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: March 2016

Next, in frantic 7 days

A week is a long time in retail. A stream of significant events, followed by Next’s numbers this morning. As ever, Lord Wolfson’s unvarnished analysis of the likely trading market in 2016 is spot on. It is exactly what I have been forecasting since the middle of last year. The company’s performance needs to be judged in the right context. And that context is the market, not the company’s own historical record. No retail business will be able to match its own past record – the market is far to overcrowded for that.

So Next needs to embrace change and this morning’s statement suggests this is already happening, to a degree. It will still outperform the vast majority of its competitor set – it’s KPIs remain way ahead of the pack. Yesterday’s news on the BHS CVA was positive in my view. The leadership team now needs to start implementing their plan and I very much hope its owners allow it the financial resources it needs. In this market cost management is the easy bit. A non-negotiable pre-requisite of success is investment in the top line – in product, supply chain, customer service and building brand equity. Every retailer out there needs to revisit all of this because none is as good as it needs to be to get through by far the most challenging retail market we have ever seen. As per my last Blog, BHS is far from alone.

Lidl’s launch of an online business in Belgium was another event, largely ignored here but a statement of intent which will impact the UK eventually. Tesco’s launch of an entry level fresh range is another statement of intent, underlining its value credentials. The business has certainly slowed its market share erosion but it will take much more than this to reverse the trend in any sustainable sense. This point is less about Tesco and more about all four majors. And Sainsbury’s won the day with Argos. As I have said many times on this topic, I’m not sure “won” is the right word and am concerned about the deal’s impact on JS as a food retailer.

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BHS not alone

The news of a CVA at BHS is not a surprise. The business has been loss-making for many years and outside of Arcadia, it now has to rely on its own resources. Being very close to the edge makes it essential for the business to restructure. Realistic occupancy costs are essential if trading is to have a chance of returning to economic viability.

Many retailers are moving inexorably in the same direction. Industry economics are changing fundamentally. A walk down any high street will tell you. Every month in every retail sector more than half the players are on sale. Few have models designed to trade at a discount. There is simply not enough business to go round. Every month brings more capacity. Too many stores, too much space and too many websites. This is a one way ticket – it is 100% certain to get much worse.

The rather perverse advantage that BHS has is its closeness to the edge. This has forced the leadership team to take decisive action. Critically, they are coupling the CVA with a strategic plan to change their proposition and by acting now, they will certainly improve the chances of success. For many others however, life will have to get much tougher before we see action taken. Restructuring costs is vital but without a relevant viable offer, it is just delaying the inevitable.

There will be many more CVAs, admins and other processes that an increasingly unforgiving market will force on the industry. On their own, they miss the point. Every retailer I know has a proposition more rooted in where we have been than where we are going. They all need revisiting, fine tuning and made fit for purpose. Meanwhile, chasing increasingly unprofitable sales has become the norm.

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