Retail data therapy needed?

8th February 2017

Yesterday the BRC told us January 2017 saw headline retail sales struggle and just about register a faintly positive 0.1% YOY growth. LFLs were down 0.6%. This followed the December ONS retail figures showing the industry enjoying booming sales growth. In fact Christmas 2016 was the third consecutive month of incredible retail sales growth numbers from the ONS. Literally incredible, in the sense of being totally unbelievable. It seems this fantastic growth is being driven by small retailers and pure play online. And butchers are having a phenomenal time too.

Are you confused? I know I am. I clearly spend too much time talking to the wrong retailers because I’m struggling to find anyone at all that is having a great, or even moderate, time. And the retail stats are permeating the wider world. The Bank of England just increased its UK GDP forecast for 2017 from 1.4% to 2.0%, largely driven by the consumer economy whose largest component is of course retailing. This is a massive upgrade suggesting a very dramatic shift in view.

The BRC’s numbers are vastly more consistent with the anecdotal view I gather from talking to retail leadership teams across the industry. When it comes to planning, budgeting and forecasting, I would caution people to ignore the ONS data until they sort out what has gone badly wrong. And the Bank of England would be well advised to revisit its incredibly bullish view of the UK economy using base data more in tune with reality.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details admin@richardtalksretail.co.uk

Hudson’s Bay, Macy’s and overvalued balance sheets

6th February 2017

The news from North America that Hudson’s Bay is looking to acquire Macy’s is just like the good old days. One company buys another vastly larger than itself. And a department store to boot – can this really be happening in 2017? Hudson’s Bay has a market cap of $1.8bn and fancies Macy’s, valued at $9.8bn. As a retailer, Macy’s has been struggling for many years but it has real estate valued at $14bn and the Bay smells a huge opportunity. This is what has made retail so seductive to financial players for years. It’s also helped to create great confusion in which asset strippers have often been assumed to be great retailers when in reality, they were just great asset strippers.

The overarching structural factor driving retail change today is overcapacity – an excess of supply over demand. For years this was all about real estate but latterly, it’s been more about digital. There is far too much physical space and sales productivity per square foot in every Western retail market is falling like a stone. So, given that there is too much of it, surely it must be worth less?

Raising money against overvalued retail property assets is going to be an increasingly high risk business. No doubt banks will be queuing up for a share of the action but overvalued retail balance sheets can’t be ignored forever. Every retailer I know with a store estate has far too many shops. Are they an asset or liability? Most retailers have overvalued property assets and how these companies are valued, particularly by banks, will be based on a traditional view of balance sheet strength. That rear mirror view is obscuring what is really happening out in front.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details admin@richardtalksretail.co.uk