The Bookseller has published a column I’ve written in response to WH Smith’s prelims announcement last week, which delivered the double whammy of £100m+ profits, and the upcoming departure of Kate Swann as Group CEO. I’ve reproduced it below.
When the WHS announcement was made last week, two sets of instinctive responses crashed into each other. The City reporters raised the roof for Queen Kate, during whose reign earnings-per-share have been driven to ever higher peaks, thanks to a combination of margin enhancement, cost-cutting and share buybacks. And the naysayers pointed out that, yet again, sales were down – even in the go-go Travel division, like-for-likes keep falling. Oh, and BTW, the store environment is pretty poor.
I try to take a slightly more nuanced (or reflective) view. Swann has delivered extraordinary numbers through torrid times, but has she left her heir apparent, Steve Clarke (who is promising more of the same), with a sustainable model?
WH Smith has made every decision with its shareholders’ interests paramount – and that’s as it should be, am I right? However, it is hard to escape the conclusion that those decisions have been predicated on short-to-medium term returns, rather than the sort of long-term investment that leading retailers make. WHS is still a bricks-and-mortar company (notwithstanding a long-standing but rarely promoted transactional site, and the slightly more forward-looking Funky Pigeon online offer), trading in categories – printed books, newspapers and magazines – that are in long-term decline. Its overseas Travel expansion plans are broad-based – but winners need to be idenified from a pot-pourri of investments across several continents.
Retail Week has just dropped through the door, complete with a profile of Steve Clarke. In the meantime, here’s The Bookseller piece:
Some smiling faces in the retail community this morning, with news that like-for-like sales in September lifted by 1.5%, easily the best result of the year. Why the bounce? There will have been some pent-up demand, following the armchair weeks of the Olympics and Paralympics, and – extraordinarily – there was actual alignment between fashions instore and the weather outside, so customers stocked up on winter clothing.
This didn’t necessarily mean a kiss of life for the high street, however – online sales rose by 9.9% year-on-year, compared to 4.8% in August, so the big shift from physical stores to the online environment accelerated, once customers started shopping again. And JJB Sports called in the administrators at the end of the month – one of the biggest failures in a terrible year for business failures.
There’s an interesting piece in the FT this morning (you’ll need a subscription), which lists some of 2012’s most notable casualties – Blacks, Game, Clintons etc – and notes the overall fall in the number of trading retail units across the country. Most pertinently, it highlights the quiet retrenchment taking place within successful non-food chains across the country, whereby multiple smaller stores are being closed in favour of a fewer, larger stores in the big centres. (nb my blog on the top eighty retail locations, from the start of this year). It may not feel like it, but independent retailers are increasing their share of the number of trading retail units, with 67% of all stores controlled by indies, up 1% against 2011.
And this is where the retail shake-out in the headline comes in; progressively, over the past four years, the out-of-date leviathans, the single product chains, the superseded-by-technology businesses and the unable-to-respond-to-slicker-competition-or-just-ground-down-by-Amazon retailers have been bought out, merged or closed down. There’s now a big “middle of the market” gap between the FTSE 100 corporations and the street-fighting new players, but this recessionary climate has been rolling for long enough to allow the biggest players careful application of their cash piles to reshape their store portfolios and integrate first-class online offers, while the new companies have grown up, and been designed from the ground up, for an omnichannel (apologies to John Ryan) world.
A guaranteed better retail tomorrow requires consumer confidence, and we haven’t yet turned that corner. (With Europe unresolved, the end of austerity is still some way off.) Nevertheless, we are seeing the birth of a new, fitter retail sector in the UK, with plenty of entrepreneurial spirit among the start-ups, and in larger, imaginatively run, modern businesses like Hotel Chocolat or The Hut. This is a volatile and fast-changing sector (asked Bill Grimsey), and there will be more business failures, more empty shops, more job losses. But good retail practice thrives on its ability to adapt, to anticipate changing consumer behaviour and surprise, delight and good value. The new generation, and the wisest of the old, understand this, and are seizing the opportunity.
Clinton’s new Chief Executive Dominique Schurman has spoken to Retail Week about her plans for the brand, following her appointment by new owners Lakeshore Lending, a subsidiary of Clinton’s largest creditor and supplier American Greetings.
Schurman has enjoyed a thirty year career in card and gift retail in the US, where she will continue to serve as CEO of Schurman Retail Group, which is part-owned by American Greetings, and comprises the Papyrus, Carlton and American Greetings shopfronts and online sites.
Adding 397 well-worn UK stores to this mix is a tall order, and Retail Week concentrates on three elements of her short-term strategy thus:
1. Renegotiate lease terms out of administration. With retail chains falling like flies, landlords will be interested in reducing rents to secure tenancies, particularly in the sort of secondary mall locations that Clintons has historically filled – locations that are less attractive to fashion users.
2. Refurbish the stores. The extent to which Clintons had allowed its estate to go to seed looks like a long-term death wish – either that, or simple disdain for customers and competitors. The design of the typical Clintons store – inside and outside – has moved on very little since the 1980s, as the business became captive to its own heritage. And maintenance has been poor: carpets are tatty, and fixtures and lighting well-worn and out-of-date, creating an ambience of “downmarket without the value-add”. It is hard to see how you just freshen up these stores – they will need to be gutted and started again.
Schurman has indicated that she will drop the chain’s signature orange. I’d think hard about the name, too; “Clinton Cards” has had out-dated connotations for a long time, and though it never quite shot itself in the foot (cf Gerald Ratner), it’s become a brand for which there is little consumer loyalty. The store and online offer is going to have to be completely reinvented – why keep the old name, when you could do a Next-out-of-Hepworths, or River-Island-out-of-Chelsea-Girl, and properly reposition your business.
3. Improve the product mix. Clintons is another middle-market retailer that has fallen between the two stools of value (personified by Card Factory) and designer/quality (think Paperchase or Scribbler).
This is likely to mean a broader spread of gifts. What does Schurman sell in her US businesses?
In addition to cards and stationery, upmarket brand Papyrus offers photo frames and albums, bags and purses, soaps, books and bookmarks, candles and diffusers, mugs, glasses and tableware, entertainment products, jewellery, scarves, journals, toys, games, plush and much more; Schurmann’s other brands provide mid-market ranges of similar products.
The US has a greater appetite for printed invitations and formal partyware than the more casual Brits, and this is reflected in the offer. It also memorialises public holidays to a greater extent. We do birthdays, Christmas, the spring seasons (Valentines, Mothers, Easter, Fathers), and a few personal milestones. We don’t send a lot of cards celebrating Halloween or New Year, we’re disdainful of industry-created opportunities like Bosses’ Day, and – for instance – we express our patriotism rather differently to the US (did you receive any Diamond Jubilee cards?). There’s no market for UK versions of the 4th July selection at American Greetings’ website, however keenly we support Help for Heroes.
Of course, it’s too easy to point up how we’re divided by a common language etc etc, but Schurman’s team will need to quickly recognise how different our attitude towards each other can be, and how this affects our preferences in cards and gifts.
All of the above will cost a lot of money, and a reinvention of this sort cannot be delivered overnight – American Greetings will have to run fast to deliver store prototypes and revised ranges for next Christmas. And Schurman will of course have to address Clinton’s unexciting online offer, out-manoeuvred by Moonpig and prey to WH Smith’s new Funky Pigeon brand.
As a manufacturer and supplier, as well as retailer, AG will have to manager its supplier relationships with the supermarket chains, who are muttering about boycotting AG’s cards. It would be counter-productive to save Clintons (at significant short-term cost) in order to lose long-term supermarket business.
Similarly, Clintons has important retailer relationships with AG’s direct competitors, like Hallmark. Much triangulation will be required…
So, what’s the endgame? – a long-term presence as a retail owner in the UK, or a turnaround and exit in the course of the next five years? While it’s good news that nearly 400 stores (and the jobs that go with them) have been saved, can profitability be grown at all of those locations? And if you were setting out to build a 400 store chain, how many of these locations are the ones you’d choose? This is not a quick-fix business.
The Bookseller has run a piece on the speech I gave to the World E-Reading Congress earlier this week, so I’m reproducing the text in this blog entry.
Whilst I’ve edited out some of the more obvious “lecture” elements (eg “Good afternoon, my name’s Philip Downer”), this is still a talk, so in places you may find it (even) more rhetorical than some of my usual writing; similarly, the grammar and syntax will be a little sketchy or forced in places!
My audience consisted of publishers, and those who provide publishing services – distribution, analysis, technical support, media coverage, plus a smattering of creatives (writers, illustrators, designers) and some online sellers of books and/or content. There were no bricks and mortar retailers present.
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My theme for this afternoon is Bookselling: The past is another country, but the future is another planet.
This is a bit clunky, but on an agenda full of brave new worlders, keenly identifying opportunities and breakthroughs for the future of eReading, I am the lucky person who has elected to talk about shops.
I’ve given a few talks over recent months, and as I approach each one, the news for specialist booksellers appears to have got a little bit more challenging. At Frankfurt last year, I observed that “We are entering a world where a handful of corporations own proprietary formats through which all the books, and a great proportion of all other creative content, are channelled. New technology can do great things, but it can also damage supplier diversity and consumer choice.”
I stand by these words. The bigger and more powerful the mega-corporations become, the more entrenched they’ll be. They operate out of highly protected walled gardens, and their goal is to tie you, very tightly, into their specific eco-system. It isn’t in their interests to allow this situation to change – even though I would argue, it is clearly not in the best interests of every author, publisher and reader, for a handful of tech-driven organisations to own books and reading.
I’m talking to you today about retailing, rather than the broader outlook for publishing. However, the old author/agent/publisher/bookseller/reader model is significantly fractured and everyone in this industry needs to decide whether monopolies or diverse markets are more appropriate for its future.
As this is an eReading Congress, I think a show of hands would be appropriate.
Who uses an electronic device in their leisure reading – an eReader, a tablet, a smartphone? [Practically everybody in the room.]
Put your hand down if your principle device is a Kindle. [Around half of those present.]
OK. Now, lower your hand if your principle device is an iPad or iPhone. [The other half of the room.]
Sony? Kobo? Nook? AN Other? Samsung phone? PC? [No, no, no. Everybody used Amazon or Apple devices.]
Although they play very different roles, there are of course two, big dominant players in our new world, a retailer and a consumer electronics company. But Amazon and Apple are an odd couple
Amazon: is setting a course to becoming the world’s biggest retailer, and en route laying waste to the established author/publisher/bookseller ecosystem.
Take a look at its performance for the first quarter of this year:
Profit: $ 130,000,000
Amazon sells ebooks and pbooks at low margin, break-even or a loss. This (we are assured) benefits the customer.
Amazon has very patient investors, who support a high P/E ratio, currently running at over 90x. I assume they work on the principle that, once world domination is assured, the profits tap will be turned on. Otherwise, where’s the value?
How many sectors and countries does Amazon have to dominate before this happens?
Apple: is producing the products that everybody wants, selling phones, tablets and other hardware and content at a spectacular profit.
Notwithstanding Samsung, it pretty much leaves all its competitors in the dust. It also, by-the-bye, runs a highly successful and much-respected retail chain.
Looking at its quarter one performance:
This extraordinary margin, we understand, also benefits the customer; so Amazon’s 1% is a good thing, and Apple’s 29.6% is also a good thing.
Naturally, Apple’s investors are as happy as can be, and they’re even being promised dividend payments in the future. Oh, and Apple’s P/E ratio is a rather more rational 10.5.
Jeff and Steve have made this world for us in which consumers are happy to pay top dollar for the best hardware, and the lowest conceivable prices for content.
In the past month, of course, a new alliance has been formed – something of a 1990s supergroup. Is the Microsoft/Barnes & Noble alliance strategically brilliant, or a last throw of the dice? Microsoft has a track record of alliances with previous cycle winners, like Yahoo! and Nokia.
However, publishers and many readers are looking for alternatives to Amazon’s hegemony. The deal enables B&N’s Nook and College divisions to separate themselves from the old superstore business, and provides the firepower for the Nook to be launched worldwide, with a solid retailer base in the US.
Are Barnes & Noble the future, or is this just a coming together of legacy businesses? And what is a legacy business, anyway?
Ten years ago, if I’d said “legacy” to you, you’d have understood it in the old sense – “Something handed down from an ancestor or a predecessor or from the past”. A legacy was a good thing – real value created by previous generations, and a solid foundation for the present and the future.
Today, the word “legacy” is used as an unthinking term of abuse – essentially, any business that has a history longer than a few years is a “legacy” business, and thus unfit for purpose, and ripe to be taken down. Established publishing houses are described as “legacy businesses” by teenage entrepreneurs seeking to discredit them. Perhaps they fail to distinguish between a business that has a valuable inheritance, and has the capacity and the drive to embrace the new world, with one that isn’t in control of events. Or perhaps they confuse all established businesses with the fireworks of the tech sector, the Netscapes and MySpaces that crashed and burned; the Yahoos and Research In Motions whose innovation has been eclipsed by other, newer stars.
It’s inevitable that what appears to be change-making today will become – necessarily – protective and fixed tomorrow. Perhaps, in this sense, “legacy” simply means “grown-up and responsible”. Well, there are worse things to be, and, companies that once behaved radically will start to behave protectively instead, in order to maintain their primary income streams.
But let’s talk about retailing, because this is where a physical legacy can become really toxic. In the 1930s, Woolworths opened nearly 400 brand new stores across the UK. When I say “opened”, I don’t mean “rented a tin shed and screwed their name to the front”. I mean, they acquired freeholds, and built big, brand-new stores. This was a massive investment of cash and confidence in the market. The crowning glory was the Blackpool store, which opened in Spring 1938. Five storeys over 75,000 square feet, including two vast restaurants. Woolworths was one of the biggest and most powerful consumer brands in the world.
Building all those stores guaranteed Woolworth a strong presence in every town in the country. This was the legacy of its period of supergrowth, but as time passed, the retail offer lost its focus; the freeholds were sold, and the legacy of great stores was no longer a valuable inheritance, it was a millstone of failing retail premises.
Historically, this is what retailers have done – opened stores, and carried on opening them until sometime after the market cries “enough”! Clintons Cards and Game are two of the most recent examples in the UK – and then, of course, there are the challenges facing the remaining booksellers.
Right, here’s a scary prospect for you.
Imagine you’re running a chain of bookshops. We may be talking about hundreds or a handful; we may be talking about any country in the developed world. Two or three years ago, the era of the superstore came to an end. Now, I would argue, the era of the chain bookshop is going to follow, unless the model is radically reinvented.
So, if you’re running a chain of bookshops today, you have to do two impossible things.
The first is to deal with your straggling real estate, because, as I’ve discussed, the single biggest challenge for any bricks and mortar retailer is their legacy of old stores. However carefully that estate has been built, however appropriate it was five years ago, it is now shot through with toxicity. All of those shops are tied to long leases, with upward-only rent reviews. Landlords are operating in a shrinking market, so are in no position to give concessions to any business that wants to close a shop while the lease still has years to run. This leads to pre-packs and CVAs (company voluntary arrangement), but these acts of desperation are usually the prelude to administration.
All retail businesses have an unproductive tail, and any location that’s bad at the moment has the scope to get worse.
Archie Norman, Asda’s former CEO, has observed that retailers should close 5% of their estate every year, and he’s absolutely right – but I can think of no retail business that has heeded that advice until it’s much too late.
As a bookseller, your bricks and mortar shops have to be super-viable. You must close today’s loss-makers, and tomorrow’s loss-makers too.
Plenty of retailers are facing this problem right now – Argos, French Connection, Mothercare and Thorntons have all been in the news in recent weeks. However, although they’re vulnerable to online sellers, it’s still difficult to digitise a romper suit or a box of chocolates.
So, close your under-performing stores. Then define your customers and their interests, and close any further stores that don’t match that profile.
Your second impossible challenge, and one that is at the heart of this conference’s purpose, is that you have to compete in an omni-channel marketplace, and you have to do so against some of the richest corporations the world has ever seen. Logically, this is impossible, because it requires huge resources, and your chain of bookshops can’t do this alone.
This is where the book trade needs to pull together. This industry is at a crossroads where it either allows the global corporations to progress from being walled gardens to becoming super-fortresses; or it fights to ensure plurality. I salute unreservedly the stand that Macmillan and Pearson are taking, alongside Apple, in the Department of Justice case regarding agency pricing. A couple of weeks ago, Amazon decided to give away the Hunger Games eBook free of charge. Now, maybe I’m just losing it as I get older, but can anyone explain to me how giving away the best-selling book in the world helps to secure current income, or to create a future value proposition, for anyone other than Amazon? It may be that the publisher and thus the author still got paid, but at the long-term cost of proclaiming their work to be without value.
Booksellers today need the freedom to participate in the omnichannel world, and it is in everyone’s interests to lower those barriers. That means removing DRM, so that content becomes device-agnostic; customers can buy the hardware that suits them, and the content, at an appropriate price, from the retailer who can do the best job for them.
I would love to see thinking of this sort emerging from Microsoft and Barnes & Noble’s NewCo. If B&N thinks it now has the firepower to challenge Amazon without also changing the ground rules, then they will find that Amazon can always out-gun them. Anybody else with a stake in ebookselling needs to do likewise. You won’t beat Amazon by being a pale imitation of Amazon, pleading with consumers to do what’s best for the long-term health of the book trade. Consumers have enough to worry about. They will respond, though, to a different, better offer.
Your retail goal – because you’re running a chain of bookshops, remember? – has to be an integrated ebook and pbook offer, with full online visibility of stock by branch for your customers. You’ll need a financial model that supports “showrooming”, because it’s a fact of life. You’ll offer Click and Collect, targeted social marketing and all the rest of it – everything a sophisticated pure-play online retailer does, with a shop attached. You’ll need to understand more about your individual customers than ever before.
Your online and ebook offer can of course cover all categories. Your pbook offer must be reshaped to reflect the new reality. That means fewer fiction paperbacks, and fewer reference books, because the day of the “general bookshop” is over. You need to be known for doing a few things extremely well, not everything tolerably competently.
All of this sounds scary, and you will all be aware that the number of specialist bookshops in the UK has declined by over 20% since the credit crunch kicked off.
Booksellers – and, by extension, our suppliers and our customers – invested far too much energy in worrying about supermarkets, and not enough in recognising that Amazon wasn’t just another specialist competitor in a healthy eco-system, with a novel twist. Today, if we take all the UK’s true specialists, the Waterstones, the Foyles, the academic chains, all the independents, and add them together, I don’t suppose their unit sales are as great as Amazon’s are now.
There’s a school of thought that says, well, you pesky booksellers, you should have done more. Should have done it sooner. More fool you. I think this is a little like acknowledging that a fine historical building has caught fire, and saying “they should have installed a better sprinkler system. I’m not calling the fire brigade” – when there is still plenty of merit worth saving, and plenty that you’d miss if that magnificent building was gone.
Specialist booksellers – including independents – are now barely competing with each other at all any more. They’re competing with Amazon and Apple; they’re competing for time as well as spending.
However, here’s the interesting thing. At the risk of sounding like Clement Freud on Just A Minute, I’m going to run through a diverse list of retailers. Here goes:
Anthropologie • Argos • Asda • B&Q • Bentalls • Blacks • Comet • Conran Shop • Cotswold Outdoor • Dobbies • Eden Project • English Heritage • The Entertainer • Fortnum & Mason • Habitat • Halfords • Hamleys • Harrods • Harvey Nicholls • HMV • Historic Royal Palaces • Hobbycraft • Homebase • John Lewis • Lakeland • Morrisons • Mothercare • National Gallery • National Trust • 99p Stores • Oliver Bonas • PC World • Pets At Home • Poundland • Royal Horticultural Society Wisley • Ryman • Sainsbury’s • Selfridges • Tate • Tesco • Toys ‘R’ Us • Urban Outfitters • Wyevale Garden Centres
Most of these businesses are thriving, successful enterprises. Some are struggling – but all of these chains are also booksellers.
Some, like the supermarkets, are big, important players. Others offer books as a value proposition, or as part of the lifestyle offer they’re promoting, or as a souvenir of a day out.
But they all believe that there’s a place in their shops for physical books. Most of these retailers have a much clearer understanding of their brand, and of their customer, than general bookshops have.
The physical bookshop struggles, but the physical book can thrive.
We tend to look at the problem from a “growing online, declining physical” standpoint. But if the solution is to ensure that all physical stores have multichannel capability, surely the same applies to pureplay online retailers?
As Sarah Wilson of the Egremont Group has argued persuasively, without a high street presence, without the ability to see and touch the goods you want to buy, online sales will plateau. After all, if we all really wanted to, we could stop using bricks and mortar shops tomorrow, and just buy everything online – it’s all there, after all. But we don’t. Consumers of the future will be looking for an “integrated experience… as they choose to shop across channels and increasingly look on pure plays as employing yesterday’s model”.
OK, this is where it gets interesting. You’re running a chain of bookshops, remember? But chains are inevitably bland. Chains are corporate. Chains are bound by process; necessarily managed to lowest common denominator standards.
I’d posit that more good managers leave book chains and open their own bookshops than happens in most other sectors. They do it because they love what they do.
So, at this stage in the development of the bookshop, I think it’s time to acknowledge this. You could create a partnership model, like John Lewis’s.
Or you could be bolder, and create a franchise model. The centre would provide the technology, the systems back-up, the buying power. The managers acquire ownership of the stores, buying an interest in them or purchasing them outright, customising their shops as appropriate for their markets.
You cease to have a chain of stores. Instead, you have a network of individual specialists. They may go down the children’s route, open cafes, build non-book sales. Or they may, like the Harvard Bookstore, invest in Espresso Book machines; providing a real specialist service, with same-day delivery to local addresses, and next-day around the world.
That network of stores doesn’t have to be restricted to your core business. You can sell your chain’s expertise to other independent bookstores, and reinvent yourself as a bookshop service organisation.
We have a number of good businesses supporting UK booksellers. Gardners’ networked Hive website, offering pBooks and eBooks online; the Bookseller and Nielsen, providing news and reliable data; and of course the support of the Booksellers Association. I’d like to see all of these organisations – and others – committed to supporting everyone who is a bookselling specialist, whether they’re primarily selling eBooks or pBooks, online or instore. If anyone could pull this together it would be the BA, but the organisation would have to repurpose itself appropriately.
There’s a way forward for individually managed and owned shops that have full access to ebooks, and yet can localise their offer to suit each physical location, each local residential, business and academic population, in a way that chains inevitably struggle to deliver.
And funnily enough, your carefully tailored local offer could be exactly what individual customers around the world are looking for. And today, you can reach out to any potential customers. You can identify where there are similar populations, elsewhere in the country, elsewhere in the world, and serve them too.
Of course, this means that you and your shop need to have to have an opinion. A point of view. A personality. All of these things rolled up into a specific and saleable competence. Please some of the people most of the time, because you can’t be all things to all people.
Supermarkets have done their damage, and will reduce their book ranges as the mass-market transitions away from paper books. This is an opportunity for our industry’s specialists, who need to improve in quality and consistency. Some of our best bookshops are among the smallest and most independent, in every sense of the word.
Customers will still seek out good, well-run shops, and I suggest that the distinction between “independent” and “specialist chain” is a whole lot less important to everyone’s future, than the distinction between “specialist” and “non-specialist”.
A healthy bookselling sector is in the best interests of everyone in the trade – authors, agents, publishers, readers. Bookselling needs to remodel itself for the future, and do so in partnership with all the other key players in the publishing business.
But books and bookshops still matter, and there are still people who want to sell books. If those specialist bookshops focus on competing with each other for ever diminishing returns, they might disappear altogether. The more effectively they can work together, the more robust our retail offer in the future.
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My eBook, A Year at Front of Store, is available in these Amazon Kindle territories –
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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My eBook, A Year at Front of Store, is available in these Amazon Kindle territories –
25th January 2012
WH Smith traditionally brings the Christmas results season to a close, and here they are, down 6% in the high streets and 3% at their Travel division. Although this was accompanied by the usual statements about the entertainment categories (CD, DVD, now an infinitesimal part of Smith’s mix), and “resilience”, “challenge” and “cost controls” all made their usual appearances, there was little indicating retail progress. Strong categories? Kobo and online? Former British Bookshops stores? You can manage a business for cash for so long (and it’s been so long that it’s remarkable), but at some point you have to sell more product, to more customers, more often. That’s what we want to hear from WHS, and it’s what’s missing again.
19th January 2012
I’ve been on the road for the past couple of days, and quite a few gaps in the table have been filled during that time. Strong sales from Primark and Matalan indicate that there’s still a desire for value when it’s done well. Of course, you might say the same about Peacocks, which by all accounts remained operationally profitable, but has been crippled by debt and forced into administration, threatening the biggest one-off loss of retail jobs since Woolworths in 2008.
The Centre for Retail Research in Nottingham has published a sobering schedule, detailing retail failures from 2010-2012. They state that, over the five years 2007-2011, 173 retail businesses folded, comprising a breathtaking 18,342 stores, and over 150,000 jobs. Questions please to the CRR –here’s the link.
Back to Christmas 2011, and at the other end of the fashion scale, Burberry and Mulberry have announced excellent growth, but it’s been unclear whether the numbers have referred specifically to UK retail, so I’ve omitted them.
No such qualms with not-retailers-at-all Greene King and JD Wetherspoon. Looks as though we still have money to spend on a night at the pub! And animals had a good Christmas, even if their owners cut back, with Pets at Home up 4.9%.
I posted a like-for-like book sales for Oxfam last week, and this has been followed by a flurry of other figures, reported in the Guardian.
Biggest news from the mid-week period has been from the electricals retailers, with Dixons (Currys/PCWorld) hailing -7.0% as a relative success, and Comet’s -14.5% a reflection of the grim condition of a business struggling through a sale process, and pretty much disowned by Kesa.
However, I think there are good things to be said about Dixons, but they need a separate blog – watch this space…
16th January 2012
Just three additions today – Boots and The Perfume Shop, both looking good; and the McArthurGlen outlet centres, which appear to have had an exceptional season. It’s worth bearing in mind that Christmas historically has peaked early at outlet “villages” like Swindon and Cheshire Oaks – outlet customers search out the best bargains early, and then complete their shopping in traditional malls and high streets – from memory, the final weekend in November was typically the best in the run-up to Christmas.
Who are we still waiting for? Of those who made Christmas trading announcements last year: Electricals – Currys/PCWorld and Comet; books/media – WH Smith and Waterstones (though the latter is now privately owned, so is under no shareholder pressure to announce); fashion: Primark, Matalan; DIY: B&Q (though Christmas is hardly a prime season for them, it’d be good to benchmark their performance against Homebase and GCG).
Who would we like to hear from? Big, successful private businesses like Arcadia and River Island; PE-owned growers like Pets at Home and Hobbycraft; discount grocers like Aldi and Lidl, and bargain retailers like Poundland; niche successes like Jack Wills and Cath Kidston; mega-brands like Selfridges… It’s a long list, and any analysis of published numbers is inevitably just a snapshot of a sector which is far less plc-dominated than in the past.
13th January 2012
A quick final update before the weekend is upon us. Has Tesco had enough press coverage? As Twitter noted last night during News at Ten, you’d think they’d called in the administrators… Still, Philip Clarke has been very candid about the challenges Tesco faces, and has been reminded (as The Times editorial today emphasises) that no company stays at the top forever. I’m thinking hard about Tesco Extras, and a separate blog might follow…
Nils Pratley on The Trouble at Tesco
Harry Wallop on Is This the End of Tesco Dominance? (QTWTAIN)
Meanwhile… Good numbers from Original Factory Shop, The Entertainer and Superdrug, but another tough season for Theo Fennell. Nul points to Asda and Ted Baker for announcing total growth for Christmas, but not like-for-likes. Of course, I appreciate they don’t have to announce anything at all, but if I had shares in Wal-Mart, I’d want to know what was what.
12th January 2012
After a positive start to the week, things have turned ugly with poor results from Tesco spooking the markets, and throwing fresh doubt over the sector.
As you can see from the table above, Tesco has performed significantly worse than other supermarkets (and M&S food, which has been broken out separately in reporting, and which saw a like-for-like increase of 3%).
House of Fraser has posted some remarkably good numbers, but it isn’t clear whether they’re inc or ex-VAT. For the record, I’m a committed ex-VAT person – including a variable rate of tax in your sales is no way to accurately reflect like-for-like shopper behaviour.
(At Borders, 75%-80% of our sales were VAT-free – books, newspapers and magazines – and the remainder was VATted – stationery, CDs, DVDs, toys etc. We also paid a “special rate” of VAT, where eg a CD-ROM was attached to a book on computing or language learning, which reflected the fact that part of the whole product was zero-rated. I’d like to think that the HMRC officers required to create and police these rules, and audit the proceeds, cost rather more than the total tax take.)
Anyway, back to Christmas 2011, and as expected, times were tough at the likes of Halfords, Thorntons and Mothercare. Argos had a particularly grim set of results – for how long will 750 stores be sustainable?
Some more variances to reporting periods, highlighted in green. These were the reporting periods twelve months ago:
- Tesco LY: 6 weeks to 8th January
- JD Sports: 5 weeks to 1st January
- New Look: 15 weeks to 8th January
- House of Fraser: 5 weeks to 8th January
FTSE 100 retailers are now shown in bold.
10th January 2012
Plenty of results added to today’s table, including a couple of outriders that you may not have seen reported elsewhere!
Game takes over at the unhappy end of the chart; their LY numbers are highlighted because of a change in reporting period – for 2010, they reported five weeks to 8th January, this time around, an additional three weeks pre-Christmas were included. The Co-op also made a change – the prior year numbers relate to a 13 week period, October – December.
There’s some inc-VAT (Debenhams) and ex-VAT (Majestic) differentiation, which given the rate jump from 17.5% to 20% has a bearing on different companies’ numbers. And of course, these are just sales – not profits. The rumbling undercurrent – “of course, their margins will have taken a hit” – accompanies many of these announcements.
Nevertheless, it’s great to see many more pluses than minuses on the schedule – long may it continue…
9th January 2012
And they’re off.
It looks as though this year, every media source and his dog is going to be publishing regular updates on Christmas trading, so I’ll keep this brief, and update it as required.
I’ve included last year’s numbers, where I have them – and as this is a busy office, I haven’t dug out LYs where I previously didn’t have them – I’ll try and infill if Edwin Drood becomes unwatchable.
Worth noting that, where comparisons exist, the order of companies is exactly the same as last year. (The reporting periods are all similar, so these are good comparisons.)
It’s worth remembering that bad results always take longer to calculate than good ones…
And for the many hundreds of you who enjoyed my “8o towns” blog from last week, I’ve shown store numbers. Counting stores is always an inexact art, but most of the chains are on multiples of eighty. Some will stay that way – supermarkets, Next. But there’s restructuring in the air.
Just to keep us all honest, this article from the Telegraph highlights some of the more imaginative ways that Christmas performance can be characterised.
And, lest we forget, the following chains probably won’t be providing Christmas trading updates:
Barratts Priceless, Blacks, D2 Jeans, Hawkins Bazaar/Tobar, La Senza, and Past Times. Ask not for whom the bell tolls, but let’s hope stores can be rescued, and jobs maintained.
Welcome back to the second part of the Front of Store Westfield tour…
Sticking with the Lower Ground Floor, we emerged from the phone shops into a world of children’s specialists. Build-a-Bear, Lego and upscale clothes stores like Polarn O Pyret and Atelier de Courcelles are already in evidence; Mamas & Papas will follow on a higher level. (Observation: upmarket children’s stores have foreign names. JoJo Maman Bébé would be another. Whereas the mass market has clunkier, English names.)
So, The Entertainer. The six-day toyshop is a staple in many shopping centres, and this was a pretty standard store – reasonably fully stocked, but many popular brands had been allocated limited space or were unstocked, and generic product took their place. Putting all the rollerblades in “Boys Toys”, including the pink ones, summed up a rather formulaic experience; staff stayed firmly behind the tills (including those wearing “can I help you?” sashes), which rather defeats the experiential joy of a good toyshop. We left, feeling a bit flat, and crossed the mall to Mothercare. Here, shopfit quality has been lifted (attractive light woods and pastels), and roomsets show off nursery furniture to advantage, but again, there were no staff on the sales floor. The customer may have sought assistance with car seats or buggies, or wanted some show-and-tell in the curiously unbranded Early Learning section at the rear, but all staff were again coralled behind the tills.
Retailing isn’t easy at the moment (you may have noticed), but it does seem curious to under-staff your most important new stores within a week of opening. If you can’t throw some payroll hours at converting new customers to your brand, and you don’t have a high-concept store design or radical new products, how are you going to get your store to stand out from 300 others at Westfield?
Pausing to admire the publishers’ pack-shots on the Foyles hoarding (opening next month), we headed into one of Westfield’s biggest draws, the John Lewis store. And our initial impressions were… oh dear. This has all gone badly wrong.
The Partnership has built a large store that feels small. Perhaps the escalator cut-out is too big, but where M&S is spacious, JLP is cramped and tight, particularly on Lower Ground, where the juxtaposition of menswear to the right and kitchenware to the left feels absurd. The shopfloor has been segmented using fretworked screens and other devices which only serve to further cramp the feel of the place – the aisles are tight, and the product juxtapositions frankly bizarre. And the severed hands hanging from the ceiling are downright creepy.
Things improve on what Westfield calls the Ground Floor, and JLP calls First (women’s fashion, accessories and beauty), and things are as they should be here and on First/Second (furnishings and fabrics). The top floor is strong, with the best toy offer we’d seen all day – at last, someone carrying all the brands, facing the plush towards the customer, and keeping the offer clear. But the top floor also contains a big fat compromise of a space, which may explain why the bottom floor is such a dogs’ dinner. A huge London 2012 shop sells every imaginable take on Olympic mascots and logos, complete with a viewing gallery offering a sensational panorama of the Olympic park. This must take up over a quarter of the total retail space on the floor, so you have to conclude that several categories will exit the lowest level and move to the top in due course – but not until autumn 2012.
An aside – isn’t it about time we stopped treating the 1960s as the pinnacle of British grooviness? Routemaster buses, Concordes and original Minis barely exist in modern London, and are surely irrelevant to our image of a 21st century cosmopolitan capital city. At least red phones boxes and beefeaters still exist, but we need better, more modern icons.
Back to the shops, but before we leave John Lewis (after a reliable lunch at The Place To Eat) I should note that customer service was as exemplary as ever. There’s nothing unfixable about this store, but it wasn’t delivering the experience we’d come to expect.
What makes John Lewis more profoundly disappointing is the quality of Marks & Spencer. M&S has created a proper department store in a free-standing building that provides a sense of occasion on every level. I haven’t seen the prototype fit at Kensington High Street, but this was a classy, well laid-out and very shoppable offer. Menswear (complete with a tailor running up alterations, and much clearer definition for brands like Blue Harbour) was simply the best I’ve ever seen in an M&S; home and furnishing were strong, and a delightful top-floor cafe offered treats that the customer could also buy from the Foodhall. I’ve written recently about the challenging legacy of old stores that M&S has to deal with; by contrast, in a brand new space, they are creating some of the best retailing in the UK.
Clinton’s has made a bold attempt to update its image. The orange and purple trialled in St Albans is much in evidence, but some of the shopfitting was cheap, and the juxtaposition between a funkier feel and some of the granny-targeted merchandise was jarring. Service was excellent, though; Clinton has too many shops, many of them desperately old and tired, but there’s a place afor a mid-market gift/card chain, and one hopes that the new management team can move the business forward.
Timothy Melgund at Paperchase has often asserted he runs a fashion brand, rather than a stationery shop, and the new store is on the prime fashion pitch, beautifully presented and ideally sized. Cards can be generic things, and Clinton/Scribbler/WHS are subject to constant price comparisons with the supermarkets; Paperchase overlays some quality and product uniqueness, and lifts itself well clear of the fray.
A few years ago, a vast HMV would have taken dominant space in a new mall like Westfield. Not any more – a smaller unit on a side aisle has to suffice. The CD/DVD offer is what it is, slowly and inexorably declining (though it doesn’t look as though anyone has told the buyers – stock density is extreme); games appear to have been circumscribed, and the technology offer – pitched to save the business – hasn’t noticeably moved on from the Islington protoptype. This was very disappointing; Apple, Currys/PC World Black, and the upper end phone stores were displaying better tech on better fixtures, with dangly cables under control, and staff to explain and sell. HMV offers MP3 players, boomboxes (archaic term, sorry) and accessories, but it’s hard to see for whom this store would be first choice for this product. Execution of these ranges will have to be more stimulating if they’re to offer any real hope to HMV.
Next time I visit Westfield, I look forward to seeing more stores trading – there are still a lot of “under constructions” and “to-be-lets”. I’ll rope in a teenage daughter and we’ll take a proper look at fashion. However, I also wanted to understand where the customers were coming from. Great play has been made of Stratford’s connectedness – two tube lines, Overground, DLR, national rail and direct links to the Continent, plus an adjacent bus station. You can reach Westfield directly from any of these, but plenty of people are entering on foot from “old” Stratford.
Old Stratford compares very badly to Westfield and the Olympic Park, reminding the visitor of how deprived parts of our capital can be. A one-way system encircles the old Stratford shopping centre, so that most foot traffic passes through a dingy mall and across knackered highways to reach Westfield. Display boards promote upcoming public realm improvements (clouds on sticks!), but it is hard to see how this sort of surface flim-flam can improve the residential and commercial environment.
Stratford’s old mall is big, dating back to 1970s planning models that brought whole town centres under one roof (think Camberley, Eastleigh). The interior is dark and crowded, stinks of cheap disinfectant, and is full of the crowds you can see on the bridge above, pushing their way through and past the old shopping experience and on to Westfield.
Massive regeneration will surely help the area, creating jobs and housing. A masterplan was signed off by Newham Council at the end of last year – just five years after the successful Olympic bid. Serious thought needs to be given to local shopping provision – presumably the duplicate chains in the old scheme will be seeking to exit, leaving market stalls and pound shops behind them. A decent, modern supermarket would be a good start, but at present, the contrast between Westfield and its immediate surroundings is too stark. The number of shoppers in Westfield suggests long-term success (though, as I indicated in Part One, the Olympics need to come and go before retailers will have an objective picture of their performance). To the south, Canary Wharf’s wealth has largely failed to trickle out to its immediate surroundings, beyond the gated apartments and highways. A scheme like Bluewater – turn left off the M25 and head for the quarry – has little integration with Dartford and Gravesend. Westfield and Stratford City, on the other hand, are in the heart of the deprived East End, and can – must – do better.
Photos: Telegraph, Design Week, Mail/Getty
The Guardian has published the following story:
Their figures come from the Local Data Company, which estimates that 4,000 shops have closed down so far this year. Whilst this is not a number netted against store openings, it nevertheless represents a massive change that is affecting every high street and mall in the country.
It takes quite a lot for retail failures and job losses to become big news. The slew of administrations that followed the June quarter day included an iconic brand (Habitat) and a well-loved provincial stalwart (TJ Hughes), but the epitaphs have now been read and the crowd has moved on, while thousands of shop workers lose their jobs.
One of the reasons for this relative indifference is that retail failure is spread thinly across the geographical landscape of the UK. There was plenty to write about Terence Conran, Ikea and changing taste when Habitat failed, but with just 30-odd stores closing, only a small minority of the population will notice the stores’ absence when the closing down sales end. Only Woolworth, with 800 shops, has cut through this indifference in recent years, as every one of us had a local Woolworth, with memories to share and (in a great many cases) youth employment or pick’n’mix theft stories to reminisce about.
The job losses at the Bombardier railway carriage works in Derby are much more newsworthy, with newspaper editorials, questions in parliament and much soul-searching from commentators. This is understandable – the loss of 1500 jobs in one medium-sized town, with the knock-on loss of suppliers’ jobs, many also in the East Midlands, has a far greater impact on the regional economy than the steady, inexorable drip-drip of retail job losses. (And Bombardier should have been at the forefront of Britain’s sputtering manufacturing comeback – whereas in retailing, we are an established world power.)
However, the shop closures will continue, and wise retail observers are all agreed that there is more pain to come – there’s another tranche of retailers looking unsteady, and the next quarter day, or a less-than-great Christmas, will kill them off.
At the same time, it would be interesting to dig deeper into Local Data’s numbers to understand how many shops are being quietly shuttered by trading retailers. I should be very surprised if any established fashion chain, for instance, ended 2011 with more stores trading than it had at Christmas 2008. Retail Week reports today that Clinton’s is considering succession as founder Don Clinton retires, and remarks, almost en passant, that the company has reduced store numbers by 500 since 2006 – a fall of nearly 40%. Of course Clinton’s has had the Birthdays Horror, and other channel changes to contend with, but for most today, smart retailing equals a consolidation of store numbers, with online fulfilment picking up the slack and “quality shopping” becoming concentrated into about 80 locations across the country.
The closures are also a necessary part of the destructive cycle of the capitalist system. I believe that it is exceptionally hard for businesses to change their core purpose – particularly if they are tied into multiple long leases on multiple different properties, spread across the country. It would take an investor with nerves of steel, for instance, to have gambled 30 years ago on much of furniture retailing moving from high streets to vast out of town sheds. How much would it have taken to transform Habitat into Ikea, before Ikea arrived; or to turn TJ Hughes (or indeed Woolworth) into Poundland? Even if the rationale is solid (and plenty of observers were encouraging Woolworths to take a “dollar store” route before they fell), it is exceptionally hard to rationalise a store portfolio of hundreds of stores into an unproven new model.
Not impossible – Hepworths became Next, and Chelsea Girl/Concept Man begat River Island – though in both those cases the new brand fitted comfortably into the old brand’s physical spaces. Usually, however, it’s easier and more efficient – and much more painful, in terms of its impact on employees and creditors – to let the capitalist model take its course.