Demand slows – industry restructuring begins

27th April 2015

Looking at last week’s ONS numbers, the slowdown I forecast six months ago for 2015 is clearly emerging. The first 3 months of this calendar year saw sales by value grow by 2.8%, by no means a disaster but some way behind the 4.5% increase of Q1 2014. The main culprit at headline level is food – growth of just 0.8% in Q1 2015 versus 1.7% last year. By comparison, non-foods registered a healthy looking rise of 3.8% but this too is markedly down on the previous year’s 6.0%.

Beneath these numbers is significant, persistent price deflation. In food the trend is down – currently around -7.5% yoy. Non-foods are far less extreme at just over 3.0% but the same issues of intense competition, overcapacity and over-sized stores are the same. And so too is the result: the industry is having to cut prices to generate sales. Meanwhile, cost inflation is running comfortably ahead of sales growth and defending margins is increasingly a function of cost reduction strategies. No wonder we are seeing job losses announced each week, and store closures too.

As I said earlier, this is not a disaster. Nevertheless, we ARE seeing the early days of what will be a lengthy and sometimes painful restructuring of the industry. I have been mapping this out in various Blogs and Papers for some time now.  A very different industry will emerge with fewer, much stronger players.

** For more on the shape of the new landscape, the winners and why, see the premium content of the site

Tesco, choice, price and real estate

22nd April 2015

Fascinating to hear the media describe Tesco’s £6.4bn this morning. They report that one of the huge challenges the company faces in its core business is the massive choice available to UK consumers. If you get your offer wrong, customers simply take their business to the guy next door. And the revolution in grocery market shares reflects just that. Not just at Tesco but at Sainsbury’s, Morrison’s and Asda too.  Having been watching retail for a year or two it seems like only yesterday when the media’s starting point re food retailing was all about conspiracy. The major players, very much led by Tesco, fixed the market and consumers had literally and metaphorically no choice.

This morning’s massive reported loss is shocking in size but it has been expected for some time. Two major points strike me. One is the significant write down in the real estate value. The company says it now believes its property is over valued. I have been flagging this as a huge looming balance sheet issue across the industry for some time now. The second is Tesco’s ambition. Recapturing its market leadership will require a radical move on price and a resetting of industry margins. Watch this space.

** For more detailed comment of Tesco and the unfolding strategic landscape in food retailing, visit the premium content of richardtalksretail.co.uk

Retail sales recovery … really?

14th April 2015

Today’s BRC numbers for March have been widely described as very positive. Words like recovery, strongest growth since…, very healthy and reassuring pepper most commentaries. But not mine!! This is not to say that things are dire – they are not. However, they are not nearly as good as so many seem to think. And it is easy to not notice the underlying picture which is rather different.

First there is the timing. Easter spending will have hugely influenced these numbers, especially for food. Significant shopping for the Easter weekend took place in March even though Good Friday was on April 3rd. Last year it fell on April 18th. Then there is price deflation. Only a tiny number of retailers are on sale this much as a matter of choice. The overwhelming majority are price promoting because they need to turn stock into cash.

The market is massively oversupplied and this is the fundamental cause of deflation. It is a sign of overcapacity and relatively weak demand, not of strength. Next month’s numbers are likely to much weaker for exactly the same reason as march has appeared strong, but in reverse.

* For more analysis and forecasts of retail sales, the shape of demand and capacity see the premium content of richardtalksretail.co.uk

M&S – jury still out

2nd April 2015

It’s great to see M&S at long last delivering some positive clothing numbers. After four years of decline, and therefore extremely undemanding comps, GM sales increased LFL by 0.7% and within this, clothing by 0.6%. The company’s statement says this was achieved with less discounting. After a catalogue of disasters the new website is now working and a 14% increase in sales has clearly helped mitigate soft demand in stores.

In many ways, the narrative around these results is just as notable as the figures themselves. The sighs of relief from so many quarters is audible from outside the M25. Most loudly from Marc Bolland himself. The three high profile retail CEOs most under pressure not so long ago were Philip Clarke at Tesco, Dalton Philips at Morrisons, along with Bolland. With the other two gone, he has been looking increasingly isolated. Also anxious have been many City analysts who have been backing an M&S recovery with no visible signs of support from company performance. So have they all been proved right and is this the recovery of THE icon of UK retail? In a word, no! At least not on the basis of one tiny snapshot measured against very weak comparatives.

By value, Marks’ clothing sales increased 1.2% against a market increase of around 3.0%. Food continues to be robust and outperforms the 4 majors, although the rest of the food market has been doing that for some time. The food business is strong, innovative and so many of the things the clothing business simply is not. Looking at the overall headline UK figure of +2.7%, it is broadly in line with total industry sales for Q1 of the calendar year. Moving from here to consistent outperformance will be challenging, but surely this is the very least one should expect? The new supply chain arrangements are the most far-reaching change at M&S for many years and there are risks attached. Not yet time to call the jury back in.

** There is more detailed analysis of M&S and the strategic issues they face in the premium content of richardtalksretail.co.uk