology and digital capabilities is at the forefront of resilience today, with 60.2% of retailers citing this as their top priority.
Almost half (48.4%) of retail leaders said they have taken steps to enhance employee training and development. This focus on human capital not only boosts operational efficiency but also fosters a culture of innovation, agility and leadership.
Disruption caused by the pandemic and geopolitics has put supply chains in the spotlight. Here, 46.2% of retailers have invested in strengthening their supply networks, often by diversifying, investing in local sourcing, and utilising technology for real-time supply chain monitoring.
Actions by UK retailers to boost resilience
| Investing in technology and digital capabilities | 60.2% |
| Enhancing employee training and development | 48.4% |
| Strengthening supply chain resilience | 46.2% |
| Diversifying product offerings | 43% |
Theme 3: Generative AI and digital transformation
With the current squeeze on retail profitability, maximising efficiency has become a necessity. The emergence of generative AI in products like Chat GPT, Google Bard and Microsoft Azure has enabled retailers of all sizes to benefit from this technology. When integrated as part of a wider digital transformation strategy, retailers can greatly improve their propositions, the customer journey, efficiencies, and secure a competitive advantage.
This technological evolution includes both front-end and back-end frameworks, databases for storing customer and product data, cloud services for scalable hosting, payment processing systems, data analytics, marketing tools, and content and customer support management systems. Collectively known as the ‘tech stack,’ these technologies enable retailers to deliver seamless customer experiences, optimise operations, and ensure secure transactions.
However, the industry has reached a point where the competitive edge of early adopters is diminishing, and the benefits of digital transformation are becoming more fragmented. Over the last decade, digital transformation has been vital for successful retailers, but we are now entering a new era of rapid technological advancement. AI, the Internet of Everything (IoE), autonomous logistics, sustainability, and hyper-personalisation will be key themes in this area.
Interestingly, attitudes towards whether Gen AI is an opportunity or a threat remains polarised.
Retailers view on Gen AI
Strategies for success
Leadership and governance
Strong leadership and governance is of utmost importance to help build resilience. Ensuring that management boards are fit for purpose and have the depth and breadth of experience to address all seven pillars of resilience is critical (outlined in our Retail Resilience Framework).
Having a clear vision, good strategic oversight with accountability practices, and incorporating room for flexibility are also essential. When combined with intelligent implementation, which includes operational agility and regular risk assessment with continuous feedback loops, retailers can better manage risk and even thrive in challenging times.
Focusing on board-level governance ensures that long-term risks, particularly in areas like ESG, receive adequate attention. Strong governance can also foster a positive organisational culture which is also helpful to drive change and help businesses maintain trust with stakeholders.
It is also worth noting that the non-executives and external advisors or consultants can play a pivotal role where in-house skills are less experienced.
Attention to sustainability
Long-term risks are increasingly critical to address for sustained success, especially those related to sustainability. Our research shows that retailers are less confident in addressing environmental regulations than other risks, and is an area requiring more focus. By proactively managing sustainability factors, retailers can mitigate risks and strengthen their reputations, leading to increased customer loyalty and investment appeal.
Improving sustainability practices could also drive operational efficiencies. For instance, reducing emissions could lead to lower energy costs and waste, thereby boosting profitability. By integrating sustainability considerations into strategic planning, retailers not only comply with regulatory requirements (e.g. streamlined energy and carbon reporting regulations 20192) but could also position themselves as leaders in responsible business practices.
Interestingly, our analysis of some of the largest 100 UK retailers shows that profitable retailers often have lower emission intensities than their loss-making counterparts. This suggests a link between operational efficiency and fewer emissions, where larger retailers actively seeking to reduce emissions could discover opportunities for cost savings. This highlights the potential for sustainability to drive profitability in specific instances.
Investment in technology
Investing in technology is vital for mitigating risks and enhancing resilience. Past investments in areas like cybersecurity may have reduced exposure to threats, but a continuous focus on innovation, particularly in generative AI, will be crucial as we head into the future.
Leveraging data science and advanced technologies can help streamline operations, improve customer engagement, and provide data-driven insights for strategic decision-making. In fact, our research reveals that 65% of retailers feel that they have not improved crisis management processes, suggesting that more focus is required with technology supporting key objectives.
However, it's important to implement technology ethically and with caution. While technology offers significant benefits, it is not a ‘silver bullet’ solution for all issues. Retailers must balance technology with human interaction, and with other strategic initiatives to ensure comprehensive resilience, avoiding over-reliance on any single solution.
Diversification
Diversification is also a key strategy for building resilience as it allows retailers to spread risk and tap into new opportunities. By expanding into different markets, product lines, and sales channels, businesses can reduce their dependence on any single revenue source. This not only buffers against economic downturns, but also opens up new growth avenues, enhancing overall financial stability.
Embracing diversification also involves investing in a varied supply chain. By sourcing from multiple suppliers and exploring local as well as international partnerships, retailers can safeguard against disruptions and ensure continuity. This approach supports agility and enables businesses to adapt quickly to changing conditions, ensuring long-term resilience and competitiveness.
Success in action
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The research included a survey of 93 senior retail executives conducted in May 2024. This survey was used to quantify and explore their views on a range of risk and resilience-related issues within their business and the wider retail industry. Respondents typically included senior-level roles involved in managing risk or audit committees at organisations with a turnover in excess of £6.5 million, often at the C-suite level. In addition, research findings were also included from data contained in the most recent annual reports of 100 of the UK’s largest retailers (note: the sample includes retail and automotive organisations, both public limited companies (PLCs), and privately owned entities, including UK and UK subsidiaries of foreign-owned retailers; and excludes various international retailers who do not disclose UK-specific data). Analysis was conducted by Retail Economics.
*Sample excludes some international retailers who do not disclose UK specific data.
About Retail Economics
This thought leadership was created in partnership with Retail Economics. Retail Economics is an independent economics research consultancy focused on the consumer and retail industry.
We analyse the complex retail economic landscape and draw out actionable insight for our clients. Leveraging our own proprietary retail data and applying rigorous economic analysis, we transform information into points of action.
Our service provides unbiased research and analysis on the key economic and social drivers behind the retail sector, helping to inform critical business decisions and giving you a competitive edge through deeper insights.
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