Why retailers need to diversify revenue streams in today’s tough climate

A look at why secondary revenue strategies are an economic must for retailers to remain profitable


Brexit is less than a year away and the uncertainty rattling the retail industry is almost audible. Uncertainty and knocks to consumer confidence are often touted every time a ‘To Let’ sign appears on the high street or a profit warning is sounded. But is it really just Brexit, or is this another excuse or something to blame for the high street woes?

There will always be ongoing challenges that retailers need to manage when working in a competitive environment, particularly where innovation is improving the way we can work, what we can achieve, and therefore what customers expect on a daily basis.

Whether it is Brexit or not, economic changes combined with the technology revolution we have experienced are having an effect on business. A leaked Government report has predicted that the retail industry will endure operational and logistical price rises of 20% after Britain leaves the EU.

I don’t think it’s too harsh to say that those that don’t innovate are dying; the collapse of Toys“R”Us earlier this year is a case in point – sticking to tried and tested methods and neglecting its brand ultimately led to its demise, losing out in the price war with Amazon.

But it’s not all doom and gloom. The retail industry is doing some exciting things that it can be really proud of, and we know from our own research that R&D is thriving. Our Digital Innovations report – a celebration of how technology is being embraced by retailers – shows how creative ideas combined with tech-savvy are helping retailers to win over shoppers with everything from AI to virtual reality.

Yet, tech innovation comes at a cost. It needs funding support and investment, as well as the inclination in business - through the right leadership and skills - to make it happen.

The reality is that government will always draw on economic challenges that need to be addressed and unfortunately the appetite for the media to report on this is adding to the hype. Scaremongering isn’t helping retailers to think positively and invest more in innovation and new product solutions. They must find new forms of revenue.

Diversifying revenue streams is the obvious answer to help rejuvenate turnover and margin for a business when the books just are not adding up. In a similar manner to how airlines started selling car hire and speedy boarding when forced to compete in a price war over airfares, retailers are thinking out of the box about how else they can make money.

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The airline’s ancillary revenue industry is now predicted to be worth $44.6bn globally and this trend is becoming a reality in the world of retail too. As making a profit on product markup gets increasingly tough in today’s internet shopping era, we’re seeing the retail industry go the same way.

Our research reveals the extent to which retailers are diversifying their income streams to remain profitable. This can include everything from selling advertising on their websites to taking part in affiliate marketing programmes and offering membership to third party loyalty programmes. The findings of our Beyond the Core report reveal that 46% of retail businesses now make more than a tenth of their revenue in this way.

And, it’s a trend that’s growing. When we started the study in collaboration with the British Retail Consortium in 2017, the figure stood at 36%. And those that do have a secondary revenue strategy in place are seeing results – three quarters have reported greater profit margins over the past two years.

The thing I admire most about the retail industry is how it has weathered many storms. Consumers can be fickle beasts and keeping pace with their needs takes intuition and investment.

In my conversations with the retailers we work with across the UK, the growing consensus is that sticking with the status quo is no longer enough. There will always be competitors plotting to undercut you or tough conditions on the horizon prompted by political decisions beyond your control.

Economic challenges like Brexit are an opportune time to scrutinize the resilience of your business and consider if all avenues for profitability have been considered. Secondary revenue strategies are no longer a "nice thing to have" but an economic necessity to survive.

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