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This morning;s announcement that Poundland has agreed terms to acquire 99p makes perfect sense. It was inevitable that there would be some consolidation in the value sector. This is just that, within the single price segment of the wider value sector. These two businesses are very similar but Poundland has pulled away from its rival in several ways during recent years. The two key elements of this are size (Poundland sales are now virtually 3x those of 99p) and performance (Poundland’s has been strengthening while 99p’s has been showing signs of strain over the past couple of years).

The rationale is very simple. Poundland takes out its largest rival and establishes undisputed dominance of the single price sector. It immediately inherits a sales boost of around 33%, with the prospect of driving this up to 50% if it is able to get the additional footage to be as productive as existing Poundland space. If 99p’s sales can indeed be traded in-line with Poundland’s and similarly profits, the potential prize is an incremental £25m. Clearly, there are a number of “ifs” here but in the context of a purchase price of £55m, this is an extremely attractive prize which ticks all the boxes. And given the structural similarities of the two, there is a very good chance these numbers will be achieved. Of course there will be other economies too.

There will certainly be more consolidation in the value sector, just as there will be throughout retailing. Growing overcapacity means everyone has to run that much harder to stand still. And standing still will increasingly be not good enough.

The papers have been focusing on John Allan as the bookies’ favourite to be the next Chairman of Tesco. What is unusual about John is that he has retail experience. He is currently Deputy Chairman of Dixons Carphone and years ago, was part of the leadership team of Fine Fare, the supermarkets business which later became part of Somerfield. I say unusual because history shows that the City has rarely thought sector experience or knowledge is important in non executives. Indeed they have often believed it to be not too important when appointing retail CEOs either.

So reading today that some in the City think John Allen lacks sufficient retail experience is surprising. Does this reflect a sudden realisation that in effectively calling an executive Board to account, the non execs need to bring some external knowledge  of the industry their company trades in?

These are the most challenging retail trading conditions I have ever seen. Many of the givens in this business are not any longer. Tesco itself is a great example of how market dominance and sheer scale are no longer the great advantages they once were. Taking the eye off the ball is punished hugely, irrespective of size. Leadership teams need to be challenged and totally accountable. This cannot be done by people without their own external reference points and who therefore must rely on getting their retail knowledge from the very people they are meant to be supervising. I actually think John Allan brings a very welcome retail knowledge to a Tesco Board with far too little of its own. This may well be a positive step forward.

This year the competitive ante is being raised materially. We have had over capacity for years although it is an issue which has not been effectively addressed, and is growing. We have had weak demand for some time too. Cheap petrol is helping mitigate pressure on household budgets, as have PPI payouts and some dipping into savings too. What is really increasing the pressure now is price deflation. Last year gave us a glimpse of what the new retail reality will look like and this year will ratchet up the competitive pressures several notches more.

The significant slowdown in retail growth in H2 2014 heralded the end of the retail recovery. Household balance sheets are simply not in good enough shape and the steam evaporated as the year unwound. The headline growth in total retail spend for 2014 was 4.2% but the second half slowdown to 3.3% is a directional indicator. I’m forecasting growth for 2015 of 2.9% – that’s around £10bn and not nearly enough to go round.

This is not all bad news.and much depends which camp you are in. The gap between the winners and also rans will widen. Pressures from the 3 key areas I discussed earlier will not be felt democratically – we saw a spectrum of reactions to growing negative price inflation last year as stronger brands with closer and deeper relationships with their customers were able to set their own pace. Those that had to follow will find the going tougher but the rewards for the strong will be reflected is conspicuously superior performance.

** More detailed forecasts and analysis of the 2015 retail landscape can be found in the premium subscription content of richardtalksretail.com

The proposed CVA of Austin Reed has been a long time coming. The pressures of the post-Lehmans retail market have been tough on the company. The plan is to shut 30 stores in 6 months – 9 trade as Austin Reed and 22 as Country Casuals, the womenswear brand it acquired along with Viyella in 2009. Meanwhile, the plan is to renegotiate rents on a further 35.

There have been a great many “rescues” and “restructures” since 2008 and there was a sharp fall more recently as the retail recovery pushed the wolf from the door. As I have discussed many times here, the recovery is over. I think 2015 will at very best be a significant step backwards but much more likely, will be the most challenging we have seen for generations. We have been seeing seismic shifts in the structure of UK retailing but for a variety of reasons, the full impact of these shifts is only now beginning to emerge. Overcapacity and soft demand will be the key drivers of a strongly deflationary retail landscape this year and going forwards.

My point here is less about Austin Reed per se, but a more broad general one. Restructuring based on the here and now might help in the very short term but will quickly prove inadequate. It must be done on the basis of a very clear view of what “fit for purpose” will look like in say 3-5 years time. I am expecting a material increase in the number of  restructures and quite a number will be repeat visitors to the retail operating theatre.. They don’t need cosmetic surgery but radical change to their models, defined by the future landscape and not the present version.

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The deal announced today to sell Phase Eight will have attracted lots of attention from a number of quarters. The valuation of £300m for a business posting EBITDA of £24m in the year to February 2013 looks generous. This is not to say Phase Eight is not a good retail brand – it certainly is, and has a solid management team.  The main focus of interest in my view is a) what it says about the acquirer’s view of short to medium term trading prospects and b) that there maybe other deals to be done by PE owners of retail assets at maybe better prices than previously thought.

The purchasers of Phase Eight are Foschini, the South African fashion business, who are acquiring 85% while the management team will retain the remaining 15%. They clearly have great faith in Phase Eight’s international potential, given its relatively mature UK business (107 stores and 203 concessions) they will presumably buying overseas growth and particularly the potential to expand in Africa. Younger fashion brands from Europe like Zara, H&M, Top Shop and Mango are gaining traction there but they are all young brands. An older more mature brand like Phase Eight might be more challenging.

The deal is great news for TowerBrook Capital, the PE house which bought Phase Eight for £80m in 2008. There is a raft of PE that owns fashion brands and must be getting anxious about the unfolding economy and prospects for transactions. Timing is everything and given the short term economic outlook, there may not be a bandwagon to jump on.

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