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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: December 2015

Trading statements warning

Next week we will see Trading Statements begin to emerge and I wanted to offer some words of warning. We already know that John Lewis saw its sales +2.3% up yoy for the week ending 26th December. This will prove to be one of the strongest performances. Next will be the first major retailer to report next week. As always, its figures will be among the very best. Both companies are routinely described as retail bellweathers. They aren’t. A bellweather is meant to be indicator of what will be the norm. These two businesses are in that small minority with brands strong enough to have traded predominantly at full price. Next was one of the few able to opt out of Black Friday.

Christmas Trading Statements are not externally audited. In effect, companies can say whatever they want and choose whatever definitions and criteria they want. Obviously, for quoted companies there is the need to manage expectations and not mislead the market. Nevertheless, there is wriggle room. The numbers are not comparable across companies and sometimes definitions and timeframes can be changed in subtle ways within companies from year to year, rendering those comparisons difficult too. It is human nature to try and paint performance in the best possible light and this year that instinct will be stronger than ever.

After 12 months of back to back discounting, retailers are entering 2016 with too much stock and too little cash. The year has been incredibly tough, Black Friday was a damp squib and Christmas failed to deliver. Returns and refunds will peak over this latest period and statements will rarely if ever take these into account. The health of the industry will undoubtedly be impacted and if the majority of Trading Statements do not reflect this, the questions should be why, and how?

** How do you see 2016? Are you confident in your forecasts? Did you get 2015 right? Get an informed, objective second opinion – admin@richardtalksretail.co.uk

 

2016 – looking forward?

So after the damp squib of Black Friday, the hoped-for bounce back for Christmas failed to materialise. It was never very likely to. The consumer was literally and metaphorically spent some time ago. And at heavily discounted prices too. After a year of price promotions, consumers were able to buy what they wanted more cheaply than they expected. And shouting about further promotions simply failed to make the necessary impacted on increasingly fatigued shoppers.

The industry will enter January with too much stock, too little cash, and worries about what to tell the market in their upcoming trading statements. Even more pinches of salt will be needed this year. 2016 will see the beginnings of a much needed reset of industry economics. There will be more capacity and cost inflation will outstrip sales growth. While 2015 was the toughest year I have ever seen, I am forecasting an even tougher 2016.

This market will widen the gap between the winners and also rans still further. However, the latter outnumber the former, as our Promotional Tracker has been showing in recent months. Nevertheless, the news is not totally negative. For strong brands with strong, focused leadership teams, the opportunities to make great returns are there.

I take this opportunity to wish you all a great Christmas and a happy and healthy New Year. It’s certainly going to be a busy one for retail!

** How do you see 2016? Are you confident in your forecasts? Did you get 2015 right? Get an informed, objective second opinion – admin@richardtalksretail.co.uk

 

 

Retail sales – the real story

November’s ONS retail sales figures should be a warning for the industry. Instead, virtually all the coverage has been positive, driven by the ONS itself and by City economists. If these are positive numbers, how come more than two thirds of the High Street is on sale, a week before Christmas? The vast majority misinterpret the figures, following the volume and not the value series. This error is magnified when either inflation or deflation are important – like right now.

Far from being good, the November value numbers for the trade as a whole were +2% – the weakest November yoy growth for 10 years. Moreover, achieving this very modest growth “cost” the industry 2.4% in price defaltion. Sure, volumes went up by 4.3% but this gain is not enough to compensate. The 2% growth in sales value is certain to be overstated because of the Black Friday sales spike online, and the high returns this will produce. Talking to retail CEOs, the underlying growth for November will net out at below 1.5% yoy.

After 12 months of relentless discounting across every sector of the trade, retail is weak and progressively losing share of consumer spending. It is clear that dropping prices does indeed increase volumes, but only to a limited degree. And that limit has been around 4% for some months. Deflation is happening by default, and is a zero sum game. It is virtually all on current season’s stock and is diluting margins. You can only mitigate through increasing bought-in margins for so long, and my sense is that we have hit the ceiling.

Structural change is starting to move the goalposts of industry economics. Next year will be painful and some retailers are trading through their last Christmas. This is not gloom – it’s reality and denial is potentially life threatening.

** How do you see 2016? Are you confident in your forecasts? Did you get 2015 right? Get an informed, objective second opinion – admin@richardtalksretail.co.uk

 

Current trading and retail trust

Black Friday and Cyber Monday have gone. Now retailers are asking consumers to come back and buy for Christmas. The body language of stores out there says everything. With 66% now on sale – a totally unprecedented number – the reality is beginning to emerge. After a 12 month diet of more or less permanent price promotions shoppers are tired, and confused. They no longer know whether any given price, even if it has already been cut, will be cut further This is bound to impact a) buying behaviour and b) trust in the retailer.

This will have a material impact on performance. First, Black Friday turned out to be more online than anticipated. However, substantially higher store costs have still been incurred. And so too will higher costs than budgeted in order to fulfil increased online sales. Cost of sales online are higher than in store, so there will be a direct impact from this alone. Then there are returns. I suspect returns will be even higher than usual online, so whatever early indications of Black Friday sales might be, they will net out considerably lower.

As I said in my opening paragraph, we can already see some of the implications of this in the incredibly high discounts out there. The vast majority of mark downs are current season stock, and there is lots of it. I have been warning for some time about next year’s tightening industry economics and trading will be materially more difficult. Many retailers will be entering 2016 with too much stock and too little cash, and that’s before the new economic screw starts to tighten.

** How do you see 2016? How confident are you in your forecasts? Did you get 2015 right? Get an informed, objective second opinion – admin@richardtalksretail.co.uk

BF hype, no compensation for margin hit

We are now in the period when PR and wishful thinking rule the day. After the trading performance damaging Black Friday and the now redundant Cyber Monday, we are being told how fantastic it all was. Will anyone remember this groundless euphoria when the dust settles and the truth needs to be faced?

Surely no one seriously doubts that spending is finite? Surely no one out there thinks that if you drop the price of something you will sell more, ad infinitum? This is where economic theory comes unstuck. The industry and those who surround it need to learn from last year – netting out this period and Christmas, there will be higher costs, pretty much the same sales and lower margins.

This year there is the double whammy in materially higher costs. While far fewer customers turned up at stores, retailers still had to pay for the huge increase in staff they lined up to cope with the crowds that failed to show. They then faced higher costs online to deal with the surge in website volumes. And finally, there will be higher than budgeted costs from dealing with the higher returns – returns online dwarf those in stores.

In every type of business there are some sales you don’t want, and retail is no exception. Black Friday, Cyber Monday and the various other artificial devices out there are exactly that: margin diluting and brand damaging. We are now entering the key trading period of the year. UK retail has significantly damaged its chances of generating full price sales in this period because of Black Friday. Right now, the vast majority of the High Street is on sale, and will be all the way through.

** We track promotions, analyse supply & demand, and forecast. For details, contact admin@richardtalksretail.co.uk

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