Frankly, you could cancel most of the drama series on TV nowadays and instead stream a live tale of everyday retailers into the nation’s homes. Tesco, Peacocks/EWM, Game, Iceland and many others are all delivering stories of real tragedy (job losses), hubris, separation and (in Malcolm Walker’s case) triumph.
It’s edge-of-the-seat stuff, and today’s sensational news of Richard Brasher’s exit from Tesco is just the latest exciting plot twist. Furthermore, this is interactive experience, as customers are the ultimate arbiters of who succeeds and who fails.
It’s also a tale of legacy and inheritance – too many stores in the wrong places, old management styles or an immature multichannel offer all presage disaster ahead. Stand by for next month’s Titanic metaphors…
Last Friday’s Retail Week devoted several glossy pages to a gallery of multichannel leaders from across the sector, representing companies as diverse as Harrods, Sainsbury’s and Wickes. In a very short time, “multichannel” is moving towards “omnichannel” (thanks Gareth), as consumers move faster than stores to blend their online, mobile, and bricks-and-mortar shopping activities. The customer is always right, and – frustratingly for both parties – the customer is now often several steps ahead of the retailer.
The more this snowball gathers speed, the more quickly prescriptions about the high street become out-of-date. So here are a few thoughts, wrapped around a simple statement:
Showrooming is here to stay
At least it is for as long as the showrooms can remain open. But the ease with which customers of all ages have embraced comparison shopping, and the unemotional way they’ve ditched their old loyalties in favour of better value in tough times, has come as a nasty surprise to many retailers.
You spend years building your brand, extending your storebase, cementing a reputation for value and/or service and then, without so much as a Gerald Ratner speech, the whole house of cards is blown away, and the company is left not with a proud legacy, but a horrible mess of bank debt, unprofitable shops and over-complicated management structures.
Nevertheless, customers enjoy showrooming, and no large retailer can succeed in the future without an integrated offer that recognises stores are showrooms. It needs to have few enough of them, in cost-effective enough locations, for the whole P&L equation to add up. John Lewis Partnership (reported last week to be investing £450m in “growth and multichannel leadership”) will build its JL and Waitrose online offers, not as “alternative stores”, but as an integrated part of their consumer offer.
Companies with an optimum number of stores can integrate their online commerce/service offer with bricks and mortar and move forward. But – and this painful – not enough stores are being closed, yet. This in large part is due to the challenges leaseholders face when managing their real estate legacy – leases are long, penalties are onerous, and landlords are struggling to see where replacement tenants will come from.
Winners and losers
Leaving the food sector to one side, I envisage a future where large, successful chains, selling unique merchandise, are able to sustain a reasonable sized store-base, with customers using the brand’s services through any combination of physical and virtual contact points. These companies will be able to leverage their use of technology to stay ahead of their competitors, but they must always look forward. Retail legacies are of no more real value than the beautiful company histories that retailers used to commission – interesting for the archivist, irrelevant to the customer.
This means embracing technology that has the capability to kill much of your bricks and mortar offer – because if you don’t close down your weakest branches, someone else will shut down the whole lot.
As an example, one techology that has been talked about and tested for a long time is the virtual changing room. This is a great gadget for boutiques – but can you imagine the fractious queue for the magic mirror in a small provincial Top Shop on a wet Saturday afternoon? Much more efficient to provide the technology as an app that customers can use through their online-enabled 42″ TV screens in the privacy of their own homes. I can easily envisage “magic mirror parties” at home – much more fun than a chick-flick.
Winners will run forward with new applications, and will be unsentimental about store closures. They’ll have uniqueness on their side – must-have products available nowhere else. Physical shops will still matter, but they won’t be required in the numbers that they have been historically, adding weight to the “fewer, better stores” trend.
There will be more losers. If you’re selling branded merchandise available from multiple suppliers, if you’re selling products manufactured in the Far East and sold, unchanged, around the world, if you’re selling a product with limited touch-and-feel qualities, if you’re selling generic or commodity products, then the road ahead is a very thorny one. Is marrying Comet and Game likely to be a good idea? Rephrasing the question, and assuming (rather rashly) that both business’s unwanted legacy real estate can be disposed of, are the brightest and best within Comet and Game able to focus on a future in which physical stores are just a part (a small part), and leading-edge technology will enable them to sell more products, more effectively and more profitably, than Amazon?
We have moved on very quickly from dead record shops and dying book shops. Any sector, any shop, that cannot provide a vivid reason for customers to continue to shop there starts to look like a showroom for online brands to exploit. (Shortly afterwards, it looks like an empty store.) But does this mean (roll of drums) the Death Of The High Street?
I think not. It means the radical reshaping of the high street, though, and without getting all butchers-and-bakers-and-candlestick-makers, it does mean combining the best of the past with the most desirable elements of the future.
It means far fewer shops – 20% less, 30% less? The number will vary depending on the prosperity and lifestyles of the local customers, or the effectiveness with which that high street (or shopping centre) can act as a regional or national magnet. But the good town centres of the future will either be local, or super-regional – in-between won’t stack up anymore.
It means a high street which (as the supermarket chains have figured out) provides the staples you need in a hurry, and (as the best independents have figured out) a choice of goods that you simply can’t buy anywhere else.
It means a high street that provides entertainment, community, and relaxation – not one where hours are spent in unpleasant shops, buying commodity goods. There’ll be more meeting up (facilitated by phone, of course), more coffee, more chat; more escapism, more novelty, less stress. Because there are fewer shops, there’ll be less traipsing. Parking provision might even improve (well, I can dream – though more shoppers’ buses would be welcome).
Manufacturers will run showrooms – if the value chain in many categories has eliminated the margin a physical retailer requires, then technology companies, for instance, will have to follow Apple’s lead and provide opportunities for consumers to see their goods, prior to buying them at the best price from whichever online supplier works best for them.
So the future of the local high street becomes a blend of entertainment, uniqueness, staples and showrooms. Customers would appreciate this, but it would require some categories to disappear completely, and others to reinvent themselves. Can the retailers, the landlords and local/central government – if government post-Portas is paying attention – do this, or will too much business transfer to Amazon before the necessary changes are made?
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.
Not a great deal of action on the Front of Store blog in the past couple of weeks, as I’ve been out on the road a lot, assessing stores, formats and catchments. Plenty of news in the retail sector, though, with the end of the Best Buy brand in the UK, and the sale of Comet for £2 (with a £50m dowry); as the Observer comments on the electricals sector this morning:
Amazon’s small overheads and Tesco’s huge scale have enabled cheaper products to eat away at the specialists’ profits. So far they have resisted the fate of the book and record stores swept off the high street by online rivals. Could the worsening economy now push yet another retail category into the virtual universe?
It has been a difficult autumn across most retail categories, with the continued mild weather slowing down sales of winter fashion and precipitating a series of one-day events at the likes of House of Fraser and Debenhams. Recent results at Next and Marks & Spencer both illustrated how challenging the middle market is, even for the best-run businesses, and WH Smith unveiled lower sales and higher profits for the nth successive quarter – Nils Pratley has commented astutely on this. (Nationally, book sales are poor, running 12% down on 2010 last week.)
There are just 41 shopping days left until Christmas, and though the streets of Staines were busy yesterday afternoon, there’s still a lot more window shopping than actual commerce taking place. Consumers are well-versed on tough Christmases now, and the question is not “will prices fall?” so much as “how early will the sales start?”. There’s already plenty of red-and-white in the windows, as hard-pressed retailers seek to liquidate stock and free up cash.
London’s West End tourist boom continues, with Crown Estates announcing that there will be fewer, larger stores in Regent Street in the future; Westfield Stratford has welcomed millions of customers (I’ll be back there on Tuesday) and has indicated that the old Whitgift Centre in Croydon could be next for the Westfield treatment. But London has never been as disassociated from the rest of the country, in retail terms, as it is now.
It’s going to be a difficult Christmas, with every sale a small victory against consumers’ tight purses and low levels of “feel-good” (despite that “Capracorn” John Lewis ad). Online will grow, device sales will soar (Best Buy may be dead, but Wireless World is Carphone’s focus now) and new retail formats will emerge on the shoulders of the old.
On a lighter note, here are a couple of stores positioning themselves for the future of the book trade:
The wave of administrations prompted by the quarter day appears to have abated for two full days (notwithstanding confirmation of TJ Hughes’ status this morning), but it was a powerful illustration of the fragility of the consumer economy. Businesses that get sick are less likely to get better, and more are likely to die. The net result has been around 10,000 job losses. That number may be lower if – as has happened with Jane Norman – some stores are sold on, and continue to trade, but it’s a terrible toll for the sector to take in a week. And immediate job losses are always followed by collateral damage – if these stores are shuttered, there will be fall-out among out-sourced service providers – security guards, aircon engineers, delivery drivers – and among suppliers, dependent on the income stream from the failed retailers.
Other retailers have been sharing their troubles – Thornton’s will close over 100 stores, Carpetright’s profits have fallen by 70%, and Comet has been put up for sale by parent group Kesa. HMV’s kitchen-sinked loss for last year was £122m.
These companies – still in business, contrary to the crass assertions of Sally Bercow – are all PLCs, so their suffering is reported every step of the way. Public companies aren’t necessarily better protected from failure than private companies (Woolworths…), but their travails are clear to all, and their institutional shareholders can force management to take action.
The businesses that have gone to the wall – TJ Hughes, Jane Norman, Habitat, Homeform, Life & Style; and before them, Oddbins, Focus and many others – were privately owned. This won’t have meant that their owners and managers fought any less vigorously for their survival, but it can mean that their demise comes as a greater shock to the public at large – they only talk to the press when they want to.
Internally, of course, the signs will have been clear – the loss of credit insurance; falling confidence among suppliers causing a tightening of trading terms; and these pressures plus stagnant sales (and discounted margins) squeezing cash, so that the accounts department becomes one big cashflow management machine. Spending is cut on payroll, store maintenance, travel, entertaining, and a siege mentality kicks in. Long-established management teams will do everything they can to save their child from drowing; more recently appointed “turnaround teams” will be more pragmatic, and see clearly where the road is going to end.
And more often than not, it ends on the quarter day, when another three months’ advance rent falls due. Landlords are less malleable than other creditors – they have more to lose, so lawyers will be instructed if no payment is made. And the curtain falls.
Sadly, I believe this is unavoidable, long-term “structural realignment”. Consumers cannot choose the extent to which they will support public sector pensions or defence overspends through their taxes, but they have decided to spend less, at fewer shops, with a greater volume of online purchases. Their decision-making is more rational than it was in the credit-crazy boom. Strong, prudent retailers like Next or Sainsbury’s can entrench their positions, and adjust their offer to suit the national mood. Weaker businesses have failed, and will continue to do so.
However, to end with a glimmer of light: I do believe that recessionary times are ideal for setting up new retail businesses with an understanding of the current picture, an eye to the future, and no heritage or fiscal baggage to hold you back. Let’s hope some of the 10,000 job-seekers are soon re-employed with tomorrow’s retailers.
Photo: Daily Telegraph