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 … arriving later

Black Friday first arrived in any meaningful scale in 2014. It had a massive, generally negative, impact. Two years is an awfully long time in retail. Today’s market is already quite different. Back then, promotional activity was still something retailers engaged in sometimes, to boost sales, shift stock, and reach out to customers with a special offer. Since then, we have had wall-to-wall price promotions and negative inflation virtually every month in almost every sector.

Last year Black Friday was more muted. The strongest opted out altogether. Many sought to better manage their exposure. Nevertheless, a combination of wet weather and shopper fatigue kept the crowds away from stores and business shifted online. There was a cost hit, partly due to higher staffing in shops that turned out to be unnecessary and partly online, which struggled to meet demand.

I expect this year will be an even damper squib. The main reason is even greater fatigue. After 2 years of discounts, are shoppers really going to rush to buy, knowing there will be more discounts around the corner? My analysis suggests that at the beginning of this week around 25% fewer retailers had launched Black Friday versus last year. And as this week has unfolded, there has been a steady but slow uptake. Each day more are launching but with only a day to go a significant number remain on the sidelines.

Promotions are a key indicator of current trading. Many don’t just hit margins, but brand equity too. Of course if you are concerned the guy next door will discount and capture your customers, what choice do you have? And this is the underlying reality of today’s oversupplied market. Against this background it will be interesting to see who is able to make next year’s price rises stick – will customer buy it?

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

Black Friday … just another promotion

Two years ago we were about to experience Black Friday for the first time. A handful of retailers had already dipped their toes in the water the previous year, but 2014 was when most of the industry dived in. And what a disaster it proved to be. Aside from appalling PR with National TV news coverage of fist fights and mass scrums in leading stores, it was financially damaging to most of the industry.

The idea of offering huge discounts just as most UK retailers traditionally launch their full margin Christmas offers was crazy. In 2014, Black Friday-fuelled November sales volumes soared and although the industry still managed to drive Christmas spending up, it had to discount prices (and therefore margins) to do so.

Last year the impact was much more muted. While pure plays still managed a Black Friday boost to November, mainstream non-food retailers saw only modest spend increases. And even so, Christmas was the weakest we have seen in 25 years and spending was down 2.5%.

I’m expecting last year’s trading pattern to be repeated this year. The key change over these two years is that discounting has now become a permanent feature of every retail sector. Back in 2014 Black Friday was a novelty and we were only just beginning this unprecedented cut-price market. As we approach the big day, our data show that on average, 64% of non-food retailers have been on sale so far this calendar year. Black Friday 2016 will be just yet another price promotion – the novelty value has been discounted.

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

M&S strategy part two

Todays results and strategic update from Marks and Spencer underlines the resolve and determination of Steve Rowe. Making tough unpopular decisions isn’t easy but he knows he must initiate change if he is to get Marks back on track. In the toughest retail market anyone has ever seen, M&S needs to get smaller before it can return to growth.

Shutting stores is hard for a business that has done the opposite for more than a century. Having stores not too far apart may have made sense years ago but not today. Online growth means most UK retailers simply have too many stores and we will be seeing lots of closure programmes over the next few years.

Another major bullet bitten is international.  Marks has run a very successful franchised business for many years, partnering with local businesses to provide know how. Company-owned stores is a very different matter and Rowe has acknowledged that in most markets, the M&S brand hasn’t worked. Most will be shut.

He is also weaning M&S off the discount drug, reducing the frequency of price promotions. This is critical. Shoppers get used to seeing discounts and trust in a retailer’s prices is undermined when you suspect an item will be cheaper next week. Getting prices right first time, and sticking to them, will help restore belief in the brand.

Then there is editing the clothing offer. Fewer items does not mean less choice – having lots of irrelevant fashion does not represent genuine choice. So the need is to be much more clear about exactly who today’s M&S is serving and build ranges accordingly.

Most of the change announced is about clothing. Marks food business continues to perform well. It’s clothing side needs to learn about focus and innovation from its food arm. I believe Steve Rowe is moving in the right direction. However, it will take time to achieve the change required – years, not months. My concern is whether the City will give him the time he needs. Turning round an £11bn business is hard enough – doing it quickly is impossible.

** We advise leadership teams in and around retail – get in touch if you think we can help –

The price of sales growth

The ONS retail sales for September look quite encouraging, until one looks below the surface. The headline numbers suggest relatively buoyant demand with yoy sales growth by value +3.4% averaging out the last 3 months. However, this growth has all been driven by online and stripping web sales out gives you a negative yoy sales number. A sale is a sale but when profitability is taken into account, this online-dependent growth will have diluted margins.

While this is the toughest retail market anyone has ever seen, 2016 is seeing a revival in online retail sales growth. With 75% of the calendar year now behind us, yoy online sales growth is averaging 16.6% – by far the fastest rate for 5 years. This is being driven particularly by pure plays and household goods retailers.

A key barometer of retail trading health is promotions. Our Tracker measures price promotions across all the sectors, by company. This week 64% of the entire industry is selling on discount, reflecting weak demand and a customer taught to wait for mark downs before buying.

Against this background one can easily see what was exercising Tesco so much when Unilever tried to raise its prices. Contrary to current City and political thinking, some retailers may try and increase their prices next year when currency hedging runs out but the consumer will literally and metaphorically not buy it. Price deflation in retail will stay until there is a reset of the relationship between supply and demand. However tough trading is now, it’s a picnic compared to what awaits us next year.

Tesco, Unilever and the shape of things to come

The Tesco/Unilever spat over cost inflation is just the beginning. Today, the pound is around 17% below its referendum day value against the dollar. Who knows how the markets will rate the UK economy over the next few years but I don’t know anyone who expects the pound to regain that ground. Given that we import more than 60% of what we consume via retail (food and non-food combined), it is clear that we will be importing a material slice of inflation. So who will take the hit? Tesco have chosen to kick off this huge question in public but it not only impacts every player in grocery but across virtually every sector of the industry.

Politicians and economists have been warning of rising retail prices and that suggests that ultimately the public will have to pay. However, they are unlikely to appreciate the structure of the retail industry and the massive changes that were already taking place pre the Brexit vote. We have now had more than 24 consecutive months of retail price deflation in every sector. During this period, retailers’ cost growth has outpaced demand growth. The vast majority of retailers have been unable to pass these cost increases onto their customers because of competitive pressures. Very few will be able to make price increases stick here either.

Tesco and Unilever will come to an arrangement and share the hit. Tesco is too big for Unilever to ignore. Tesco needs branded product to differentiate itself from the private label discounters, and to underpin choice. And the customer? The most intensely competitive retail market we have ever seen will ensure that the lid on retail prices remains very firmly shut. Price promotions will continue to characterise trading and the industry will have to learn to live with lower margins for the foreseeable future.

** We advise leadership teams in and around retail – get in touch if you think we can help –

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