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The news that American Eagle has opted to not open on either of the UK’s two premier shopping streets is very noteworthy. First, an American retailer coming here and taking a realistic view is a rarity. All too often, they do little or no research, pay far too much for space, and then feel forced to price too high in a naive attempt to make the economics work. So hats off to American Eagle who have priced sensibly, and not been seduced by the bright lights and promised riches of prime West End floorspace.

Does this say something about UK retail occupancy costs? Absolutely! The fundamental shift in UK retail trading economics has been underway for a while now, and it has much further to go. The reality is that the capacity of retailers to pay as much for space as they have in the past is in decline. Their margins are being squeezed and almost all are looking to product suppliers to help finance cost reduction. The idea that occupancy is somehow immune to this is fanciful.

Right now, most retailers’ store portfolios are delivering yoy LFL sales declines. Their positive numbers are relying on online, and that revenue is mostly earnings dilutive. I am NOT saying that no one can make money from stores any more, including prime locations. What I am saying however is that the decades-long upward-only easy money for landlords is over, just as it is for their retail tenants.

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News today that two outstanding online retailers plan to open more stores is interesting, and underlines the nuances inherent in the massive structural change we are seeing in the industry. Boden and Screwfix are rather different retailers, but both have made their reputations online with spectacular success. Opening stores has been a logical extension of their business, and opening more now makes similar strategic sense. What this does not mean is that our industry is not hugely oversupplied and that this fact more than any other is driving a fundamental change in retail economics.

Many retailers across all sectors have a programmes to shut stores. In my view, virtually none are going far enough. Over the next 5 years, tens of millions more square feet (this includes online capacity) will flood the industry and further dilute sales productivity. Significant volumes of floorspace will have to close, one way or another. Within this, there are tremendously strong online retailers who will be moving in the opposite direction. But don’t be fooled. The material price deflation we are seeing today is caused by too much chasing too little. The shake out is coming.

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Yesterday’s news from Jaeger casts a shadow on the business. CEO Colin Henry was two years into a five year turnaround plan. Earlier this year, Chairman Peter Williams stepped down after just 6 months, saying he was overloaded with commitments and couldn’t devote the time the business needed. Losing the two most senior people in a matter of months is a considerable setback to the recovery plan, and suggests that all is not well.

In an age when brand potential is often hugely exaggerated ,Jaeger genuinely is a business with a great heritage and very wide recognition. However, all this is academic if the product and customer experience fails to deliver the trading performance to match. At very least, the business needs consistent and durable leadership. But this is a given. In the market we have today, it needs a clear point of view and handwriting. Colin Henry certainly made some progress in this direction but there remains a massive distance to go.

Jaeger product quality is still too inconsistent. So too is its styling and handwriting. And prices are unsustainably high. There are no segment of the clothing market with any significant gaps and Jaeger’s is no exception. It faces competition from people like Hobbs, a resurgent Jigsaw, LK Bennett and M&S Autograph. It is many years and lots of leadership teams back since Jaeger made money. It still looks to be some distance away.

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Last year saw Black Friday gain traction here in a major way. Whatever the various PR machines might have said at the time, the truth is that this latest import from the USA dilutes margins and brand values in pretty much equal measure. November 2014 saw the biggest increase in non-food retail sales by value for that month in over 15 years – +9.1%. By volume, the increase was +12.3%. The real problem with Black Friday is that represented discounted sales clawed forward from (theoretically at least) full price December Christmas trading.

This year’s Black Friday will be even bigger. Pandora’s Box is now open and the  “if we can’t beat them, we’ll have to join them” thinking will be very hard to resist. We wont see the double digit yoy sales hikes seen last year but I nevertheless expect November’s non-food sales value to increase by 5.2%. November is becoming a more important month in the retail trading calendar – a trend over the past four years as Black Friday has taken root.

There is no question that Black Friday will again suck spend forward from Christmas sales. After all, household spending is finite and the cannibalising effect will be repeated. My next Blog will focus on what I expect for Christmas 2015, taking the knock-on impact of Black Friday into account.

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The news that West Elm is opening in the revamped John Lewis Home department in early September is interesting for a number of reasons. As is often the case for US imports, trading in the UK has proved to be far tougher than they anticipated. At first sight, Tottenham Court Road seemed like a good choice for its first location. But was it? The fact that there are many other home brands there should fool no one: history shows that over the years many have not made money.

The reality is that Tottenham Court Road has a totally atypical core footfall. Does it really attract loads of additional customers as THE major home destination in the South East? I suspect that this store has not told the company very much about if and how it would work in more typical suburban locations. Home retailers need significant footage to work and given our massively higher occupancy costs relative to the US, this is a major barrier. Higher costs need much higher sales densities than they are used to.

Supplying product to John Lewis might prove to be a great move for West Elm and for its parent Williams-Sonoma. There is a good fit in terms of target customers. It will be intriguing to see exactly how the range is presented. After all, Home is THE core product category for John Lewis. It needs to ensure that anything branded here augments, not dilutes its own hard won name in the market. For West Elm, this will be a supplier business rather than a retail one. Its future as a stand-alone retailer in the UK will remain uncertain even if it succeeds as a supplier.

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