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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.

Richardtalksretail is focused on analysing this change, anticipating the implications, and mapping how the key players across the various sectors are dealing with it. The regular Blogs in this public section of the site are a taster of the much more detailed analysis and forecasts in the premium section, reserved for subscribers.

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Monthly Archives: February 2015

The revolving door at the top of retail

Over the past couple of weeks have seen leadership dominating the retail headlines. Suzanne Given parted company with Supergroup. John Allen was appointed Chairman of Tesco. Then John King stepped down from CEO at HoF, quickly followed by John Browett after two years as CEO of Monsoon Accessorize. Then came news that the CEO of Majestic Wines Steve Lewis has stepped down while Allan Leighton has stepped up to be Chairman of the Co-op and David Potts is now officially the new CEO at Morrisons. In today’s far tougher trading climate the strengths and weaknesses of businesses are far more exposed, and it follows that their leaders will be too.

 

Until not so long ago, leadership was much less critical. Trading in the slipstream of rising real incomes and growing credit papered over the plethora of structural weaknesses of many retailers – life was relatively easy. Now leadership is at the top of the agenda, where it should be. And the key strategic challenges faced today are quite different, and therefore the skills required to grow effectively in this market are similarly changed.

 

We will be seeing many more changes at the top. There has been lots of whistling in the dark about how positive this year will be. It won’t. That’s not being negative. But prices are – price deflation is the name of the game. It’s simply a reading of the cold hard facts. The revolving door will be working overtime for much of this year. The need for leaders with strategic nous, emotional intelligence and above all, an understanding of how to sell, has never been greater. There are not many that tick these boxes.

New Look IPO

New Look’s proposed IPO has been a long time coming. Apax and Pemira, its two PE backers, have been desperate to exit for some time but rightly judged trading to be too weak. The appointment of Alistair McGeorge as Executive Chairman in 2010 proved to be inspired. The business had lost its way, and its carefully positioned price/fashion niche had become blurred and challenged. McGeorge did a great job refocusing the business, it’s price and range architecture, and laying the foundations for recovery.

At the end of 2012 Anders Kristiansen was appointed CEO and McGeorge became non-exec Chairman. Unlike so many, this has proved to be a smooth management succession and Kristiansen has driven the business forward. Ranges had been edited down, fashion focus restored, price architecture is far more economically viable and added value has been strengthened to support it.

New Look is a solid business. The end of the volume-driven rise of value clothing post Lehmans was a major strategic challenge to its model. Dealing effectively with that took time but the results are impressive. The mild weather of last September/October was a huge test and New Look was hit more than most. This move so soon after that challenge underlines its strength and how far it has travelled.

** For more analysis of New Look, retail IPOs and the market in general see the premium subscription content of richardtalksretail.com

 

Archie to Tesco?

Today’s excellent FT piece says that Archie Norman is now the front runner to be the new Chairman of Tesco. On the face of it, he should be the dream appointee. He is outstanding. A combination of strategic intellect and practical nous made him stand out many years back when he became the CFO of Woolworths (the precursor of Kingfisher) on secondment from McKinsey. He went to mastermind the turnaround of Asda and successful sale to Wal-Mart. He has spent his time since in and outside retailing but Archie has all the weight and judgement the Chairman of the UK’s most important private sector employer should have.

Nevertheless, I have some reservations. Archie will have some very clear views around strategy and execution. He will also have formed a clear opinion around  the cultural adjustments that are undoubtedly essential in order to turn Tesco around. Will these all coincide exactly with those Dave Lewis has already formed and started to execute? And when they don’t, whose will prevail? Will Archie be comfortable sitting back letting Dave lead? And to the extent that he does get more involved than any non-retail Chairman could, how will Dave feel about that?

I can’t pretend I know the answers to these questions but I am 100% certain they are fundamental, and the answers will determine whether this will be a successful appointment, assuming it happens anyway. I just cannot see Archie playing an essentially subsidiary leadership role. Without in any way denigrating the promising start Dave Lewis has made, Archie would have made an excellent CEO for Tesco, and therein lies the potential problem.

** For more detailed discussion of Tesco, the grocery market and leadership in retail visit the premium subscription content of richardtalksretail.co.uk

Squeeze far from over – it’s only just begun

The latest market shares from Kantar have been greeted with some “thank goodness that’s over” type comments. The fact that Tesco registered positive yoy sales growth for the first time for what seems like ages has been taken as a sign that its dark days are over. This is a mistake – Dave Lewis has made a decent start and said some encouraging things, but he is no magician.

Turmoil in the grocery sector has always been about more than simply losing some market share to Aldi and Lidl. I estimate that of the big 4 sales “lost” (that’s spend captured by all the value players that could have accrued to the majors), some 25% has been mopped up by the German discounters. The other 75% has gone into the tills of B&M, Poundland, Home Bargains et al, right under the noses of Tesco, Asda, JS and Morrisons.

It is certainly true that mopping up this business was much easier early on in the game when these players were unaccountably under the radar. However, it is a misreading of the underlying drivers of the switch in consumer behaviour, and an underestimating of just how good these smaller retailers really are, to think it’s all finished. They will capture more sales from the majors because a) they have significant expansion programmes (as opposed to the massively over spaced majors) and b) consumers want to shop in them – they are serving a well-defined need in a way the majors can’t. It is true that they will find further sales growth harder and following Poundland’s acquisition of 99p, there may well be further consolidation. Nevertheless, these retailers have significant growth in their sights and this will heap more pressure on the majors.

Overcapacity and balance sheets – in denial

Among the many massive issues facing retail right now is one which no one really discusses. The fact that massive overcapacity must impact balance sheets, the large hole which will be created, and the implications. First the cause. While physical capacity in retail has started to decline for the first time in many decades, online capacity has been growing like topsy. And while demand has at headline level been broadly flat, capacity net of closures has been growing steadily. And will continue as far as one can see going forward.

 

The majority of retailers have far too many stores. And many of the stoes they have are also too big. I have discussed this issue in numerous Papers and forecast the future capacity landscape. It is clear that reports of the imminent death of physical retailing has been exaggerated. However, it is equally clear that overall, demand for space is materially down and that must impact its value. This issue goes right across the industry and touches every sector. Tesco made headlines recently when it announced some store closures. This is just the tip of the iceberg. There will have to be much more, not just from Tesco but from virtually everyone.

 

And of course the challenge is that with virtually everyone overspaced, the market for excess space becomes rather tricky and its value must therefore be compromised. The answer to this issue is not ignoring it although while everyone is doing exactly that, it is a very seductive option. That elephant is not going to disappear and is getting bigger with time. Watch this (excess) space.

** More detailed discussion and forecasts of excess capacity and the implications is available from the premium subscription access section of retailtalksretail.com

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