Modern WarfarePosted: March 28, 2012
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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