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: January 2016

M&S – returning to retailing?

This morning’s news should not divert from the company’s Trading Statement. The GM numbers are dreadful, though not surprising. Our Promotional Tracker shows Marks has been on sale 11 out of the past 12 trading weeks. It is clear that further ground has been lost but at -5.8%, the GM LFLs are even worse than expected.

For some time now, the timing of CEO succession at M&S has been a key topic of trade chatter. Now that it has finally happened it has taken everyone by surprise. Especially since Marc Bolland told the market he was staying just a few months ago. The other surprise is  his replacement. Most expected an external appointment and Steve Rowe has no CEO experience, but he brings many material compensations.

He has worked all his career at Marks. Indeed, his father was on the main Board for many years and I remember him well as a grounded, thoughtful member of the very solid team running M&S in its pomp during the 1980s. Steve will bring a significant change in style. He has a unifying, collegiate approach and most important of all, he is a retailer. He is an old school, down to earth, merchant. He favours substance over style, another very welcome change.

Of course the biggest thing of all hasn’t changed a bit: the issues the business faces. His prospects of effectively addressing these issues inevitably depends on his diagnosis of them and choice of remedies. It’s much less about digital, infrastructure etc and much more about selling. The clues are in the trading record. He inherits a damaged fashion brand in the toughest market we have ever seen. And womenswear is still the pivotal part of the business. Getting this right is the unequivocal key to recovering performance. It’s also by far the biggest challenge of all.

This development is in my view the most positive we have seen from M&S for some time.  The task is monumental but it offers some genuine hope of progress.

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JS and HRG – a marriage made in …

This morning’s news took everyone by surprise. The rationale as set out by Sainsbury’s strikes me as being very retro in its strategic thinking. Scale is far less valuable in the new retail market. Everyone has too many stores and lots of those stores have too much space. Sainsbury’s suffers from this a little less than some, but it is still an issue. However, buying Argos does not strike me as a solution. Argos itself has far too many stores and manufacturing a click and collect option (in itself a positive) does not change this fact.

Given the size of the two businesses, there is bound to be a good deal of customer crossover. Nevertheless, I would not say the fit is comfortable, especially given Sainsbury’s recent reassertion of its quality credentials. Argos is a format which is built largely on price and convenience and going increasingly digital does not change this either. Five years ago Asda took a close look at acquiring HRG and in many ways, the customer fit there was rather more compelling. Argos is a business built for a past market, finding life in the current increasingly challenging.

Sainsbury’s has impressed over the past 6 months. It’s market share performance has been driven by the company’s re-engagement with its own quality credentials. There is a clearer focus on its core customers with a more coherent offer edited accordingly. This has been the best thought out and executed competitive response of the four majors. Maximising competitiveness in food must surely be the number one priority for the business. In my view, this deal and trying to make it work has more potential to hinder than to help.

New year, traditional strategies

What will 2016 bring? I warned that Christmas would be a huge disappointment and that is how it has turned out. Trading in the preceding 12 months pointed the way clearly. And it is just as clear that the New Year will be very similar. The key structural issues governing retail economics have not changed. In fact, there is no doubt in my mind that this will be an even tougher year. The winners will outperform by forcing yet more pressure on the also rans. So how to be in the winners enclosure?

The New Year will be all about traditional attributes like leadership and sales. A different leadership skill set is needed for success today, and it is in short supply. Recent years have seen more changes at the top. This year will see lots more.

Then there is sales. I have been saying for years that strategically, it is so much easier to defend market share than margin. The smart retailers are growing the former knowing that if they succeed in increasing share, margins will follow. And achieving this is all about another old fashioned factor about which much is spoken but much less actually done – customers, and truly understanding them. Go into shops regularly and you can see exactly who understands and who doesn’t.

Promotional activity has become a key indicator of retail health. Most such activity over the past 12 months was not planned but forced. Don’t be fooled. Discounting is NOT being driven by consumers but by weak retailers. We have been tracking this activity for some time now and will do so weekly going forward. It will prove to be a key distress indicator.

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