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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.

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What you get

New look M&S at Westfield London

M&S at Westfield London has added a fourth floor and 22,000 feet, to now trade from 124,000 square feet. There are a number of new additions (a nail bar in the beauty area for example) but the pivotal element of M&S always has been womenswear and here, the thinking has moved on slightly, continuing with greater sub-brand delineation and a more departmentalised feel. Having been very low key in the past, the business features much better visual merchandising these days and the offer looks much better focused. Nevertheless, there is still something missing and it is hard to see precisely which market segment(s) M&S is addressing.

I think the most notable improvement is in menswear. The offer looks much cleaner, with clarity and like womenswear, has a more edited feel. However, there are still far too many options in suits, shirts and trousers. There is a sea of choice and with no effective differentiation or explanation at the point of sale.

Home looks better and benefits from significantly more space (from 5500 to 15,000 square feet) but still manages to feel fragmented and lack authority.

M&S has certainly improved in some notable areas in the past 18 months. Clothing product quality has certainly made strides. My worry is that the new sourcing arrangements will provide a short term boost to margins but undo the progress made on quality, with collateral damage to the brand.

Food, cannibalisation and fragmentation

Much of the narrative accompanying the turmoil in UK food retailing today has referenced an unforeseen shift in shopping habits: more frequent shopping trips, spreading spend across a wider range of stores and locations, and the consequent shift in trading economics. The change in shopping behaviour has certainly been profound but should it have been so unforeseen?

Since 2008, the four majors market shares have ebbed and flowed but combined, they were around 75% back then and are the same today. To varying degrees, they have been pumping investment into online and convenience stores. Both channels have encouraged shoppers to fragment their purchasing trips, and cannibalise the existing store estates built at huge cost. Developing these two channels was not wrong but it is clear that the majors did not understand the strategic consequences of self-cannibalisation. Indeed, they did not foresee that what they were doing was likely to cannibalise.

Against the background of static market shares, the four majors have expanded floorspace by 28% since 2008.  This equates to an eye watering 20 million square feet of additional space. It is has taken the market leaders an awful long time to understand what they themselves have done to their own businesses.

Clearly, the debit crisis has made shoppers much more value-conscious. However, self-cannibalisation and fragmentation of shopping trips are self-inflicted wounds. The genie is now out of the bottle and the structure and economics of UK food retailing will never be the same.

Asda joins the club

four to have remained outside has finally succumbed. Qualification for membership is based around negative yoy like-for-like sales and Asda has now joined Tesco, Sainsburys and Morrisons. It reinforces the scale and depth of turmoil the grocery sector is now in.

I continue to believe that among the four majors, Asda is the least uncomfortable in this trading climate. Price and value are core strengths and EDLP is in the company’s DNA. The other three are grappling with an agenda being set by Aldi and Lidl. While this latest statement demonstrates that Asda is being hit too, the fact that it has gained share over the period says everything.

When looking at trading statements right across the retail industry it is important to judge them in the right context. Few businesses will produce numbers that are better than their historical performance. This market is all about peer group relativity, or market share in old money. Gaining ground on your competitors is an investment in future performance and far more meaningful than short term margin gains.

Personalisation

Personalisation is one of the current buzz words in retail. This is a subject about which much more is said than done. And what is done, is virtually all around technology. Now there is no question whatsoever that tech has transformed our ability to do all sorts of things so much better, often on the back of enhanced information. But it does have its limits.

Being able to reach people with a communication of some kind presupposes the recipient want to receive it. In theory each of us will soon be bombarded with hundreds of communications every hour. This is fast evolving into a major zero sum game. Technology is often merely the messenger. While it is true that it can be a powerful enabler, it only gets you in front of the customer. Only the message can be truly personal, and if the message is not relevant, it will erode the brand relationship, not enhance it.

Sales: still THE key performance metric

The retail recovery is already losing momentum, helped by falling prices in grocery and record high temperatures hitting sales in clothing. Everyone’s results are going to reflect a dampening down of demand.

Against this backdrop it is important that a retailer’s performance is not compared against its own recent numbers – it will invariably look poor. This market is one in which it is all about relative performance versus peers. When the going gets tough the key is to strengthen your competitive position, and gaining market share should be seen as an investment in future performance.

This year has seen the strongest growth we have seen since 2008. The business to have enjoyed the lion’s share of this growth have been the retailers who have strengthened their competitive positions over previous years. As growth begins to slow now, the businesses able to invest in growing share will be the winners when demand improves. So this is a period where relative sales performance will be the key indicator.

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