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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

Black Friday … and last Christmas?

As another Black Friday looms and the run in to Christmas beyond, we can already say that 2018 has been the toughest retail year anyone can remember. First, Black Friday. This is a promotion whose effectiveness is questionable even in the USA. But at least in the US it has a little logic, following Thanksgiving  with retail needing to get people spending again. Meanwhile, Christmas in the USA is traditionally a much less significant retail spending spike than here. Here, it comes along just as retailers need to start promoting their Christmas offers. It merely sucks spending forward at discounted prices, and therefore lower margins.

The UK adoption of Black Friday has been lemming-like. Do retailers discount regular stock and take the margin hit? Or do they buy special product (almost always lower margin and lower quality) and take the brand reputation hit? Stronger players have resisted it altogether and many that have succumbed have tried to limit the damage. However, retail is a business profoundly sensitive to YoY trading. Pressure from investors and stakeholders to deliver last year’s performance at the very least is intense. Right now is a great example of exactly that. The past 2/3 weeks trade have been awful – mild weather has hit business and a number of retailers who decided to opt out of Black Friday are already looking at cash flow and feeling the pressure. Some are having a last minute of mind, while others are wavering.

Then there is Christmas. In 35 years I have never known a Christmas trading period out of step with the preceding months. I said at the outset, this year has been the most challenging we have seen. Festive trading in 2017 and 2016 were both relatively positive, so the comps are quite demanding. As usual, many Christmas Trading Statements will be an exercise of selective reporting, economy with the truth and downright misleading, more so in non-foods than foods. But as ever, Christmas will not be cancelled. Earnings growth is finally starting to percolate through and will help mitigate growing political gloom and uncertainty. Weak sterling and fierce competition mean price inflation is trending down in both food and non-foods. I’m expecting both wings of the retail market to deliver spending growth around the 2.5% mark. So not a disaster but not enough to rescue the growing number of weaker players finding the intensity of trade and pace of change too quick.

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

Excellent Asos shows the way

It’s great to see some positive news from a retail business this morning. OK, so it’s Asos and some might say that online success is exactly the point – that traditional retail cannot hack it in the modern market. This misses the point.

In my opinion, the biggest problems faced by troubled retailers today are of their own making. They are the legacies of ill-conceived growth, achieved without understanding the consequences. Most of these ailing businesses have too many stores, over-sized stores, too many SKUs, too many customers…yes, there are some customers you don’t want because of the costs attached to serving them. This has led to the plethora of distressed retailers today who don’t know what and who they are, so neither do their customers.

Asos happens to be a digital retailer but on its own, tech is only ever a means to an end. It’s a conduit for the offer. And the Asos offer and how it is put together and managed is why today’s results are so strong. Asos is first and foremost an outstanding retailer – it happens to trade online. The business understands exactly what it is and refuses to dilute that by chasing incremental growth from beyond. It is focused at young fashion for twenty-somethings. It will neither stray far beyond that in other markets (so no homewares – a graveyard for so many fashion brands) or customers. While it does lots of business with older shoppers, it is not trying to chase them with dedicated older looks.

For as long as retail distress attracts focus on the symptoms and ignores the root causes, those companies are on borrowed time. If these businesses had no stores and the latest tech, their offers would still be irrelevant and competitively weak. A well-run, focused player like Asos can win huge chunks of market share, and there’s plenty more to come.

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

Selfridges – long live the department store

In this world of never-ending retail negativity it’s a real pleasure to see a set of results from a retailer that is not just surviving, but thriving. Is Selfridges the best department store in the world? I certainly don’t know of one that even comes very close. The more important point is that there are a number of important lessons here.

The first is about generic judgements. We all know about HoF, and Debenhams is very close to the edge. John Lewis has reported massively diminished profits. Each of these businesses is different and sector-wide judgements are very likely to lead to poor decisions. It’s not what you do (ie being a department store) but it’s how you do it. What we are seeing is the death of mediocre retailing.

Why is Selfridges so successful? Every winning retailer has one core thing in common – customer focus. Many say they are customer centric, but very few actually are. That’s why they are on sale most of the time. Why they are cutting jobs and it’s why their revenues are static and their profits are falling. Selfridges has a programme of constant refreshment – every couple of weeks there is a new department, a new event, a new brand or two, a new service or two. This dynamism helps to make Selfridges special – there is a vast chasm between talking about experiential shopping and actually delivering it. This is retail innovation – constant newness. And the excitement crossing the threshold is palpable.

The retail lessons of Selfridges are about great retailing through true customer focus, and constant change and improvement.  There are also lessons for landlords. Selfridges is a very carefully assembled collection of brands where the sum of the parts is greater than its separate values. This is what truly pro-active management looks like. In the future, landlords need to think and act much more like retailers.

Selfridges thrives because it hits the spot with its target market. No one can match what it delivers. And neither can any offer online. This is about differentiation. The gaps between the retail winners and also rans are widening. It’s all about execution – the way you do it, and Selfridges continues to do it brilliantly.

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

More entrepreneurs wanted

Most people find change uncomfortable. It’s so much easier to continue following the same course. For generations, steady state continuity delivered retail trading performance that was good enough. We had economic growth, easy credit and you could open c10% more space annually to drive results. Against that background, the industry gravitated to technocrats as leaders. Steady managers to maintain course and avoid risk.

This market is over and not returning in the foreseeable future. One of the issues we have today is many leaders are simply not equipped to deal with this market. They are unable to deal with change, and manage risk. We are seeing the consequences of this in growing corporate distress. The body language of retail businesses says everything. How do they present themselves to customers? How are they reacting to pressure on their trading economics? Is there any investment going on and to what extent is it really focused on their ability to drive sales?

Onerous costs is code for “we don’t sell enough product”. Optimizing costs is a given in business. Cutting them often is not. Retail needs to get better at retailing. This means better customer engagement and usually, this means people. It means investing in better people too.

Leaders need to truly understand the core strengths of their business. What are its fundamental values and what makes it unique? Core DNA is not defined in head office nor even in stores. It’s defined by customers. Strategic plans need to embody this and investment directed at making these traits as strong as possible. Stakeholders need to understand that simply cutting costs will not be enough to survive.

All this is about risk. Ploughing the same furrow is no longer an option – the furrow has gone. You must set your own agenda, often embrace the counter-intuitive, and spend rather than save. You need vision, belief and courage to take your team and colleagues with you. Retail will be a smaller, tighter and less profitable industry but there will certainly be winners able to make very respectable returns. We have a dearth of leaders up to the task but winning will be a prize well worth having.

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

Reactive retailing

The problems around HoF have finally woken people up to what has been clear for a very long time. Structural issues are not so difficult to forecast and everything that is now beginning to unfold has been predictable, at sector and company level.

The differences between being reactive and proactive are life and death. Many are papering over cracks when they need major surgery. And surgery cannot be about simply shutting some stores. This will not make a retailer better at retailing. And this is the non-negotiable pre-requisite of surviving what will be a period of turmoil lasting 3-5 years. Will HoF survive post CVA? There is nothing I can see that will increase its sales, even in a significantly smaller lower cost business.

Too many retail businesses have chased scale at any price. With a market flat at best, and costs and capacity expanding steadily, this additional scale is looking increasingly marginal. It is in stores (too many), footage (oversized units) and customers (proliferated ranges). And all this makes for weak retailing.

Trading pressure is impacting everyone, but not to the same degree. Retailers like Aldi, Primark, B&M, Selfridges, Ted Baker, Home Bargains, Asos and Zara are all trading very well, even if each is having to run faster. They all are 100% clear who they target and that knowledge defines everything they do. It sounds so simple and obvious, but it’s what most of the industry has lost sight of.

A report from Colliers this weekend says 11.6m square feet of retail space has been “lost” in administrations etc. I can forecast with total certainty that many times this figure will go over the coming years. Structural change is not hard to predict. In order to survive, retail leadership teams need to understand what is coming and plan accordingly. Reaction is far too late.

** 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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