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

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.

**  For analysis and forecasts of UK clothing and department store markets, get in touch

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.

** Get in touch for access to forecasts and analysis of food retail

Tesco – still in the woods

The latest interims from Tesco are mixed, as might be expected. A year after the true nature and scale of the company’s issues became apparent, the new leadership team has made clear and tangible progress. Tesco today is more focused, more transparent, has lowered prices and edited ranges. Some stores have been axed, some jobs culled and an altogether leaner, fitter business is emerging. Service levels are up and the customer is back at the heart of the company, having been sidelined and taken for granted for some time.

Nevertheless, the company is still losing share albeit more slowly. In this respect it is in the same boat as its immediate peers. The price gap with the discounters has been narrowed, but not enough to stem customer migration. Volumes are up, but my analysis shows it still lags the market at large. It is still significantly overspaced, and carries far too many SKUs. Tesco still has the biggest market share by far, but the competitive agenda is still being set by Aldi and Lidl and will continue to be for the foreseeable future.

The new economics of UK food retailing are uncomfortable for all the majors, and others too. Their slow response to the price threat came from underestimating the discounters and I think they still do. Rebuilding Tesco is well under way but much of what has happened so far has been about much better housekeeping. There is much more to do and managing expectations is vital. Returning to true market leadership is unlikely. Tesco’s announcement contains some green shoots but they are springing up in the woods.

** We have detailed forecasts and analysis of UK food retailing to 2020. Get in touch for access.

Beware weak comps

In these days of obsessive focus on LFLs or comparatives (comps in US retail-speak), it is always essential to pay as much attention to last year’s numbers as the latest ones. The fashion numbers being bandied about right now are set against an extraordinarily bad September/October trading period in 2014. With last  year’s September temperatures well above August’s, selling Autumn/Winter ranges became  seriously challenging. Persuading customers shopping in T shirts and shorts to buy coats and knitwear is tricky.

The numbers for last year reflected the weather. Clothing sales for September 2014 fell 4.1% by value, a loss of more than £170m. Volumes were down by 1.5% and would have been far worse without some aggressive discounting. Prices yoy were down by 2.6% and represented the highest discounting seen in the market for many years until then.

Against this very weak background we should expect to hear some very positive numbers being reported. These should not mask the markedly tighter retail market of 2015 versus last year. The 2.6% deflation of September 2014 proved to be the shape of things to come. While the weather returned to more normal levels in late October, consumer demand did not. Price deflation in the period since has averaged 2.2% and is trending higher, averaging 3.4% in the past 6 months.

LFLs are a good measure of underlying performance but only if one attaches the same importance to last year’s figures as this year’s. Don’t be fooled!

** The downturn in retail demand was forecast in detail on this website. Get in touch to discuss access to our analytics and forecasts

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