Blog

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.

If you want to know more, please get in touch.

What you get

Retail and selling

So far, 2017 is delivering everything I expected, and more. Trade is tough, and getting more so. Price inflation is filtering through but nothing like enough to suggest that consumers will be picking up most of the tab for a devalued sterling. And how are our retailers responding? Badly, I would say. The common thread is a tendency to forget what their true raison d’etre is – serving customers by adding value.

There is a growing short termism that will be coming back to bite in the next few years. Take staff for instance. The rise of the internet means that a steadily growing proportion of retail sales is made with little or no human role. Not surprisingly, this is diluting margins because most added value in this industry is delivered by people. The growing response to margin dilution across multi-channel retailers is to cut staff. This will lead to store sales dilution. Look at department stores for example – the area they all seem to be doing best in is highly serviced beauty, where trained staff (invariable employed by the brand owner) actually sell. They are doing less well in areas where there are fewer staff on the sales floor. Retail is above everything else about selling. If you diminish the main means to achieve this, the consequences are obvious.

Another key area is product. It’s fundamental – lowering your bought-in costs has to be less important than optimising the relevance/attractiveness of your product. M&S clearly thinks renewing the Lindsay’s sourcing contract (where the imperative is cost reduction) is more important than restoring some of the quality and appeal to make the offer more relevant.

I have talked about whether retail is good enough at retailing for a while. During this period, the industry has become progressively less good and is more vulnerable as a consequence.

** 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

Rising retail (job and price) cuts

We have now seen 12 trading weeks in 2017 and business is every bit as tough as expected. The ONS data needs to be treated with huge caution, if not ignored altogether. The picture it paints is fiction, not recognised by any leadership team I talk to. Demand remains soft and consumer confidence brittle. Inflation in living costs is ticking up and earnings remain static. Last year’s falling petrol prices are reversing and the spending boost from PPI is diminishing.

Meanwhile, the industry itself is showing the strain. Distress of various forms at Blue Inc, Brantano, Jones the Bootmaker and Store Twenty One are just the beginning. There is a whiff of panic in the air. When high fixed cost business like retail feel the pressure, leadership teams usually reach out for one of two reduction levers – jobs and prices. We have already seen behemoths like John Lewis, Tesco, Sainsbury’s and Boots reducing headcount – there will be more. Price promotions are now picking up and will continue to rise as we approach Easter.

Our Promotional Tracker shows fashion as the key area for increased discounting week 12, following last year’s pattern but more steeply. 62% of fashion retailers are running mid-season fashion sales versus 59% a year ago. Trading pressure impacts right across the various sectors and the biggest increase in activity has been recorded among premium fashion businesses.

With price cutting up YOY, I see little or no evidence of bought-in price increases being passed on to customers. Our data continues shows price moving in the opposite direction, suggesting the market will simply not bear that scale of price increase.

** 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

What Next?

Next’s results this morning say much about the past year, and the challenges retail faces. Alongside this is the challenge for investors and commentators alike. Let’s begin with this last point. Judging business performance has almost always been done in a vertical fashion – they tend to be measured against their own past performance. While I’m not advocating totally discarding this, I certainly am advocating a much more horizontal, market-led approach. These next few years will define the retail industry. There will be virtually no player able to reproduce their own past performance. The name of the game is to outperform your core competitors – the businesses with whom you share your customers. This will determine both who survives the coming shake out, and the shape they will be subsequently be in. Understanding this is critical.

The challenges for retail are unprecedented. No one will come through this period because they are great at managing costs – that’s a given. The single most important factor is the sales line – how close to its customers is a business, how much control of trading does the management team really have ie is it setting its own agenda or having to follow its neighbours?

By its own very high historical standards Next’s latest numbers are weak. However, the company is still by some distance the strongest mid-market clothing retailer and has developed a very strong home business alongside. Its offer can certainly be improved in terms of styling and quality. It can be more responsive to its market and it needs to be more focused on its core customers. Nevertheless, its underlying trading economics remain far stronger than the majority. It enters this critical period in a shape its rivals can only dream of. It is only by judging the company against its peers that anyone can hope to understand  the business and where it is headed.

** 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

Jaeger Sale

Jaeger being up for sale is hardly news. The business has suffered for years from being unloved and pushed from pillar to post by uncaring parents. The vultures have never been too far away and here they come again. There has never been a shortage of people seeing a great brand and believing that this alone is sufficient to generate money. It has never been thus, and and even less so I n today’s market.

Jaeger hasn’t made any meaningful money for decades and profitability has eluded successive leadership teams and owners. The core problem has been the product and the lack of clarity around the group of customers with whom that assumed brand allure really resonates. Absense of customer focus is the key. The customer defines style, fabric, handwriting and price, all of which have been ill-defined over many years. Our Promotional Tracker shows Jaeger has been on sale 71% of the past 52 trading weeks – considerably more than most of its key competitors and reflecting soft demand in an overcrowded market.

There is no doubt the brand has potential but realising this needs a root and branch transformation costing lots, and with an uncertain return. The most likely outcome is that it will live on as a label on much cheaper garments within a larger and rather anonymous offering. It is very difficult to see anyone paying more than a fraction of the fanciful values being touted. The brand as we have known it will soon no longer exist.

Tightening belts – eroding added value

Boots cutting 400 jobs in its photo business follows its cull of 700 midway through last year. Last week John Lewis announced significant job cuts, following sister company Waitrose shutting 6 stores with hundreds of associated jobs gone. And in January, Tesco unveiled a net job reduction of around 500. If the “merger” with Booker goes through, there will be many more. The squeeze on margins is only just beginning but already, costs are being cut. There will more to come – much more.

The problem with a high fixed cost business is how hard it is to cut costs. It almost always has to involve people because there really isn’t anywhere else you can make a difference relatively quickly. Nevertheless, there is a high cost to pay for shedding staff. The most obvious is in PR. Putting a positive spin on getting rid of jobs is always going to be challenging. However, beyond this is the question of customer service levels. If you take service out of retail, exactly what is left?

Service levels across retail is ebbing away by the month. As too many stores and too many websites struggle to put cash into tills, and prices and jobs are cut, how can a retailer defend its added value? The answer is it can’t, at least not like that. The finance guys may argue that lowering costs do just that, but if this leads to lower revenues it becomes a race to the bottom.. All the tech in the world will not compensate. Retail is about people, and always will be. If you take the people out, your role in the distribution chain is at risk.

** 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

Sign up today for exclusive access to world-leading expertise in the retail sector.