Blog

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.

If you want to know more, please get in touch.

What you get

Monthly Archives: April 2016

Cut price Bank Holiday

After weeks of alarmingly weak sales, many in the industry are pinning their hopes on driving some revenue over the upcoming Bank Holiday. Our headline Promotional Index is 62% – the proportion of companies across all the retail sectors currently carrying price promotions. This is up from 57% last week. Within this number, fashion is up from 50% to 57% week on week, and department stores from 30% to 67%.

Among the fashion players, Dorothy Perkins is offering up to 30% off everything (including dresses, tops, shoes, swim, holiday). Wallis and Laura Ashley are also offering up to 30% off everything, while Warehouse is up to 20% off everything.  Some are already discounting new ranges and collections. Karen Millen have 20% off on their spring edit this week and Monsoon  are offering 30% off spring dresses. Peacocks have 20% off spring picks and The White Company have 30% off summer clothing.

Department stores have jumped on the May Day bank holiday promotional bandwagon. HoF have gone into a ‘Brand Event’ offering up to 30% off and John Lewis are offering to price match competitors. Debenhams are promoting a ‘New Season Spectacular’ with up to 25% across all departments. Harrods, Harvey Nichols and Liberty all maintain full prices.

In marked contrast, the footwear sector has moved in the opposite direction. Four weeks ago our Promotional Index for footwear stood at 56%. It has trended progressively down in the weeks since and is currently at 25%. Clarks and Office both have run promotions throughout this period, while most of their key competitors have resisted.

The very weak ONS retail sales numbers for March were a warning. April has been much worse. Apart from not having Easter this year, demand in April has been weaker still and a growing number of retailers are wondering what to do. Having pressed the price button and seen no response, they feel helpless. To a degree, everyone is in the same boat. However, this is not democratic and some brands are far better able too deal with this than others.

A bad week in retail

Last March I Blogged about the deal to sell BHS. My headline was “BHS – going … going … ” and I suggested that the logical next word would not be too far away. In the event, it has taken just over a year. This week has also seen Austin Reed enter administration. These are very sad times for retail on all kinds of levels but the major casualties are undoubtedly the employees and those of their various suppliers too. I will avoid passing moral judgment on the BHS saga but it all reflects very badly on business in general, and retail in particular.

There are lots of ironies in all this. There are all the “expressions of interest” that pour off the administrators’ press releases, describing as retail businesses as “iconic brands”. They have clearly not been viewed as such by customers, or why would they be the process to begin with? It’s all part of the rather delusional process that thinks a repair job is about fixing costs – it isn’t. CVAs have almost always been stays of execution rather than remedies. Financial restructurings generally miss the point. They tend to ignore the fundamental issue – the revenue line. A business needs to be defined by its top line, and its costs tailored to support those sales. If the proposition is weak and revenue line is poor, rearranging the costs will not make the offer more relevant.

The saga of BHS in particular is about much more than retailing, and I have huge sympathy for the very shabby way many people have been treated. However, the harsh reality is that there are too many retailers no longer fit for purpose. BHS is just the beginning – there will be many more over the coming years, because retail has too many mouths to feed. I hope that the many further casualties that are inevitable in our industry will treat their people in a much more caring and sensitive way.

** We advise leading retailers, landlords and investors on retail strategy, forecasts, analytics and thought leadership. Get in touch if you think we can help admin@retailtalksretail.co.uk

 

Retail pressure cooker hots up

The pressure cooker that is retail trading in 2016 is not getting much easier. Even our strongest retailers are feeling the heat – Primark and Next have both reported numbers reflecting just how tough trading is. Poundland and NBrown provide further evidence. Recent results from Tesco and M&S – formerly the Rolls Royces of the industry – showed further market share erosion and therefore underlying weakness. There has never been so much uncertainty.

This month the National Minimum Wage has kicked in. The BRC calculates this could shave between 10 – 20% off retail margins that are clearly already moving South. Before this new burden is added, my figures suggest industry cost growth of 3% against revenue growth of around 1.25%.  Some thought Lord Wolfson’s  recent prognosis for the year was too harsh. I don’t think he went far enough.

In a market like this, everyone focuses on costs but this risks missing the point. For the majority of retailers, it’s the sales line that needs much more attention, and usually investment. Cutting costs may or may not be appropriate but every retailer out there needs to revisit its proposition. Interestingly, our Promotional Tracker shows a slight easing in activity across some sectors over the past two weeks. Fashion, footwear, department stores all have fewer promotions though in historical terms, discounting remains very high. While the numbers look better, this remains a huge issue for retailers.

Few are sufficiently customer focused. And this means that most have too many options, aimed at too many customers, but satisfying the real needs of far too few. More focus on selling is required, not at any price but relevant product to core customers. Recent results highlight just how much work needs to be done at being better at retailing.

** RAH Advisory supports leading retailers, investors and landlords, advising on strategy and analytics. If you think we can help, get in touch at admin@richardtalksretail.co.uk

Fiddling while retail burns

The retail narrative is totally dominated by tech and digital. At conferences, breakfasts, lunches and dinners, everyone is talking about the latest thinking the tech revolution brought. While they are doing this, sluggish sales are forcing more discounting than we have ever seen. Retailers are adding  SKUs and product options to cover the bases and buyers can cover their backs. Reaching out to those customers just beyond the core, who will bring those super-profitable sales because they are incremental – you have covered your basic costs already.

This is the background. Imagine focusing the overwhelming bulk of your attention on the type and nature of bricks and cement used to build your shop, but very little on the product you put on the shelves. Or indeed on the punters who you hope will come through the door. That is what we are seeing. Meanwhile, we have by far the toughest, most challenging retail market I have ever seen. Retailers continue to cling on to the “build it and they will come” thinking. And it  is destined to kill many of them.

The industry has yet to notice that the customer now holds all the cards. And she really is rather less interested in the channel than she is in the product. Why wouldn’t she be? Great tech in itself will not sell anything, if the thing is not relevant. More capacity (stores and digital) and more SKUs will damage brands, not generate incremental sales. Retailers have never needed customer loyalty so much, and customers have never been so reluctant to be loyal.

The industry needs to stop paying lip service to customers and building their businesses around them. Build relevance through exactly what your core customers want and stop ranging for those beyond. There are some sales you don’t want, and some customers you should not be addressing – focus fully on your core. Once you do this, digital can be a valuable support. It is no substitute for selling.

Clothing out of fashion?

Every clothing retailer I talk to these days tells the same story. The bottom has fallen out of the market, particularly womenswear, over the past few months. The usual suspects have been rounded up and the chief one among them is the weather. What a surprise! Has the weather really been that bad? I’m not sure. The last time the weather really had a profound impact was September/October 2014. While the weather has indeed been unseasonal in recent weeks, I’m far from convinced it alone can have caused some of the seriously high double digit yoy declines being bandied about.

I have written before about the weather. The reality is that it has become consistently inconsistent. Retailers must either deal with it or find something else to do. The bigger more macro picture is the source of lots of serious headwinds. The population is getting older. The market is becoming ever more oversupplied. Online is taking an increasing share. All of this is helping to change the shape of demand, and impact sales growth and margins.

Clothing retailers are tending to chase sales and customers that dilute their profits. The rampant price promotions we are seeing is a reflection of exactly that. Instead of addressing a wider market, I am advising my clients to do the opposite – aim narrow and deep. Incremental sales that dilute margins and damage trading economics should be avoided. This requires a much closer relationship with core customers and editing ranges accordingly.

No one will ever be able to do anything about the weather. Leadership teams need to focus on the areas where they can make a genuine difference. Serving core customers better will help you defend your business and minimise the impact of external factors outside your control.

**  RAH Advisory provides strategic advice to leading retail management teams, landlords and investors. If you think we can help, get in touch at admin@richardtalksretail.co.uk

Sign up today for exclusive access to world-leading expertise in the retail sector.