Is retail a dead end?

Retailers have had a tough time recently. Scratch that...retailers have a tough time any time the economy weakens. JJB Sports are the latest company to create the troubled headlines.
Yet we, the British, are said to be a nation of shopkeepers, and the retail industry is central to our economy.
So is retail a dead-end? Or a panacea? Or is it a little bit of both?

The fact is that most retailers work on incredibly tight margins. I used to work for Tesco, and their published net profit margins hover at around 7% of Revenue. Compare this to the Capital spend required just to maintain the stores and there is not a lot of spare cash to go around.
Some start-ups can carve out a niche with higher gross margins, but if fully and properly costed, net margins can also be very hard to find.
Move to some other countries and things are even more finely balanced. In Germany retail margins are generally lower than in the UK - staff are much more rare in a German retail store because of that. The experience of queuing at one of only two populated tills when shopping in a supermarket there makes you appreciate the banks of tills in a UK equivalent with only 1 or 2 people waiting at each.

Bricks and mortar-based retailers have significant fixed costs in rent and rates, and semi-fixed costs in staff to uphold. Online retailers benefit without these, but have higher systems, fulfillment and marketing costs to offset instead. Good role model retailers (like Tesco) that combine bricks and clicks and run both effectively and efficiently, still end up with a 7% net margin...and probably a return of more like 2% after essential maintenance capital.

So is it all worth it?
Retail is central to the economic well-being of the UK and many other countries. Jobs, wealth creation, much of it flows through the UK's shops. It is a tight balancing game, but even the apparently small margins, when applied to a massive revenue, can generate profits of over GBP2 billion for Tesco.
In the good times, cash flows into the tills and provides the profit to pay for all those jobs, support a massive infrastructure engine behind it all and powers the economy forwards. If the government is looking for industries to help bring the economy back on track, then retail must be at the forefront of their minds.

Yet individual companies will remain incredibly sensitive to changes in consumer spending...much more sensitive than their landlords, local authorities etc who are the recipients of the retail industry's fixed costs. And so some retailers will always struggle in a downturn. 

All the more incentive to be the best in class, to be better, more nimble, more reactive to the circumstances, than the competitors in order to retain or even grow market share during the tough times, as well as being able to enjoy the sunshine and make hay during the good.