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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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What you get

Retail data therapy needed?

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

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

Tesco and Booker

This morning’s announcement has surprised everyone and reflects a shift in strategic thinking at Tesco. Previously, it has been looking beyond its backyard. People might think restaurants and coffee shops are close to home but their business models are totally different and not surprisingly, didn’t really work. In fact even Dobbies, the garden centre business and certainly a retailer, proved to sit outside Tesco’s skill set and was sold last year.

The attractions of Booker are clear. Whether the competition authorities will sanction the deal is another matter. History shows that they can sometime adopt rather perverse definitions of markets, betraying an inability to fully understand how the people they are meant to be acting for (shoppers/consumers) actually behave. This instance should be easier than many – Tesco already has a huge share of the convenience market and this would give them a substantially bigger one. It would also give the company considerable influence over independent retailers. Some of these might think they didn’t sign up to this and rail against the idea.

Perhaps the most intriguing question raised by this deal, if it happens, is what happens to Charles Wilson, CEO of Booker? In a retail era where leadership has been dumbed down and true commercial skills have become a rarity, Charles Wilson is truly outstanding. He has a unique combination of strategic and operational skills coupled with a tiny ego which lets him put the business and its needs before all others. He is a leader who can truly transform any business – just look at what he has achieved with Booker.

** 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

Trading statements – reading between the lines

Every year history repeats itself. Christmas trading is talked up, a stream of statements gradually emerge, and they are mostly misinterpreted. This year is no exception. These statements at headline level are about as indicative of where we really are and might be soon as the Premier League Table is after two games at the start of the season.

Christmas trading statements are unaudited and produced internally. I’m not suggesting that they are simply made up – God forbid!! However, there is latitude to adopt a flexible approach with definitions and timeframes. And there is massive pressure to deliver what a company’s stakeholders want to see. Goalposts are regularly picked up and plonked down in a different spot. Definitions and timeframes can be adjusted to suit.

Beyond this, the obsession with year-on-year comparisons has encouraged most people to look at the headline percentage figures, and ignore the absolute numbers on which they are based. So Next’s numbers last week have been massively misread. That’s not to say they were not poor and disappointing. However, Next is still light years ahead of its peer group on virtually every issue that counts, and when it comes to its future trading performance, that point is by far the most critical. There will be quite a few retailers posting numbers far better than Next’s. Don’t be fooled by the packaging and look at the contents!

** 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

 

Looking forward to 2017?

So that was 2016. Most retail CEOs I talk to tell me this has been the toughest they have ever known. I wish I could offer some comfort about next year but overwhelming evidence says it will be even tougher. Cost pressures will be carried forward from 2016, fuelled by a full year of National Living Wage, Apprenticeship Levy and business rates increases. Then on top will come the impact from sterling depreciation, kicking in as currency hedging runs out.

The past 30 months have seen growing overcapacity. With costs growing and sales flat, oversupply has prevented retailers passing the pressure onto customers. Against that background, I can’t see shoppers paying the price of a cheaper pound in 2017. With everyone’s hedging being different, so too will be the pressure to raise prices. This will be a source of magnified competitive advantage, and disadvantage. When my hedging runs out and my costs rise 10/12/15%, of course I can put up my prices. However, if my rival is still protected, most of my customers will migrate next door. Making price rises stick will extraordinarily difficult. Especially after years of back to back discounting, teaching customers to shop on price.

Nor will the industry be helped by consumer spending growth. Demand is likely to be flat next year. Against this background I am forecasting a restructuring of the industry, with a growing number of failures. However, adversity always creates opportunities. This market will widen the gap between the strong and the also rans. Those with brand and price integrity will still make money, at the expense of the weak. Those without too many stores and with tightly managed SKU counts, focused on serving their defined core customers and not chasing peripheral sales will emerge in better shape. It might sound blinding obvious but those companies good at retailing will win. There are many who have forgotten how to retail, and they will struggle.

** 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

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