June’s retail sales figures from the ONS were a wake up call for clothing and footwear specialists. Sales were down for the month yoy, -7.2% by value  and -6.1% in volume on last year.  The fashion sector has seen a consistent fall in yoy growth since last December. So, weak sales cannot purely be blamed on reduced confidence over Brexit and unseasonal weather. It has been a clear trend for some months now, characterised by chronic overcapacity and record levels of price promotions.

Last year June was a strong month for the sector with sales of £4.6bn. This year’s sales were £400m lower. A feature of the current market is weakening volumes. In the past, price promotions have shifted product and lower margins were compensated by faster stock turns. Seven consecutive months of declining volumes is driving the most promotional market we have ever seen. But price cutting isn’t working.

Our Promotional Tracker highlighted that for most fashion retailers, Summer sales started week commencing 20th June. That week 84% of fashion retailers went on a sale, a significant increase from 59% the week before. Five weeks later (this week) we recorded 75%, still a very high number and underlining the continued need to shift slow moving Summer stock at discounted prices. Some retailers resisted starting their Summer sales too early – Next only launched its sale last week, while M&S delayed its Summer sale by 2 weeks compared to last year, starting on the 5th July.

So what needs to change? Retailers need to focus on their core customer demographic, making it easier and more relevant to shop, and eliminate loss making or slower moving parts of their offer. We have recently seen some fashion retailers editing ranges – there needs to be much more of this. Choice is a function of relevance, not quantity.

** We advise management teams in and around retailing on strategy, analytics and forecasting. Get in touch if you think we can help Richard@richardtalksretail.co.uk

What a bad few days it has been for retail. Following the parliamentary censure of SportsDirect comes the first report into BHS. The worry was that they would produce a white wash. They haven’t. This is a forensic investigation with some deeply uncomfortable conclusions, predominantly for Sir Philip but also for many others. Reading the report, its straight-from-the-shoulder conclusions are validated by evidence and painstaking research. To say this reflects badly on retail and business doesn’t come close. The Select Committees are to be applauded.

Retail has two fundamental constituencies: staff and customers. For many years the industry has taken both for granted. I have written recently about the need for retail businesses to treat staff less as a cost and more as an asset. Treating staff well should be a moral imperative, but it also makes good business sense. Indeed, the way retail economics are evolving, survival in this overcrowded market will be increasingly about the relationship between staff and customers.

In my opinion the Select Committees are right to attribute most of the blame to Sir Philip. However, there must be a root and branch review of areas like corporate governance (all packaging in this case), advisors (setting a new definition of being economical with their versions of events) and pensions rules (more packaging and box ticking, providing no protection whatsoever to employees). There need to be tighter rules around insolvency and tax. There need to be tighter rules about the stewardship of companies and the responsibilities that go with employing people.

Some good can come out of this. There needs to be clear and decisive follow through on the key conclusions of the report, sooner rather than later. And there need to be rules and procedures put in place to protect staff and pensioners and prevent irresponsible individuals (owners, acquirers, advisors) from riding roughshod over people.

** We advise leadership teams in and around retailing on strategy, analytics and forecasting

Steinhoff’s vote of confidence in Poundland is significant in both scale and timing. Having tried and failed to acquire first Argos and then Darty, it has finally managed to swap a large chunk of its money and add to its growing stake in the UK value retail market. It’s Pepkor subsidiary launched Pep&Co, a value clothing retailer, on 1st July 2015. More recently it launched GMH! (Guess How Much!), a GM variety brand rather like B&M.  Steinhoff already owns a significant slug of the UK home market through retail brands like Harveys and Bensons, and supplier brands like Myers, Relyon and Slumberland.

Steinhoff has paid almost £600m for Poundland at a time when it faces a number of key headwinds, beyond those faced by every other retailer. The acquisition of 99p has been made much more difficult by the totally unnecessary CMA investigation which created a massive vacuum of uncertainty. Then there is the competitive pressure on all value players which comes from this being by far the most discounted retail market we have ever seen. This has brought price compression, where everyone’s position has moved closer together and the advantages of a value offering become less pronounced. Then there is the succession to Jim McCarthy – the key player in the Poundland story who has led from the front and will be a tough act to follow. Kevin O’Byrne has excellent credentials but Jim’s are very large shoes to fill.

The timing of all this is fascinating. The UK value market began its rapid growth phase some 15 years back. The low hanging fruit is gone and the growth trajectory is flattening out. Intriguingly, Christo Wiese (now 20% shareholder in Steinhoff since selling it his Pepkor business) owned Poundstretcher until 2010, a value business which predated B&M, Home Bargains and Poundland but was caught up and swiftly overtaken by these much more dynamic and operationally superior players. It looks like an expensive way back into the market.

** We provide independent advice, analysis and forecasts to retail leadership teams – get in touch if you think we can help at admin@richardtalksretail.co.uk

The BRC numbers are not able to give much of a clue as to how consumers may be reacting to Brexit but they are a reminder of the state of play before the referendum. The industry was already facing the toughest trading conditions we have seen. Flat demand, rising costs and permanent selling price deflation tell a clear story. Everyone will very soon be able to blame everything onto to the referendum result but ignoring the impact of structural change risks making the wrong decisions about what to do.

While there may be no data yet it is clear from anecdotal evidence that already weak demand has weakened further. The vacuum we are in is filled with uncertainty, and this breeds caution. Little will change when it comes to basic needs-driven spending but there will be some belt-tightening percolating through here too. But in bigger ticket areas there is a degree of postponement seeping through. It is vital to remember in all this how volume sensitive retail businesses are – small changes in sales volumes have a hugely disproportionate impact on performance. And that is what is happening. With high fixed costs and margins of say 5%, single digit falls in purchasing decisions can easily wipe out the profit line at a stroke.

So what can retailers do? Customers want reassurance and some certainty. Whilst it might be tempting to simply cut prices and pray the volumes come in, that will send a negative message to customers and further erode their confidence in your brand. Indeed, it will reinforce the idea that they should delay purchasing from you because the price will probably be cheaper next week or the week after. This trading climate will further expose the weaknesses of the “also rans” in this hugely over-supplied market. Those retailers who themselves believe in their brand and their offering will have the best chance to persuade customers to share that belief too.

This morning’s trading statement from M&S was pretty bleak, but should not have been a surprise. Senior retailers in clothing have been telling me for many months now that this is the toughest market they have ever seen. Indeed, I was forecasting this last year. Even the very strongest players are finding their yoy comps very demanding. Against this background Steve Rowe is initiating change in some fundamental areas of the business. As we know, retailing is a mix of art and science and however brilliant the strategic thinking might (or might not) be, the customer holds every card that counts. So there is some trial and error involved. The critical factor is direction of travel and I continue to think that in broad terms, Rowe is on the right track.

The wider market picture for the 13 weeks covered in Marks’ trading statement is still not clear in terms of data, the ONS having yet to release numbers for June. However, I expect the yoy comparative period figure will be around -5%. So set against this background and taking into account the changes in promotions and pricing, this statement is not quite as awful as first appears.

That said, the numbers underline the scale of the task ahead. Effective business change takes time, especially in a contracting market with far too many players. And therefore setting too much store by one quarter’s numbers risks drawing unrealistic and generally wrong conclusions. Brexit overlays much tougher economics on a retail market already struggling to cope with chronic oversupply. Rowe needs to be given the time and space to make the necessary changes so Marks becomes much fitter for purpose.

** We provide advice, analysis and forecasts to retail leadership teams, investors and landlords. Get in touch if you think we can help admin@richardtalksretail.co.uk