Retail has always been a highly dynamic industry, intensely competitive and fighting for a share of the wider consumer spending pot. This is an industry used to dealing with a constant diet of change. However, the change we are seeing today is far more profound than anything the past has thrown up. We are now seeing by far the most challenging period in retail history. A reshaping of the industry’s structure and economics is unfolding, and most of the real change is yet to happen.

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Monthly Archives: November 2014

The price of Black Friday

Now Black Friday is behind us, those retailers who embraced it in a big way need to persuade their customers to buy at full price again. The more you teach your customers to buy into promotions the less they like buying at full price. We have seen this in action over many years: Debenhams and Gap use very frequent price promotions and find it difficult to generate sales in the periods in between.

With just over three weeks to Christmas, the temptation for the industry to go on sale will increase. Black Friday this year will leave many retailers needing to repair their margins, after record sales brought forward purchases that would otherwise have been made in the coming weeks. In fashion, this need was already intense after the unseasonably warm weather in September and October left retailers with huge volumes of unsold stock.

I expect discounting pre-Christmas to hit record levels this year with an inevitable hit to the bottom line. For retailers employing discounting as a central element of their model, lower prices are built into the economic model. For the rest, there is almost invariably a heavy price to pay and we will be seeing the true fall out in the Spring 2015 results season.

Black Friday – margin masochism

The end of this working week will be crowned by Black Friday. This is the first Friday after Thanksgiving Day and the latest brilliant idea from US retailers to get shoppers to spend more. In the last few years it has been adopted here too. In the US it has marked the kick off the “holiday season” (their politically correct, non-denominational term for Christmas) sales with promotions and special offers.

Its adoption over here was initially driven by online retailers. Whether it makes any sense at all is a different matter. The headline question is will it make consumers spend more overall? I very much doubt it. And if I am right, Black Friday will probably be a net loser for UK retail. If it nets out as merely transferring sales from days before and after, these sales are likely to carry lower margins for two key reasons. First, because of promotional offers and special discounts. And second, the logistical costs of squeezing maybe two normal November day’s sales into one.

It’s a great occasion to get loads of media coverage and manufacture a shopping frenzy but when push comes to shove, the spending pot will not get any bigger.

New look M&S at Westfield London

M&S at Westfield London has added a fourth floor and 22,000 feet, to now trade from 124,000 square feet. There are a number of new additions (a nail bar in the beauty area for example) but the pivotal element of M&S always has been womenswear and here, the thinking has moved on slightly, continuing with greater sub-brand delineation and a more departmentalised feel. Having been very low key in the past, the business features much better visual merchandising these days and the offer looks much better focused. Nevertheless, there is still something missing and it is hard to see precisely which market segment(s) M&S is addressing.

I think the most notable improvement is in menswear. The offer looks much cleaner, with clarity and like womenswear, has a more edited feel. However, there are still far too many options in suits, shirts and trousers. There is a sea of choice and with no effective differentiation or explanation at the point of sale.

Home looks better and benefits from significantly more space (from 5500 to 15,000 square feet) but still manages to feel fragmented and lack authority.

M&S has certainly improved in some notable areas in the past 18 months. Clothing product quality has certainly made strides. My worry is that the new sourcing arrangements will provide a short term boost to margins but undo the progress made on quality, with collateral damage to the brand.

Food, cannibalisation and fragmentation

Much of the narrative accompanying the turmoil in UK food retailing today has referenced an unforeseen shift in shopping habits: more frequent shopping trips, spreading spend across a wider range of stores and locations, and the consequent shift in trading economics. The change in shopping behaviour has certainly been profound but should it have been so unforeseen?

Since 2008, the four majors market shares have ebbed and flowed but combined, they were around 75% back then and are the same today. To varying degrees, they have been pumping investment into online and convenience stores. Both channels have encouraged shoppers to fragment their purchasing trips, and cannibalise the existing store estates built at huge cost. Developing these two channels was not wrong but it is clear that the majors did not understand the strategic consequences of self-cannibalisation. Indeed, they did not foresee that what they were doing was likely to cannibalise.

Against the background of static market shares, the four majors have expanded floorspace by 28% since 2008.  This equates to an eye watering 20 million square feet of additional space. It is has taken the market leaders an awful long time to understand what they themselves have done to their own businesses.

Clearly, the debit crisis has made shoppers much more value-conscious. However, self-cannibalisation and fragmentation of shopping trips are self-inflicted wounds. The genie is now out of the bottle and the structure and economics of UK food retailing will never be the same.

Asda joins the club

four to have remained outside has finally succumbed. Qualification for membership is based around negative yoy like-for-like sales and Asda has now joined Tesco, Sainsburys and Morrisons. It reinforces the scale and depth of turmoil the grocery sector is now in.

I continue to believe that among the four majors, Asda is the least uncomfortable in this trading climate. Price and value are core strengths and EDLP is in the company’s DNA. The other three are grappling with an agenda being set by Aldi and Lidl. While this latest statement demonstrates that Asda is being hit too, the fact that it has gained share over the period says everything.

When looking at trading statements right across the retail industry it is important to judge them in the right context. Few businesses will produce numbers that are better than their historical performance. This market is all about peer group relativity, or market share in old money. Gaining ground on your competitors is an investment in future performance and far more meaningful than short term margin gains.

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