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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: May 2015

Prize leadership drives Booker

When Charles Wilson left M&S in 2005 to become CEO of Booker everyone, including me, was surprised. His leaving was a blow to M&S but it was his choice of destination that was so unexpected. He had been a Director of Booker in the late 1990s before moving to Marks via Arcadia with Stuart (now Lord) Rose. Wholesaling has long been a shrinking element of the distribution chain and back then it was already significantly diminished. Booker was an unpromising vehicle even for the massive talent of Charles. Today, Booker is totally transformed and while he has built a team around him, there is no doubt that he was the catalyst for what must surely be THE turnaround or the past several decades.

Charles stands out on a number of levels. He is extraordinarily bright and a brilliant strategic thinker. Another key characteristic is his lack of ego. He puts the needs of the business before his or anyone else’s. This is extremely rare in retail as it tends to be in life generally. He identifies the shortest distance between where he is and where he needs to be, and constructs a plan to get there. That lack of ego allows him to understand exactly what he is very good at and what he isn’t, recruiting exactly the type and calibre of people he needs to get the job done. He is a very rare example of great leadership and great management.

Booker’s latest figures last week show further significant progress for the business. The acquisitions of Londis and Budgens will be a huge success, assuming it is allowed to proceed by the CMA.  Paying £40m for retail sales of well over £800m and a significant increase in custom for its wholesale business will represent another very sound move by Charles Wilson.

** More analysis and forecasts of the key sectors and players can be found in the premium content of richardtalksretail.co.uk

A very mixed retail week

This past week has summed so much of the mayhem surrounding retail right now. We have seen Asda report LFLs down 3.9%. All the more shocking since earlier in this new reality of deflationary food retailing it seemed by far the best placed and most comfortable of the big four. Now that the others have responded life is rather tougher. The much tougher times for Jack Wills these days is reflected in lots of changes in senior management, while the turnaround at Moss Bros continues, underlining how ultimately, retail is a trading business and having a real trader at the helm (ie Brian Brick) is transformational. Meanwhile, the first uptick in profits for 4 years at M&S is deemed a recovery by a City that has bet the farm by hiking the share price by 50% plus under Marc Bolland.

Against this background, we have had the retail sales numbers from the ONS. These were greeted as fantastic news by the City and media. It never ceases to amaze me how little importance is attached to sales revenue in the square mile where focus on the ONS numbers is on the wrong data series: the volume numbers are a misleading metric, especially when inflation or deflation is rife. And largely ignoring price changes is very dangerous. April’s retail sales numbers by value (ex fuel) were actually flat yoy. And a retail market that is forced to keep lowering prices to persuade consumers spend is not healthy but under massive pressure.

I have been warning for the past year that retail price deflation (as opposed to the wider RPI covering the whole economy) is here to stay, at least until massive oversupply is dealt with. With  yoy costs increasing at around 3% and selling price deflation at 5%, far reaching structural change is on the way.

** More detailed analysis of these topics, plus forecasts of structural change, can found in the premium content of richardtalksretail.co.uk  Get in touch for more details.  

New Look finally sells

I noted in my Blog yesterday the beginnings of more corporate activity in retail but didn’t expect the next instalment to arrive so quickly! First New Look was going to IPO. Then the Chinese were going to buy it. Now it has been bought by the South African PE House Brait, owned by Christo Wiese, whose Pepkor business is launching Pep&Co into the UK value market. The deal values New Look at £1.9bn, with £780m buying 90% and £1bn of debt that Brait says is comfortably covered by strong cash flows.

New Look took some time adjusting to the new post-debt crisis value clothing market having grown on a diet of very strong volume growth. It has also had to live with the powerhouse that is Primark, which is increasingly adding fashion and infiltrating New Look’s markets. Some sticky years around 2010 – 2013 have led to a tighter, more focused offer with better price architecture and more edited ranges. However, there is further to go. There are still far too many UK stores and I am not clear what the plan is here.

In spite of overcapacity, New Look has proved its offer remains relevant and it can grow its UK market share. Nevertheless, the key attraction is likely to be international, and China is the main prize. The on-the-ground experience of CEO Anders Kristiansen will be critical if New Look is to succeed in China – very few Western retailers have ever made money there. I have been talking for some time about the restructuring of UK retail and these recent deals (BHS, Phase Eight, Poundworld etc) are just the beginning.

** For more detailed analysis of New Look and the impending restructuring of UK retail see the premium content of richardtalksretail.co.uk

£150m for Poundworld

Following news of Poundland’s bid for 99p (currently being investigated by the CMA) comes confirmation that corporate activity in retail is starting to gain momentum. TPG is buying Poundworld for a reported £150m. This looks like a very generous price for a business which posted operating profits of just under £6m for the year ended March 2014.

Poundworld has grown very fast – it opened its 100th in 2010 and today trades through 280. Like its larger counterparts Poundland and 99p, Poundworld has grown mainly though acquiring sites from retailers who are downsizing (like Peacocks)  and or went bust (like Ethel Austin). Sales densities are around £230/sq foot compared with Poundland’s £400, while stores are a little larger at around 6500 sq ft. Clearly, there is considerable upside if Poundworld can match the trading metrics of Poundland. This maybe a big if.

TPG is one of the biggest PE Houses and has a history of interest in retail. Its recent history buying Republic at a very high price ended badly and it will not want to repeat the experience. However, the timing of this deal is intriguing. Having finally noticed the growing number of interlopers in its collective backyard, the big 4 grocers are finally responding. We have seen the result of this over past months in a market dominated by price deflation. The value players still have plenty of fuel left in the tank competitively but gaining further ground will undoubtedly be harder work. Ironically, this deal should help Poundland argue that there will be plenty of single price competition going forward with a turbo charged expansion programme.

** More analysis, forecasts and insight on value retailers and their prospects in the premium content of richardtalksretail.co.uk

Aldi & Lidl still setting the agenda

As always, the latest Kantar market share figures make fascinating reading. And so too are many of the comments made in response. The most eye catching trend the latest data confirm is the slowing down of growth at Aldi and Lidl – 15.1% and 10.1% yoy respectively. Some have said that it is getting harder for the two LADs (limited assortment discounters) to gain share at the massive rates they were, and this is undoubtedly true. To continue this thinking and end up with a view that the majors are starting to recover is fanciful at best.

The latest numbers show that while rates may ebb and flow, all four majors continue to lose share. The rate of share erosion was tiny at Sainsburys and Morrisons although recent trading results from both underline the price being paid by both in falling margins. I don’t believe the word recovery can sensibly be used until these players are regaining share sustainably with stable, viable margins. This means regaining control of their own competitive agendas – I don’t think we are anywhere close to such a point in time yet.

The majors do not need to beat the LADs on price. They each need to find that tipping point where enough customers think the quality/choice/service they offer is worth paying X% more for. Those customers will spend enough to cover costs and make an acceptable return. It is crystal clear that this point remains some distance away, for all four players. And everyone focuses on the LADs when the competitive issue is much wider – B&M, Poundland, Home Bargains et al have captured much more spend from the majors than the LADs, and they too show no signs of slowing growth. Calling an end to grocery turmoil is very premature.

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