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

Discounting down

Is life on the high street getting easier? Better sales figures seem to suggest so, as do better confidence data. One of the key features of this retail market is the amount of margin retailers must give away to persuade customers to part with their cash. However, our Promotional Tracker shows discounting trending down as August has unfolded – a welcome positive after a long and more widespread than usual Summer sale period. Our Tracker found that 56% of UK retailers are on sale this week. This is still a very high figure but continues the gradual falls we have identified since the 81% peak at the end of June.

A key area of falling discounts is fashion where 51% of retailers are currently on sale – the lowest since mid-April. Footwear has generally managed to maintain price integrity far better than apparel and this week we have found just 19% of shoe shops with price promotions. This is the strongest full price showing of all the retail sectors we track. Department stores are at 40% while home furnishings are down at 67% having hit almost 90% in recent weeks.

These are better figures without question but no one should get carried away. Cost growth is still running way ahead of sales and many retailers have educated their customers to expect discounts. After several years of wall to wall price promotions these expectations run deep. Margins will continue to be under severe pressure and the discount market we have become used to is very far from being over.

** 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

BRC – look beyond the numbers

The latest BRC numbers are being greeted with great relief. See – it’s not as bad as was made out and post-Brexit Britain is thriving, or so it seems. There will be some serious flip-flopping of views over the coming months because these numbers really tell us very little. Indeed, no numbers will be very reliable for some time. We are in a state of flux.

The first half of 2016 has seen retail sales growth by value averaging 1.6% per month. This in itself is some way short of the 3% total cost growth run rate (that’s operating plus product costs)  across the industry. And this is all pre referendum. Forget about stats for a moment and just rely on common sense – there must be some delayed purchasing out there and even though this may be relatively peripheral, retail is a volume-sensitive business where small shifts in unit sales have a massive impact on profitability.

It is true that the BRC figures could have been worse but no one should imagine they represent the likely consumer reaction to a post-Brexit retail economy. And no one should ignore the evidence out there in the shops – 70% of total UK retail (food and non-food) is currently on sale. This cannot reflect a healthy market and the real headwinds are already beginning to hit performance. There is more on the way.

** We advise leadership teams in and around retail – get in touch if you think we can help – admin@richardtalksretail.co.uk

Next, rates and the squeeze

Next delivered a very respectable set of results given the circumstances. The use of the word “bellwether” to describe the company is totally misplaced. Generally, Next will significantly outperform the market so the idea that it is a good indicator of wider retail performance is totally misplaced.

As usual, Lord Wolfson’s comments on the consumer economy and the retail market are very insightful. However, his business does most things far better than its peers – that’s why it is where it is today, and most of its peers have been left behind. So customer demand is very weak and brittle – and this is before any direct economic impact from Brexit has been felt. He makes it clear that moving product at full price has become far harder. This is a one way ticket – it will get harder still going forward. He mentions currency hedging and Next is in a reasonably good place. However, for the future beyond hedging, most retailers do not enjoy the partially mitigating overseas revenue Next does. Meanwhile, supply continues to grow and demand is too soft to be able to pass much of this cost increase onto customers.

Lord Wolfson has so far seen little impact on post-Brexit demand but this is unlikely to be universal. Retail is all about volumes and small shifts at the edge can have a huge impact on performance. There will be some deferred purchasing, especially given the constant price promotions which tell customers that what they want may we’ll be cheaper next week or next month. Next steadfastly avoids unplanned promotions, and it shows.

I can’t see how yesterday’s interest rate cut will make much difference to the real economy. Unlike the debt crisis, there is no room for the really material drop in interest rates that acted to insulate consumer spend for so long. While the real trading pressure will take a little more time to percolate through, I foresee job losses and casualties on the horizon. Even the very best like Next face unprecedented challenges but they have the leadership team and brand strength to cope. Many don’t.

** We provide advice, analytics and forecasting to leadership teams in and around retailing. Get in touch if you think we can help – admin@richardtalksretail.co.uk

Clothing out of fashion?

June’s retail sales figures from the ONS were a wake up call for clothing and footwear specialists. Sales were down for the month yoy, -7.2% by value  and -6.1% in volume on last year.  The fashion sector has seen a consistent fall in yoy growth since last December. So, weak sales cannot purely be blamed on reduced confidence over Brexit and unseasonal weather. It has been a clear trend for some months now, characterised by chronic overcapacity and record levels of price promotions.

Last year June was a strong month for the sector with sales of £4.6bn. This year’s sales were £400m lower. A feature of the current market is weakening volumes. In the past, price promotions have shifted product and lower margins were compensated by faster stock turns. Seven consecutive months of declining volumes is driving the most promotional market we have ever seen. But price cutting isn’t working.

Our Promotional Tracker highlighted that for most fashion retailers, Summer sales started week commencing 20th June. That week 84% of fashion retailers went on a sale, a significant increase from 59% the week before. Five weeks later (this week) we recorded 75%, still a very high number and underlining the continued need to shift slow moving Summer stock at discounted prices. Some retailers resisted starting their Summer sales too early – Next only launched its sale last week, while M&S delayed its Summer sale by 2 weeks compared to last year, starting on the 5th July.

So what needs to change? Retailers need to focus on their core customer demographic, making it easier and more relevant to shop, and eliminate loss making or slower moving parts of their offer. We have recently seen some fashion retailers editing ranges – there needs to be much more of this. Choice is a function of relevance, not quantity.

** We advise management teams in and around retailing on strategy, analytics and forecasting. Get in touch if you think we can help Richard@richardtalksretail.co.uk

 

Damaged goods – a bad ad for retail

What a bad few days it has been for retail. Following the parliamentary censure of SportsDirect comes the first report into BHS. The worry was that they would produce a white wash. They haven’t. This is a forensic investigation with some deeply uncomfortable conclusions, predominantly for Sir Philip but also for many others. Reading the report, its straight-from-the-shoulder conclusions are validated by evidence and painstaking research. To say this reflects badly on retail and business doesn’t come close. The Select Committees are to be applauded.

Retail has two fundamental constituencies: staff and customers. For many years the industry has taken both for granted. I have written recently about the need for retail businesses to treat staff less as a cost and more as an asset. Treating staff well should be a moral imperative, but it also makes good business sense. Indeed, the way retail economics are evolving, survival in this overcrowded market will be increasingly about the relationship between staff and customers.

In my opinion the Select Committees are right to attribute most of the blame to Sir Philip. However, there must be a root and branch review of areas like corporate governance (all packaging in this case), advisors (setting a new definition of being economical with their versions of events) and pensions rules (more packaging and box ticking, providing no protection whatsoever to employees). There need to be tighter rules around insolvency and tax. There need to be tighter rules about the stewardship of companies and the responsibilities that go with employing people.

Some good can come out of this. There needs to be clear and decisive follow through on the key conclusions of the report, sooner rather than later. And there need to be rules and procedures put in place to protect staff and pensioners and prevent irresponsible individuals (owners, acquirers, advisors) from riding roughshod over people.

** We advise leadership teams in and around retailing on strategy, analytics and forecasting

 

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