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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.

If you want to know more, please get in touch.

What you get

Christmas ads = a zero sum ego trip?

The past few days have launched the 2015 Christmas ad wars with John Lewis, M&S, Boots, TK Maxx, Curry’s PCWorld, Waitrose, Burberry, Argos, Asda and Very among the retailers involved. It is great to have retailing the focus of debate in the contexts of culture, aesthetics and art forms. And Christmas is a time for giving. But does it generate incremental profitable sales? Or is it an expensive corporate self-indulgence?

Last year John Lewis spent some £7m on its Christmas ad campaign and reported a 4.8% increase in LFL sales over the period. Was this was enough to pay for it? And John Lewis was one of the very best performers. Many of the other big spenders over Christmas last year (Tesco, Sainsbury’s, M&S for example) reported LFL declines. But this year they are all back for more.

A year ago in non-foods, November YOY sales by value rose by 9.0%, the biggest increase by far over the past 15 years. Meanwhile December was up by 3.5% YOY. Sounds not too bad but price deflation was -1.8%. In other words retailers had to sacrifice margin to achieve that number, and at Christmas when they need full margin. Price deflation over Christmas on that scale was last seen on December 2008 when Lehmans had collapsed and people thought the end of the economic world had come!!

These numbers reflect the Black Friday effect and at the eleventh hour, some retailers are suggesting they are “turning down the dial” this year. We’ll see. Most of the industry for most of the rest of the year has found it impossible to jump off the price-promotion bandwagon so how will Black Friday be any different?

** We have detailed forecasts for Black Friday, Christmas 2015 and next year. Get in touch for access at admin@richardtalksretail.co.uk

 

Christmas has arrived

The continued softness of consumer demand, coupled with huge oversupply, has produced the most promotional retail market we have ever seen. Our research shows that right now just 32% of non-food retailers are trading without any promotion whatsoever. What was the norm until a few years back is now increasingly rare. We are launching a weekly Tracker to measure trends in who is doing what, when.

Our new Promotional Tracker shows an upsurge of retailers introducing Christmas sales events right now across non-foods. The last week of October saw 16% of retailers with Christmas promotions. The first week of November we found the number up to 32%. Nevertheless, price promotions remain the dominant message and 50% of retailers are still focusing on price cuts, 6% down on the week before.

A key change comes in fashion. Here, an incredible 58% of stores had price promotions in the final week of October, falling to 45% in the first week of November. A significant number of players have started their Christmas promotions, rising from 12% the previous week up to 22%. Nevertheless, this underlines how the vast majority of the clothing market is keeping Xmas powder dry.

While most of the major department stores have kicked off Christmas, there are some notable exceptions still holding back. Some sectors have also yet to turn to Christmas and remain totally focused on price promotions.

Detailed analysis of promotions each week can be found in the premium content of the website. For access details, get in touch at admin@richardtalksretail.co.uk

Tough times at M&S

Today’s interims from M&S continue the recent narrative. The City has decided this is a margin story, mainly because that is what the company has told it. In this respect, M&S is looking increasingly like WH Smith where selling product has become rather incidental. In the UK retail market which is emerging, driving sales will be THE determinant of who wins and who gives up business to the competition.

As usual food is the star performer, and performance is indeed impressive. Nevertheless, LFLs of +0.2% compare with a market of +1.2% by my analysis, so too much celebration is inappropriate. The product innovation of M&S food is second to none and the introduction of 900 new lines is certainly to be applauded. However, there is a concern around price. Marks has been increasing its prices in recent times and against a market going in the opposite direction, this is not sustainable ad infinitum.

On GM (dominated by clothing and footwear), LFLs are -1.2%. My analysis of the non-food market shows value sales +3.2% and volume +5.2% over the same period. (The clothing market numbers are even less flattering for Marks.) These numbers are all hugely impacted by the record-breaking heatwave for 6 weeks last year running from the start of September and into mid-October. The worrying point is that the quarterly breakdown of results suggests the underperformance is getting worse.

The City will be delighted with the margin gains and the M&S share price today shows where it places its emphasis. Back in the real world, the clue to real significance is in the definition of the word retailing – it’s all about selling product and any meaningful recovery of M&S needs to be built on a significant and sustainable improvement in retail skills

Tesco & Arcadia

Retail hasn’t lost its capacity to surprise. This latest deal taking Arcadia brands (including Dorothy Perkins, Evans and Burton, but not TopShop( into some large Tesco stores is amazing and makes me wonder about a number of things. First, about how the deal came about. Who first had the idea, because I’m certain they didn’t both think of it simultaneously. And why? What are the real drivers behind it? Like most fashion retailers, Arcadia’s brands (apart fromTopShop) already have too much space. And can this really be the best solution Dave Lewis and Co can come up with for Tesco’s oversized stores? Isn’t it rather Giraffe, Harris + Hoole and Euphorium-like in its strategic thinking? Actually, I think it’s less appropriate.

This is the latest in a long line of similar supermarket JVs and tie ups. What they all have in common is the lack of choice surrounding them. These are marriages of convenience, born out of excess floorspace coupled with the fact that our supermarkets are generally even less good at non-foods now than they were ten years ago. And they were not so great at it then. History shows that business partnerships succeed because they are wanted to, not because they are needed to. These are almost invariably forced marriages and tend to be short lived.

** More detailed analysis and forecasts of supermarkets and fashion can be found in the premium content of this site. Get in touch for details.

More Pep from Christo

It is fascinating to see yet another significant investment in UK retail from Christo Wiese, the South African billionaire. This follows his investments in New Look and Iceland, and the launch of Pep&co. All are value retailers. Wiese has spoken publicly of his confidence in the UK value market and this is not surprising.. What is more intriguing is the timing. If one splits retail into value, middle and premium it is the first of these that has been the outright winner over the past 15 years.

The irony is that back in 2000 he already owned Poundstretcher which back then traded through more than 600 stores. This gave it much more than a head start on the stars of the value market like B&M, Poundland and Home Bargains who have made fortunes from massive growth that has largely passed Poundstretcher by. So having missed out and then exited (he sold in 2009), why he has waited until now to return, when its growth is slowing markedly?

The new chain will take on the likes of B&M and Home Bargains, with 10,000 square foot units in secondary locations. One big difference with these two very well-established players will be clothing, with Pep&co merchandise sitting alongside household goods and (mainly) ambient groceries. Like Pep&co, the business will be led by Andy Bond, the former CEO of Asda. He plans to have two trading by March and a further 8 by the middle of 2016.

Another big question is why start from scratch? With a massive war chest, why not buy an existing player. There have certainly been opportunities. As with my discussion about Pep&co (Paper December 18th 2014), one has to take a player like Christo Wiese seriously. He has the finance and an impressive team is being put together. Like Pep&co however, this new (as yet unnamed) business will be up against exceptional very well established players with great teams and firepower of their own and gaining traction will be very tough.

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