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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

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

HoF CVA part 2

My initial Blog on this topic was posted on May 3rd. There I said if the CVA was successful, we’d soon know how much genuine belief the owners have in the future of the business. We now know the CVA will involve 31 store closures, and 10 rent reductions. So far, there is no sign of a Plan B – a plan designed to increase sales from a smaller but more robust core store estate. This is what will determine whether there is a viable future for HoF.

There is talk of new money coming in post CVA but given the black hole that is department store retailing, it looks like a drop in the ocean even if it does materialise. HoF has very little retail experience in its top leadership, most of which is very new to the industry as well as to the business itself. In this market, seasoned retail leaders are struggling to deal with increasing trading pressures. Having a response that is only financial (addresses costs but not sales) will fail eventually.

Will the CVA get voted through? Probably, but it would be very naïve for anyone to regard it as a vote of confidence in HoF’s prospects. The word “support” would be extremely loose. In any case, most of the voting creditors will be suppliers with arguably greater exposure and far less choice. HoF is telling us that it cannot any longer trade profitably in Central London (Oxford Street and Victoria), Birmingham, Edinburgh, Cardiff and Milton Keynes among others. It cannot find enough of its target customers here. This speaks volumes about its own level of confidence and about whatever plans it may have.

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

M&S further down the cul-de-sac

All very predictable from M&S this morning. This was once a wholly exceptional retailer – these days it is entirely ordinary. Shutting stores is fine, as far it goes. Virtually everyone has too many stores so adding to the planned closures is probably sensible. However, it misses the point.

So much of retail is run on the “build it and they will come” principal. The fact that they (aka customers) have been progressively not turning up has so far failed to change the majority of retail mindsets. So, the reaction is to lower costs. And that is top of Marks’ agenda. They believe that if they can lower prices, “they” will buy more. They wont.

The costs of a business must be defined by its offer, not the other way round. How many stores Marks has, how big and where they are located needs to be governed by the nature of what it sells, and its target market. This simply does not work in reverse, especially in the zero growth market we have today and for the foreseeable future.  The pursuit of lower prices has progressively diminished styling and product quality, eroding relevance and brand values. Evaporating loyalty is the growing price being paid for continuing down this cul-de-sac.

Huge changes among the senior team leaves the business with thin experience and a diluted culture. Where are the M&S cultural values that made it special? Words are cheap but the daily body language of the company’s stores is discouraging. Billions of pounds in lost sales weighs heavily on the big 4 grocers, chasing price instead of defending their own added value in the market. M&S is doing exactly the same in clothing, chasing Primark and others lower. Very few retailers can afford to keep disappointing their customers, and Marks’ wrong direction is consistently doing just that.

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

 

HoF CVA

HoF has been a prime candidate for a CVA for more than 20 years. Back in the mid 1990s, the company had at least 20 stores it needed to close. Here in 2018, word is that 20 are likely to be shut in this process. After all these years, is 20 likely to be enough?

The business has been struggling for many years. The list of its issues is very long. Too many stores and an offer that has never been sufficiently different are near the top. For years, the company has seen itself as the alternative to Selfridges. The problem is that this perception has never been shared by customers, or not enough.

It’s fashion brands are generally too second division to match the excitement and exclusivity that makes Selfridges such a magnate. And HoF has failed to develop strong enough private labels to give it a clear point of difference. Some legacy stores in poor locations can be dealt with via the CVA. But a revolving door at the top speaks volumes. Most of its leadership team has changed in the past 18 months or so.

Its weak offer makes attracting footfall very difficult and the business has unsustainably low sales per foot. This is a market where every man and his dog will look at lowering costs – this is a given. The survivors will be those who can increase sales. And in a flat market, that means capturing them from rivals.

Addressing the weaknesses of the company require very deep pockets. Massive investments in top people and the development of genuinely credible private labels are essential in order to then attract the top 3rd party brands that will drive footfall. The kind of root and branch restructure needs much deeper pockets and retail skills. Assuming this goes through, we’ll find out just how much genuine belief the new majority shareholders have in this business. Simply shutting some stores doesn’t address the key issues.

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

 

 

 

Sainsbury’s – Asda – further thoughts

My previous Blog was written before Monday morning’s formal announcement with more detail. Now that we know much more, my initial thinking remains. This deal tells us much about the underlying thinking at all the companies involved. And behind the spin, most of that thinking is negative.

It is clear that this is an exit for Wal-Mart, albeit initially a partial one. The terms of the deal involve a very low value for Asda as a trading company. In effect, a dowry has been given to JS. For Wal-Mart to remain partners long term would require them to have massive confidence in Sainsbury’s leadership team to make this rescue deal transformational. This is not plausible. Beyond the next few years it makes me wonder at what point those separate brand identities will merge the operational management supporting them. Surely the economic advantages will become irresistible? The pressures will grow since I find it hard to see how the enlarged group will gain any share, albeit from a higher starting point. So the need to cut costs will intensify.

The strategic thinking here is defensive. However, it seems to me to be financially driven in its thinking. The classical view that greater scale is desirable was behind the acquisition of Argos, and again here. Both Argos and Asda are essentially weak brands. Putting Argos into Asda certainly boosts scale, but the proposition will remain the biggest target in Amazon’s sights. Scale will always be significant in retail but its value is diminishing. Across the industry, all the innovation, disruption and fastest growth has come from smaller, more agile, more dynamic players – Aldi and Lidl in food, B&M and Home Bargains in GM, Primark in apparel. It misses the point to look at that list and say …ahhh, all discounters. Yes, they are. But more than that, each is a brilliant retailer with outstanding commercial skills.

In the retail market now emerging, scale alone wont cut it. Understanding customers (this means much more than simply owning mountains of data) is the critical prerequisite of being commercial. Too many retailers are not commercial enough, something unaffected by being bigger.

** 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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