Swann Song: Changes at WH Smith

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:


How’s the retail shake-out working for you?

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.


Booksellers and publishers working together: The BA Conference

I spent Monday with the Booksellers Association Conference at the University of Warwick, and wrote up my immediate reactions in this piece, published by The Bookseller.

I do believe that there is a robust future for the best independent bookshops.  But they’ll have to evolve, and to stay ahead of their customers’ expectations rather than trailing behind them.  I hope that bookshop owners, publishers and their trade associations can work together to ensure that there is still a role for these businesses.

Do add your comments.


Physical retail: it’s still all about service, and it always will be…

I’ve written a blog piece for Retailer Solutions, reflecting on some timeless truths around customer service.  You can read it here.

I’ve been working in retailing for many years, and throughout the time, commentators, trainers, coaches and indeed CEOs have continued to return to the importance of customer service.  And yet, still, as a nation, we really aren’t very good at it.  On a day-to-day basis, the apparent “cost” of providing good, one-on-one service – in terms of people, time and training – still doesn’t appear to be worth the bother, for operators in big chains, and for owner-managers too.

The high street renaissance may be dependent on rebalancing the landlord/tenant relationship, weaning councils off their addiction to critical parking charges, or making the business rates regime fairer.  But if customer service is still poor, then sayonara, shopkeepers – and the retailers will only have themselves to blame.

Retailer Solutions is an initiative driven by Enterprise Ireland, the organisation responsible for the development and growth of Irish enterprises across the world. Enterprise Ireland is a champion of innovation, and can provide retailers with access to emerging technologies from Irish companies with world class solutions for retail. 


The rich and the poor: “Two nations between whom there is no intercourse and no sympathy…

…who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets.”

The quote, of course, is Disraeli’s, and it was brought to mind after I read this piece by Marcus Leroux in Monday’s paywalled Times.

The gist of the article (for those of you without a Times subscription) is that 25% of non-essential retail spending takes place in just 3% of Britain’s shopping areas.  Of course, the crushing dominance of London – West End, City, Knightsbridge, Westfield – will help to skew those numbers, as London’s share of tourist retail is exceptionally high.  But forecasters CACI have reviewed 4,000 different shopping destinations, grading them from A to E, with anything below a C having questionable long-term viability.

The retail landscape has become more differentiated in recent years, as a combination of demographic polarisation, plus online, supermarket and out-of-town shopping, has caused the geography of the UK to divide more starkly between winners and losers.  I pondered this in a blog I published at the start of this year, seeking to identify 80 centres that I believed had future relevance; in Leroux’s piece, he notes that around half of Thorntons and Argos stores are in D and E banded locations.  And when stores close, which centres do you think will bear the brunt?

Well, here’s the good news (he said, a little acidly): the clone town will be a thing of the past.  No longer will there be identical parades and malls of the same jewellers, fashion stores, chocolatiers and gift shops, from Cornwall to the Highlands; instead, we risk a brutally stratified selection of pound shops, pawn shops and cheap booze in struggling towns and suburbs, while chi-chi boutiques and cafes overwhelm the rest.

I’m not convinced this is a good thing (I am a One Nation kind of guy); and I wonder if all of the government’s attempts to focus on local retailers (Portas towns et al) only takes us a short way down the road.  I very much support reducing business rates, slackening planning red tape and freeing up parking in order to revitalise a shopping district – but that revitalisation requires strong and solid national chains as well as entrepreneurs and start-ups.  Any smart indie retailer understands the appeal of well-known neighbours, preferably robust and well-managed ones.

There is a significant risk that squeezed, mid-market retailers will be closing in the top locations, pushed out by high occupancy costs and sophisticated online shoppers; and closing also in the poorer towns, where falling sales are precipitated by falling employment, collapsing aspirations and a general hopelessness.

We may need to move away from the purist “you can’t buck the market” view to a more nuanced standpoint that recognises that decent communities need a well-balanced high street (as well as good jobs, schools, healthcare, housing…), and that allowing high streets in densely populated areas to fail is akin to leaving broken windows unattended.  Of course, those retailers need to provide goods and services that their customers need – which of course is what mid-market chains have always delivered, tweaking their value offer as appropriate to local demographics.  But once “some quarters in the City” (Leroux) have prevailed on Argos et al to close their D and E locations, recovery in those towns will become just that little bit more difficult.

Blindingly obvious “two nations” photo: Cheryl de Carteret on Flickr


Online retailing: when will new taxes be needed?

You’ll have to bear with me; I’m a following a train of thought here.  There’s nothing scientific about this, but there’s plenty for retailers and mandarins to think about.

I was reading a piece on The Next Web, about the rise in the US of online-only brands.  The article (which you can read here) discusses US enterprises like Dollar Shave Club and Warby Parker whose business model is built around having no bricks and mortar availability for their products.  As Everlane CEO Michael Preysman says:

We are going to shut the company down before we go to physical retail…  Traditional retail models are bloated with unnecessary costs.  Online just makes more sense: we’re national from day one, we have a single store, we don’t have to cover costs of physical inventory in stores and we don’t have to pass on a 2x markup through retailers.

This moves us on from showrooming, and into a world where the showroom has been specifically designed out of the equation.  In terms of business planning, this is a big leap forward from “omni-channel” – the message from companies like Everlane is that, while there may be multiple ways for brands to communicate with each their customers, there is only one channel through which they will make their goods available to you.

This marinaded in my mind for a little while, then we started Twittering this morning about the sad closure of a fine record shop.  Record shops have been in the advance guard for physical closure and collapse in the retail sector for many years; however few we have left, it seems as they though they keep on failing.  As Steve from Rounder Records wrote:

We are closing because we can’t make it add up any more. We are a business that has been decimated by downloads (both legal and illegal), VAT avoidance by the big online retailers, a double dip recession, & the decline of the high street. Our lease has ended and we have nowhere to go.

So, I started to think, how many properly staffed, paying-their-taxes retail businesses (or indeed retail categories), anchored in bricks and mortar and supporting a vibrant high street, have to go to the wall before HM Treasury starts to feel the pinch?

Here are some purely illustrative and not properly audited at all numbers to think about.  Let’s assume – as the British Standards Institution believes – that total retail sales in the UK are worth around £300 bn.  (That’s 300,000,000,000 in pound coins.) And, to keep it easy, let’s assume that half of those sales – excluding food, children’s clothes etc – attract VAT.

20% VAT on a gross £150 bn equals £30 bn.  That’s a lot of schools’n’hospitals.  Of course, most online retail transactions attract VAT at the appropriate rate, but some don’t – all those downloads from Luxembourg, for instance.

Right, £150 bn less VAT equals £120 bn.  Stick with the train of thought:

Business rates at, say, 4% of ex-VAT sales, will raise £4.8 bn.

Staff costs, at 10% of ex-VAT sales, will raise £2.4 bn in income tax on those wages, assuming tax is paid at a flat 20%.  (Netting out personal allowances against higher tax band payers, for the sake of argument.)

Employers’ NI on those same staff raises around another £1 bn.

And if all those retailers make 5% net profit (happy thought) ,on which they pay 20% corporation tax, that’s another £1.5 bn.

Of course, online retailers have the same cost-heads, but with fewer staff, cheaper premises etc, the tax-take from their business activity is going to be significantly smaller than from a traditional bricks and mortar retail model.

Now, I probably ought to be having this debate over a third pint on a Friday night, but somewhere in this maelstrom of lower prices for consumers and lower operating costs for online retailers (yes, I know, they have to spend much more on marketing), there’s a lower tax take.

If online becomes progressively more dominant, as this graph from The Daily Telegraph suggests:

– and as I discussed in this blog at the end of last year, at what point will the current tax regime start to feel the strain?

It rather looks as though the Exchequer will need to raise more money – either from online merchants, through some form of additional levy (which in due course would lead to price inflation); or from consumers, either through raising VAT (though this is vulnerable to corporate strategic avoidance) or by raising income tax.

The channel change is gradual, of course, but inexorable.  We won’t end up buying everything online and nothing from physical shops, but there’s a lower-tax trend.  Looking to the future, our Chancellor and his shadow could just carry on flicking each other with wet towels, but – in the absence of real economic growth (driven by eg significant job creation in other parts of the economy) – I hope there’s someone in the Treasury giving this longer-term structural change some serious thought.


Good Luck cards

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.

Image: shirescentre.co.uk


Waterstones’ store refurbishments

The Bookseller has rounded up some of the press commentary that followed Monday’s announcement of Waterstones’ new relationship with Amazon.  Speaking to The Guardian, James Daunt stated that  Waterstones’ owner Alexander Mamut is putting “tens of millions of pounds” into the store refurbishment programme, which will see roughly 100 of its stores refitted this year.

Some of those refits are already completed, and they merit your attention.  I popped into the Twickenham branch yesterday afternoon.  This was opened as an Ottakars in about 2005, and has run with that brand’s cherrywood fixtures and green carpet ever since.  (Photo below shows a typical Ottakars interior: ageofuncertainty.blogspot.com)

The new Waterstones look has been delivered on a carefully managed budget, but the feel of the shop has changed totally.  Gone is the clutter of over-bearing fixtures and narrow aisles, and in its place is a cool, classic/modern shop.

The most immediately noticeable changes are as follows:

The front two-thirds of the store are uncarpeted, and now have exposed floorboards.

As this photo of the front of store demonstrates, the overall appearance is clean and classy.  That “gateleg” table can only carry so much stock, and is clearly not designed to have understock rammed beneath it.

Cards and other impulse items are right at the front (the entrance is immediately to the left of the photo).  New books merchandising is subtle – too subtle?

But it’s the wooden floor that makes the real, immediate difference, reminiscent of Waterstone’s in Hampstead back in the 1980s.  It exudes authority and class.

Twickenham isn’t the most flexible of retail spaces – it’s a long, narrow “bowling alley”, with a two-foot jump in height in the rear third of the store.  As you can see, there’s a plain carpet in here; lighting is a combination of directional spots and “domestic” lampshades, and fixtures are a mix of new (all black) and refurbed Ottakars (cherry with affixed black surrounds).

Tight ceilings here, so the tops of the bookcases abut the tiles.  Unless you’ve got nine-foot ceiling heights, this always induces a slight claustrophobia.  The front two-thirds of the store are much airier.

So, this is an attractive, sensibly sized store with the right level of sophistication for its suburban/professional customer base.  I enjoyed browsing through the store, though I’d like to be surprised a little more often by the title/range choices, which mostly feel safe and generic.

Three concerns:

1.  When the Kindle tie-up goes live in the autumn, how much space will it require, whereabouts in the store, and with what effect on the overall experience?  I’d hazard that the new shopfit has fewer shelves than the old, but I may have been deceived by the general decluttering – practically all spinners, dumpbins and other detritus have been consigned to the skip.  With the exception of a few book tables, everything (cards, toys etc) sells from bookcase carcases now.

2.  It’s often a feature of newly remodelled shops, but the feel at present is pretty sterile.  The store needs more imagery, and more opportunities for the Twickenham team to share their enthusiasm with their customers.

3.  Waterstones has always struggled with merchandising children’s books properly.  This bay is adjacent to the central aisle; a concession has been made to tumbling tots in the form of a mat on the timber floor, but the overall effect is still one of children’s books displayed for adults to select and buy without undue lingering.  The PoS is old here, so there may be a makeover in the works, but children need a safe space that is clearly merchandised for them, and becomes a place where children want their parents to take them.  This was an area that (Tintin obsession notwithstanding) Ottakars tended to get right, but Waterstones still gets wrong.

Of course, children’s publishing is being supplanted/enhanced (you choose) by iPad apps and other digital media, but I’d contend that the children’s printed book category is a whole lot more robust than paperback genre fiction.  Particularly after Amazon has taken up residence in the shop.

And Amazon-to-come is now the spectre in the corner of every branch of Waterstones.  Monday’s hysteria is slowly giving way to a more measured response to Waterstones’ new partnership.  More measured, but no more comprehending or enthusiastic.

I’m a lover of bookshops large and small, and of course, like everyone, I understand that it’s no longer possible – no longer rational – to have  pbook stores without a complementary and first-class ebook and online offer.  I was very interested in this story in this morning’s Publishing Perspectives, which describes the creation in South America of an alliance between Grupo Planeta, Telefónica and Bertelsmann to create an “Airbus” to challenge Amazon’s “Boeing”.  Quite what shape this project might take is unclear, but – as I argued last week at the World E-Reading Congress – publishing and bookselling can only enjoy a future that doesn’t result in total Amazon subsumption by working together – and, in the process, ensuring that a few decent bookshops survive.

And, as of next month (and notwithstanding WH Smith), Waterstones will be Twickenham’s only bookshop, as independent Langton’s closes after over 60 years of bookselling.  It’s good to see Waterstones investing in its physical future, but that investment combined with an independence from Amazon would, I guess, have been even more welcome.

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Shapps/Portas – and now…?

Housing Minister Grant Shapps has announced the government’s official response to the 2011 Portas Review.  You can read the Communities & Local Government Office’s full text here.

It’s been quite a week for retailers, with the government promoting local shopping by manufacturing a petrol shortage which will ensure we’ll only be spending at shops we can walk to this weekend.  Much more seriously, the impact of channel change on established and historically successful retailers is being felt across the world – Game Group’s administration, the collapse of leading Dutch bookseller Selexyz, famous for creating the “world’s most beautiful bookshop“, and today the announcement from Best Buy that (a) it’s closing 50 US stores and (b), short of slashing costs and talking hopefully about online opportunities, it’s a bit short on strategy.

So, back in Britain, there are plenty of feelgood elements to Grant Shapps’ announcement: market days and Town Teams were particularly eye-catching back in December, so they get full support, but there’s relatively little money forthcoming – around £12.8m, which will fund a few more Portas Pilots, but is a tiny sum of cash – it’s rather less than, say, Foyles in Charing Cross Road turns over in a year, or under a third of the estimated cost of the Leveson Enquiry.

Paradoxically, though, I’m not calling for loads more cash; I’d prefer to see more real local power and accountability, with councils mandated to create a successful business environment for the communities they serve.  This will be the acid test of the programme, as there is much promised on revoking archaic bylaws and reforning planning  – will local councils have the guts to go the whole way, and will the government be prepared to devolve real decision-making and – at council level – revenue raising powers?  Step forward the first council that wants to tell Grant Shapps that, actually, we think a 5.4% increase in business rates is a little steep in the current environment, so here in Tomorrowtown, we’d like to do things a little differently.

Well, I can dream.  But beware of short-term revitalisation and too great a focus on heritage and bringing back “the old high street”.  There is, understandably, much hand-wringing about the number of vacant shops across the country – 14.6% of total stock across the country, it says here.

But hang on just a second – is that the number of empty premises, or the volume of empty space?  Or, to turn the numbers around (without knowing the answer) what is the total volume of trading square footage in retail today, compared to ten or twenty years ago?  I’m going to bet that the number has gone up, but that old stock has been allowed to rot on the vine.

As retail commentator HatmanPro has observed on Twitter, much of our empty retail space exists because newer space has superseded it.  In too many town centres, successive new developments – blocks of stores, little shopping centres – have been dumped into vacant spaces, increasing the total volume of footage and laying waste to older shopping streets and districts, on the assumption that, as the population grows and we all become wealthier, more and more shops can prosper.  Even without the internet, this is patent nonsense – I’d like to see new shopping centre openings accompanied by a structured reduction in dead space; a recognition that, with 10.7% of all retail spend now online (and that number will grow and grow), even the most Pollyannaish assumptions of future economic recovery will not merit the number of old shops cluttering up our old towns.

Will Town Teams and local councils have the ambition, the power and the cojones to repurpose spaces?  Will they be able to do so, and maintain the variety of chains and independents, generalists and specialists, commodity sellers and boutiques, that a thriving town centre needs?  I really hope so.  But the “beating heart of the community” needs to be strong and vigorous, and must look beyond the reduction of street furniture and controls on levels of parking fines – if 15%, 20% of all retail spend is going online (because that’s what the consumer wants), then those high streets need to reflect tomorrow’s needs, rather than yesterday’s longings.

And having said all of that – if this comes off, when those first Town Teams cajole their councils into really making a change and doing  things differently, this is going to be damned exciting.  Retailing is one of the things we do best in the UK, and everyone who’s committed to a retail career wants to make it better.

Pictures: The Sun; bhbeat.com


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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My eBook, A Year at Front of Store, is available in these Amazon Kindle territories – 

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