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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: December 2018

Retail Recession

Let’s be clear about what is happening out there right now. We are in a retail recession. I don’t have a technical definition as economists have for the wider economy. But what is clear is the combination of excess supply and a consumer indebtedness, pressured household budgets plus the gravest political and economic uncertainty in modern times adds up to a disastrous end to the most challenging trading year UK retail has ever seen.

I’m not using the word disastrous lightly. I have chosen this word because of where I think it leaves us going into 2019. UK consumers don’t have anywhere near the money to rescue the “Golden Quarter” by going on a spending spree in the last few days of this year. The die is cast – to a degree it was cast halfway through November when Black Friday proved a damp squib and retail failed to get spending going in the weeks that followed. So where does this leave us?

Pre-Christmas discounting has become the norm in recent years but not on the scale we are now witnessing. Discounting has three component parts: the number of retailers on sale, the discounts being offered, and the proportion of stock involved. Across the industry, each of these three is higher than ever before. This is all symptomatic of an industry gripped by weakness, and panicking.

Most retailers will enter Q1 2019 with less cash than they need or want. Traditionally, some fat is required to help what are high fixed cost businesses to trade through the weakest quarter of the year. The majority will need to negotiate increased support from their banks and there will be some very difficult conversations. The massive question is just how far our financial institutions are prepared to further expose themselves? And how good are their tools to make these judgements?

Looking ahead, one thing is 100% guaranteed. 2019 is certain to be materially tougher. The industry entered 2018 in much stronger financial shape and despite that, look at the distress we have seen. Materially greater weakness will bring more casualties, starting early in the New Year. It’s going to be a very rough ride.

 ** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

 

Primark, what it says about Christmas and beyond

Today’s figures from Primark sent a message to the markets that should already have known. This is THE toughest retail market anyone has ever seen. No one is immune. Even the very best are impacted materially, and Primark is and remains, among the very best. The Golden Quarter began badly, with warm weather kicking in for most of the weeks leading up to Black Friday. Black Friday itself has progressively encouraged consumers to delay non-essential spending – a massive own goal I have written about extensively.

By mid-November and Black Friday, retailers’ cash positions were already adrift of where they needed to be. The event itself has turned out to be disappointing – lots of noise but failing to deliver the delayed spending from earlier in the Quarter. The three weeks since are always a challenge. Having made a huge song and dance about your amazing offers for Black Friday, how on earth do you persuade consumers of your great value after the event, probably back at full price or maybe with yet another “special” promotion?

Anecdotal evidence tells me that Christmas hasn’t really kicked in yet. The trajectory of trade is as usual. Q4 will still represent the peak for the year. But it will be lower than needed – everyone will suffer. This doesn’t mean there will not be winners but they will be a minority.

We don’t want to blame Brexit for too much. But the inescapable truth is that it is definitely having an impact. Retail remains a highly volume sensitive. A shift in the behaviour of even just 5% of shoppers will have a massive impact in trading economics and ignoring this in the mix is delusional.

Christmas 2018 will come very late, and fail to deliver the respite many in the industry need. Most retailers will enter Q1 2019 with less fat than needed to see them through the weakest trading period of the year. This will inevitably trigger stressful conversations with critical stakeholders. It’s going to be a bumpy ride.

** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

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