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

Testing the Xmas trading temperature

My impression is that Christmas trading is as cold as the weather. Over many years I have learned that trading over the months leading up to December are a strong guide, and this year has been weak.

My sense is that footfall has been relatively weak. And that footfall is never shared equally, or even proportionately. Visiting stores today. John Lewis is reasonably busy. If its footfall is 100, M&S stands at around 75. I estimate Debenhams at c35 and House of Fraser at c20. I spend lots of time walking stores throughout the year and in a variety of locations. I would say these relationships are not too different from the rest of the year, except M&S’s footfall is materially higher now – a slightly better Christmas might be on the cards for them.

Meanwhile, today we learn that inflation is up to 3.1%. This tells us something about what the retail results season might look like as 2018 unfolds, and it wont be good. Over this period the pound has devalued by c15%. The fact that retail has only managed to increase prices by some 20% of this figure underlines just how pressured the industry is right now. Some of the cost will have been shoved back up the supply chain to suppliers but this has product quality implications. How many retailers can risk reducing the quality of what they sell?

We have already seen signs of industry stress in recent weeks with some administrations, some credit insurance worries and stories about cash flow concerns. However weak Christmas trading is, this will still be the cash flow peak for most retailers. These stress levels can only increase in Q1 2018.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details


Hammerson/Intu deals with space challenge

This morning’s news of the takeover of Intu by Hammerson is very positive. I have been warning of the inevitable consequences of relentless capacity expansion for well over 10 years and found the real estate side of the retail industry the slowest to understand. This deal involves two companies that get it and have the vision and courage to act.

Today, 23% of non-food sales already goes through online, a channel that has grown from zero in more less 15 years. In the bricks and mortar world, trading space has continued to expand, albeit at a progressively slowing rate. However, online has failed to materially make the spending cake bigger. With consumer spend in retail more or less flat, something has to give. The industry is seriously over-supplied, and getting more so by the month. The vast majority of retailers have too many stores and one way or another, this has to change.

I think this deal recognises reality and its implications. The enlarged company will be better able to take some tough decisions on editing capacity. It will also be better placed to deal with the implications of retailer distress that will characterise next year’s market. I expect to see more casualties, administrations and CVAs. The enlarged business will be much better placed to play a pro-active role in this reconfiguration of industry capacity.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details

The Next big surprise

The company’s just announced shop-in-shop trial in the Surrey Quays Tesco is the biggest surprise since Next announced it would run a Black Friday promotion. The fact that both these initiatives are very small should not mask their significance.

This is the most challenging retail market we have ever seen and is THE defining time for the industry. The defining bit will take some years, but it has started. And no one is immune – everyone is feeling the pinch. Different companies deal with pressure very differently. Ironically, it is often the strongest who find it toughest because they are so unused to facing challenge. I think we are seeing this at Next.

Doing Black Friday is very out of character for a retailer that has prized price integrity so highly. In the most promotional market ever seen, they stood firm, only running sales to clear seasonal stock. It is hard to imagine what the business learned from a very limited trial and all in all, I wonder what the point was.

This latest trial is just as hard to fathom. The two retailers make strange bedfellows. Next has seen what Arcadia has done with Tesco and has determined that this is an attractive strategic opportunity. I admit to being shocked!! Given the underlying declining sales performance at Next stores one would have thought that opening more space didn’t rank high on their to do list.

Over the past 10 years or so, Tesco’s customer focus has narrowed. This is reflected in its ranging. The upper reaches of its “Best”offering have been generally pared and often , edited out altogether. They may have made for a better partner 10 years ago but now, I’m far less certain. Indeed, I’m far less certain that Next sits comfortably in any kind of supermarket at all.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details

Black Friday Promotional Intelligence

2017 Week 47

Non-food retailers on promotion this week 84%
Equivalent for same week last year: 83%
  • Retailer participation in this year’s Black Friday was a whisker ahead of 2016

  • Our YoY promo tracker mostly ran slightly below last year but converged yesterday
  • Participation by sector was lowest in departments stores (70%), Jewellery (54%) and General Merchandise (60%)

  • The YoY pattern has been very close all year so the run-in to Christmas is very clear
  • Next week, promotional activity will fall but remain well above 50% of the industry, beginning to rise again by week 50

** A more detailed Paper analysing  at company level is available – email for your copy

Next embraces Black Friday

This morning’s news that Next is to finally run a Black Friday promotion is a big surprise, to me at least. It has taken the company years of sitting on the sidelines to make up its mind to join the fray. For years, the middle market of retail has been the most squeezed. And for years, Next has been standing out as the strongest of the major players. It has enjoyed the strongest brand, built on consistency of product and trust. A key symptom of that strength has been the way it has dealt with promotions and mark downs – short, sharp and very aggressive. And never ever muddying the waters by promoting outside its few key end of season points in the calendar.

So is this a huge vote of confidence in Black Friday from a hitherto skeptical retail winner? I don’t think so. My interpretation is that this decision says much more about the company than about the event. Simon Wolfson has in recent years sometimes been called gloomy and pessimistic. I know the feeling! But I think he’s been too optimistic. This slowdown in our economy as finally acknowledged in yesterday’s Autumn Statement has been obvious for a very long time. And at its heart is a slowdown in retail.

My view is that the retail market has been weakening progressively as 2017 has unfolded. Every retailer I know has a cash flow somewhere short of expectations. For some, the pressures are quite worrying. Next will not be one of them, but I suspect this is more to do with wanting to boost flagging sales than a sudden liking for the lemming-like melee that is Black Friday.

** We advise retailers on strategy and analytics. We also track promotional activity across the UK’s key retailers. Get in touch for details

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