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

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.

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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.

Debs – more than shifting deckchairs

This week sees the second high profile retail departure, and it’s still only Thursday morning! Debenhams and Michael Sharp is worlds away from Waitrose and Mark Price although both companies face growing competitive pressure. In fact I don’t know of a retailer in any sector that  is not in the same boat to a greater or lesser extent, and that is the key point here.

Debenhams’ issues are much deeper than who is on the bridge steering. It is the vessel itself. If the business didn’t exist today would anyone invent it? The middle market of clothing is becoming an increasingly challenged, overcrowded and uncomfortable place to trade. Debenhams is far from alone in finding the going increasingly tough, and the pressures will only get worse. That middle market is being squeezed from above and below. A key problem concerns price and promotions. The company is famous for its frequent, large scale price promotions. It may be reducing their number a little but in today’s market where virtually everyone is promoting, those blue cross days have to work much harder to attract the same attention and spend. Today’s figures are better than they might have been but the middle market is contracting and only the very strongest will grow.

LIke so many of our retailers today, it is not simply a change of leadership they need but a change of strategy. And a winning strategy is not multi-channel and/or international – those are directions, not strategies. A winning strategy needs to generate profitable incremental sales, built on a compelling plan that captures those sales from the competition. There is a dearth of this kind of thinking but this is increasingly a fundamental of surviving and prospering in this market.

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Mark Price steps down

The departure of Mark Price from Waitrose is a surprise, more for its timing than anything else. He has been outstanding in his leadership of Waitrose during what has been the most challenging time in food retail for decades. He stood out years before then in various roles across most areas of the Partnership as he rose through the ranks. He has often been outspoken and has certainly been one of the more clear-sighted industry leaders as the economics of UK food retail have been transformed.

Like most careers, Mark’s is a series of “could have beens”. He could have landed at M&S as head of its food business, when Stuart Rose instead appointed Steven Esom – Mark would certainly have been a very strong candidate to succeed Rose as CEO there. He could have succeeded Stuart Hampson as Chairman of the Partnership, although Waitrose would have missed out on his transformational leadership. He could have landed as CEO of Morrisons. M&S and Morrisons would both certainly be in better places today had Mark gone to either.

He leaves Waitrose in good shape. Performance is under huge pressure because like every other retailer of food in the UK, the fundamental economics of the market are changing and virtually no one is making the money they were. Nevertheless, in his 10 years at the helm he has grown sales by 76%, adding around £2.4bn of revenues.

This is without doubt the most challenging time in modern retail history. Leadership is far too focused on the rear view mirror and needs to be looking forward. Mark is very good at that and the industry will be poorer for his departure.

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