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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

Christmas – how was it for you?

Three trading weeks into January and most of the Trading Statements are out. It comes as no surprise that we still don’t have a clear view of what happened. The BRC called it the worst Christmas trade seen in 10 years and intuitively, I think this is right. The ONS data today is full of flaws. For example, it says that small retail businesses had a bumper Christmas but large ones struggled. Rather more believably, further analysis of the data shows that while online retail across all non-foods grew 15% YoY, physical retail went backwards by 1.5%.

Looking at the Statements, trading appears to have been rather better than feared. Indeed, it looks a bit better than the headline data from the BRC and ONS. However, I would warn against taking the Statements at face value. Every company uses different criteria, so they cannot be read across from one business to another. Indeed, they cannot always be read YoY for one company.  They are not audited and the numbers, definitions and timeframes can be changed.

A growing variable is returns. As online gets bigger, so returns become a bigger proportion of sales. Given gifting, returns will be even higher than usual. December’s total non-food sales were 29% online against 26% the year before. Virtually no Trading Statement mentions returns. The timing of most Statement meant that the vast bulk of returns would not yet have come through. In other words, effectively retailers reported “gross” sales.

If we want Christmas Trading Statement to be a more reliable barometer of retail performance, they need to be independently audited and regulated with agreed transparent ground rules. Until this happens, large grains of salt are strongly recommended.

One final point about Q1 2019 and judging retail performance. The “Beast From The East” had a massive impact on trading performance last year. The comps are therefore very soft and need to be taken into account. However, in cash terms this will be irrelevant and I suspect many retailers have entered the New Year in a materially weaker cash position YoY.

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

Next in line

In world of uncertainty, consistency is a haven. And a reliable feature of the retail calendar is Next’s Christmas Trading Statement being greeted as if it represents the industry as a whole. It doesn’t.

This morning’s numbers were solid and respectable. They will look much better as the next few weeks unfold, with the rest of the trading statements demonstrating yet again that Next is atypical. More than half its sales are now online. It only goes on sale seasonally, to clear stock and has avoided the massive damage caused by frequent discounting across the market. The company is better managed than its peers, with tight, consistent leadership. While it might be thought unexciting and a little bland, Next is risk averse and reliable. Over the years, these characteristics have helped to set the company apart.

Overall, the numbers show a continuation of its recent trend where the physical/online split is moving very steadily in favour of the latter. Next’s statement covers the 9 weeks to end December. Online sales were +15.2% and stores down 9.2%. The annualised numbers show this trend accelerated over the period. The company has also lowered its profit guidance for next year, albeit by a modest 0.6%.

Next remains a strong business and these figures reflect this. It has retained brand and price integrity where many of its peers have allowed theirs’ to dilute. This will certainly have helped it trade better than most through this period. The shake out I expect to see unfolding will make room for the better players. Next can more than hold its own and will be a beneficiary.

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

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

John Lewis, Black Friday and virtual reality

This morning’s numbers from John Lewis department stores are very positive. After weeks of weak numbers, Black Friday seems to have been good for the Partnership. And the 2017 comps were very demanding too. But no one should start extrapolating to the wider market and thinking Black Friday (BF) was a raging success. Across the retail market for now, beware claims of apparent trading success. They are likely to be a form of virtual reality.

Analysing Black Friday independent of Christmas is a luxury only non-retailers can indulge in. The two are inextricably bound together. Christmas trading patterns in UK retail have changed materially since this most crazy of all US imports has kicked in. Sucking business out of December and into mid-November will obviously impact fundamentally trade over the Festive Season.

Then there are returns. A significant proportion of BF sales will be returned. This is only starting to happen this week, and it will continue. I do not believe any sensible evaluation of BF trading can be made until Christmas returns have fed through too, and the whole period can be seen. And then we into the season of Christmas Trading Statements, and we all know how imaginative they can be!

So while we can say well done to John Lewis for this week’s number, they should be treated with huge caution and not over thought. Across the retail market for now, beware claims of apparent trading success. They are likely to be a form of virtual reality.

** 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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