Modern Warfare

There is, sadly, little sense of surprise in the news that Game Group has finally called in the administrators, as the chain’s poor Christmas was followed by the reluctance of the banks to prop up a struggling enterprise, and then the progressive withdrawal of support from its suppliers.  However, what does shock is the speed at which a plc can go from success to failure, once the storm starts to rage.  In 2009, Game Group posted pre-tax profits of £119m, up 75% in two years – here was a company that was beating the consumer recession – although this proved to be the last of the good news, as the absence of new platforms, lower pricing from online competitors, and the growth in downloaded content progressively reduced profitability and investor confidence.

Game themselves – slick and capable operators who’d innovated in many ways (eg by mainstreaming the second-hand market) – now had a brand that was too anodyne for the hardcore gamer.  They should have repositioned their primary brand to better serve that market, rather than chasing the more family-friendly (and fickle) Wii market.  Instead they sought to serve the hardcore through the rougher and readier Gamestation brand, having committed the Retail Deadly Sin of acquiring a parallel business in 2007 and then having to post-rationalise it (see Clintons/Birthdays, Mothercare/ELC, WH Smith/Waterstone’s and many more down the ages).

Their second Deadly Sin was to focus on international expansion at the expense of the home business, when they should have been replicating their physical dominance (a one-third market share at peak) in the online sphere.  That’s a tough, going-on-impossible trick to pull off when the competition includes retailers like Amazon and developers like Zynga and Rovio, but it was where the market was going and it’s where Game should have gone, in a fair and equal world.

However, this world ain’t fair nor equal, and a retailer – any retailer – committed to decades-long leases in prime pitch locations at the most expensive malls is naturally going to be focused on how maximise those stores’ sustainable profitability, how to turn them around – in short, how to protect the legacy/millstone that they’ve inherited.

It’s this lack of flexibility than can kill even market leaders in the current consumer climate; their lease commitments are so onerous that they have to focus on hauling those locations back towards profitability, even though there are precious few examples of gone-bad retail locations miraculouly coming good again.

Game Group’s collapse is the worst, in terms of potential job losses, since Woolworth at the end of 2008, and it is to be fervently hoped that some jobs, stores and the brand can be saved.  However, it once again throws the plight of the middle market into sharp relief, as a profitable core of Game stores won’t prosper unless the online/download/value challenges I instanced above can be resolved.  (And any good news that all of this represents for HMV will be short-lived too.)

Meanwhile, the less attractive or affluent high streets and shopping centres are being hollowed-out by store closures.  The Portas Review rightly promotes the conversion of retail premises to other uses, but what strategies, one wonders, are the shopping centre landlords contemplating?  The biggest and best – the Westfields, the Meadowhalls – can thrive, but all those poky, low-ceilinged 80s developments with their shallow shop units, the natural home of Game and many other 2011-12 retail casualties – how will they be repurposed?  Which major landlord is going to break ranks and announce a new strategic approach to asset management that isn’t built on the old assumption that everything will remain largely the same as it was before?

In February 2012, 10.7% of all UK retail sales – including food – were executed online.  In February 2011, the figure stood at 8.3%.  That’s a lift of £140m in a dull month, when overall retail sales were flattish at the very best.  Factor in Christmas, and you’re looking at the thick end of £2 billion transferring from bricks and mortar to online over the course of 2012.

Despite all of this, I personally remain convinced that physical retail has a strong future but – as my headline suggests – bricks and mortar is trapped in a losing war at the moment.  That war will end – a truce will be called, and a new equilibrium established – and it will be consumers en masse who end hostilities, once a new balance of online purchasing (for value and convenience) and physical retail (for the experience of the product, the face-to-face benefits, the “localness”) has been established.  

Of course, online and physical will blur, as they already have for successful, robust businesses like John Lewis or Apple (this hoarding is just two doors down from Game in Kingston’s Bentall Centre).  It’s proved to be very much easier for customers to evolve into multi-channel operators than it is for the retailers that serve them.

But the biggest and the best will survive and thrive, as will the smaller operators, who know their market, understand their customers and can move swiftly without too much legacy encumbrance.  The mass, the middle market?  That’s proving to be much more difficult.

Author’s note: My alma mater, Borders Group, of course committed more than a few Deadly Sins in its time; but the concession agreement we had with Game in the UK was highly successful for both brands during its all-too-brief existence.    

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6 Comments on “Modern Warfare”

  1. Not sure I agree with re-purposing high street retail in principle. I think that’s just capitulating and will be the thin end of the wedge.

    Once local high streets have a diluted retail offer, retailers will be handed over wholesale to large mall operators who will have a field day. They already have far too much control in the marketplace and I’m not keen on giving them any more.

    If the Portas review was aimed at saving high street retail, it should be re-focussed on doing just that. Turning shops in something else is just hastening the demise. If anything positive is going to emerge from the larger mall experience, that should be applied to high streets rather than used as an excuse to close them down.

    So in town centres there should be more stringent controls over usage clauses on an area basis, zoning, rent control, reductions in business rates and co-ordinated infrastructure plans that encompass access, parking and local traffic and road maintenance issues.

    This kind of joined up management is where the malls are scoring. Local retail and local government should be learning from that, not simply laying down and waving the white flag.

    • Hi Ian

      Thanks for your response. Important to stress that when I talk about repurposing then I envisage an overall reduction in lettable retail space, yes; but not the replacement of a general offer with no more than coffee shops, estate agents and art galleries. Indeed, the recent focus on town centre shops by the supermarket chains is one of the primary ways for high streets to become revitalised. Sainsbury, Waitrose and M&S Simply Food are all playing their part here, as are Morrisons’ M Stores, in that all of them appear to be striving to create a strong local environment (Tesco’s local offer is much more utilitarian).

      A strong food offer can anchor a diverse offer of walkable shops, and high streets are much more physically flexible than many shopping centres. One of the central points I was making was that, while the regional malls will continue to thrive, those little local shopping centres built a couple of decades ago on the site of the old printing works or brewery are looking much more time-expired – to these eyes – than a high street with building stock from the Victorian era onwards.

      I’m not arguing with you in principle on zoning, rent control, reductions in business rates and co-ordinated infrastructure plans. Lower barriers to entry (and therefore greater incentives to succeed, more wriggle room) would all assist retailers in delivering a strong high street, though I like to see government open up the opportunities, then get out of the way and allow commerce to thrive!

      • I’d agree with most of that but I’d be concerned with town centres over-dominated with supermarkets in the same way as coffee bars and mobile phone stores. 20 years ago I’d have said supermarkets were a great asset to a local town. These day’s they tend to be category killers, and they are into a LOT of categories!

        Personally I quite like to older malls, but then I’ve only ever operated out of small shallow units. I also wonder how the new 21st century malls will fare in 20 years when they start to look as dated as you say the 80s and 90s built examples do now.

        Who knows what’s round the corner? For example I’d say even the mighty Bluewater is looking a bit past it these days, and don’t forget that was actually built in the late 90s.

  2. Excellent article Philip and I’m tending to agree fully with Ian’s comments.

    The High Street will have to be scaled down, at the moment it just seems to get filled with anyone who will take a unit, no matter how temporary the lease and here in the North, these are largely bucket shops selling tat or anything that’s been bought cheaply. One where I work has HP Bottled Sauce displayed next to Kiddie Animal hats.

    The Portas review suggesting turning shops in to things that aren’t shops isn’t a goer, the town isn’t a destination then apart from once or twice a year / quarter.

    If there was an easy way of re-locating stores to one area and turning the rest in to Social Housing, there might be a future for the idea, but financially this is impossible.

    You just can’t mix and match without it looking absurd.

    The thriving towns are the ones that have built up speciality independent retaillers that feel more like a vastly expanded parade of local shops.

    Until Rents cater for this, who would take the risk?

    It’s long been called for monthly rents, it’s long been ignored, why? The Shopping Centre owners would rather see a store empty or go down to accept it.

    How would all the Renters of Houses feel if they had to stump up a quarter’s rent at a time, it just wouldn’t happen, so why is the rule not applied to shops?

    Ian’s absolutely right about Shopping Centres that were built in the Nineties looking outdated and there’s even worse combinations, old and tired looking centre followed by some outside shops and then another outdated centre, followed by another street of shops.

    Where I live there are four small shopping centres and about five streets of shops, it’s unwieldy and confusing.

    Major redesigning of the centres is needed, but who will pay for It?

    Fully agree with your Game v Gamestation comments, however they did cater for two different markets, albeit buying the same product. Game was for the parent buyer, Gamestation catered for the Teens who saw Game as uncool and Gamestation as somewhere where you weren’t intimidated or watched if you were a youngster, the staff treated them seriously and were enthused.

    Zavvi were going down the Gamestation model and it was showing signs of working.

    I’m a big game player, which may surprise you and I found Gamesation superb. Yeah it was a bit tatty, but it was meant to be. The staff though listened to you, loved their job and reminded me a lot of a small scale Borders.

    Game were the exact opposite, sell sell sell without knowing anything about the product. They had their own sales agenda but the stores looked much smarter.

    If you were a Retail Professional, you would say that Game looked like everything a Retailler should be or was at least trying, yet Gamestation seemed to have by far the greater Customer ethic and judging by my town, had plenty of people in were as Game was always empty.

  3. thadmc says:

    “It will be consumers en masse who end hostilities, once a new balance of online purchasing (for value and convenience) and physical retail (for the experience of the product, the face-to-face benefits, the “localness”) has been established.”

    I agree strongly with that statement, but ponder the pain it appears we’re going to have to go through to reach the new equilibrium. Apple is an inspiration, but in roughly the same way that Richard Branson might be to the average businessperson: not likely to emulate his success.

    For the rest of retail, online seems to be skimming the nourishing cream off the top leaving currently unsustainable models for bricks and mortar.

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