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Business Development & Marketing Finance General

Could there be a retail “bricks and mortar” fightback?

Happy "bricks and mortar" shopperThe inexorable growth in shopping online continues to put pressure on “bricks and mortar” retailers as is illustrated by the clothing and homeware retailer Next, which last week reported its third quarter full price sales up by 1.3% on the same time last year.
But Its High Street sales for the quarter were down by 7.7% compared with the same time last year while Next Directory sales rose by 13.2% compared with 2016 and 9.4% in the year to date.
Multi-channel competition from the likes of Amazon is forcing retailers to revisit their business models and the cost of retaining a High Street presence is causing them to struggle to keep prices competitive. Another problem is the time and cost of delivery, again under pressure from Amazon and its Prime next day delivery service.
Nevertheless, many people still like to go to physical shops for the social interaction and the opportunity to touch and see the products.
One solution retailers have chosen is to reduce the size of their estates but retain a presence on the High Street with smaller stores, marrying the display of a smaller selection of products with the Argos Style online ordering and delivery system, or moving into concessions in department stores.
Marrying “bricks and mortar” space with innovative technology
As the BBC programme The Disrupters, suggests, there may be more innovative shopping models to come.
One it describes is the Moby Mart, tested in Shanghai, where a marriage of self-drive technology and a mobile “store” can be summoned to the customer’s neighbourhood.  They then enter the “shop” by swiping their mobile phone at the door, select products then swipe their way out again.  The idea is still at beta stage so there is some way to go before it becomes a reality.
That the physical retail space still has its attractions is illustrated by the fact that the likes of Amazon have ventured into real-world bookstores as well as buying a US grocery chain, Wholefoods, with more than 400 High Street outlets.
Alibaba, too, has been experimenting with ways to keep a physical presence while keeping costs to a minimum.
One idea is their pop-up café, under the Taobao brand, using facial recognition software to identify customers who are than able to enter to pick the food they eat and pay using their mobile phone rather than to cashiers.
Finally, the rise of discounters, like Aldi and Lidl, has been inexorable.  They continue to flourish and grow in physical retail spaces by offering own-brand, cheap but quality basic foods to undercut their rivals.
While ‘bricks and mortar’ retailers need to have a distinct proposition and provide a great service, convenience is a factor, but the battleground remains price vs perceived value. Getting it right will be a challenge and is one that Mary ‘Queen of Shops’ Portas still advocates despite recent claims that her “Save the High Street” campaign has failed following new figures showing that a thousand shops have closed over the past five years.

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Austerity fatigue, consumer behaviour and still choppy High Street waters

Tesco’s announcement of a halving of profits for the first half of the year suggests there is no clear sign that its turnaround plan is working.
It seems that any recovery in retail in general and the High Street in particular is still very uncertain.
While there is some evidence that consumers are spending a bit more, this is generally benefiting the “budget” retailers, such as Primark, Aldi and the near-ubiquitous variations on the Pound store theme, but not on larger items such as white goods or furniture.
As a small illustration of a fairly typical High Street, Ipswich has, in the last couple of months lost Gap and Next from its main shopping street, while Primark is in the process of expanding into the space left vacant. Also, with three High Street versions already on the Pound theme, a fourth has just been opened.
All this suggests that while consumers may be spending money, this may have more to do with austerity fatigue and the need for the occasional treat and there are still ongoing worries about job security, low interest rates and the economic future.
The one bright spot seems to be a growth in small niche and independent retailers who are benefitting from a shift to more frequent but lower value shopping by consumers.
The question, though, is whether such retailers can survive in the longer term, given the increasing pressure on their margins, prices and costs.

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Finance General Rescue, Restructuring & Recovery Turnaround

The High Street is not dead

Since 2010 there has been a justifiable concern about the demise of the High Street.
This was fuelled by some big chains collapsing due to a reduction in consumer spending, a changing focus towards ‘value for money’ and the growth of shopping online or ‘out of town’.
But it’s not turning out quite like that. It seems we do still like the sociability of the High Street and the opportunity to browse and actually see and touch merchandise.
Amazon has recently announced plans to open its first actual store in New York, expected to be modelled on the lines of Argos, and surviving retailers have become more agile in adapting to what consumers want, so we now have click and collect.
Shopping patterns have changed to limit “brand loyalty” to one supermarket, hence Tesco withdrawing planning applications and selling land it had earmarked for more large stores.
There are also some signs that fewer people are doing a weekly “big shop”. There are noticeably more smaller High Street branches of the big four superstores, but also the rise of the budget stores like Aldi and Lidl because we also like value for money.
Smaller independent retailers are also proliferating according to research from the Local Data Company and the British Retail Consortium. They include e-cigarette shops, barbers, independent cafes and restaurants, clothes, crafts and gift shops.
It looks like the High Street is changing in character but we think it is a long way from being written off yet.
What do you think?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Should Private Equity be involved in High Street retail?

 

2014 started with much media speculation that a variety of well-known retailers – or more correctly, their Private Equity(PE) owners were preparing to float on the Stock Market.

They included Fat Face (77% owned by PE firm Bridgepoint) Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).

This resurgence of so-called “animal spirits” seems to be fuelled by a perceived improvement in consumer confidence, investor appetite driving the search for better returns than those available in a low interest rate debt market, the lack of debt available for refinancing businesses and the need for PE owners as investors to realise profits.

This may herald a resumption of the pre-2008 practice of PE buying out retailers, often as a public to private deal, repaying themselves by loading them with debt, and then flipping them back into public ownership.

The 2008 Global financial crisis put this practice on hold and indeed it has placed enormous financial pressure on some PE funds due to the lack of debt available for refinancing their acquisitions.

Indeed many PEs have ended up with burnt fingers, such as Guy Hands’ Terra Firma’s purchase of EMI,which defaulted on its debt to CitiGroup,  and US-based Bain Capital LLC (owned by Mitt Romney), which purchased the purchase of Toys “R” Us, which has seen a decline in revenue.

High Street retail casualties over the last five years have included Nicole Farhi, Comet, JJB Sports, Jessups, Blockbuster, Clinton Cards, Habitat, Focus DIY, Floors-2-Go, the Officers Club, Oddbins, Woolworths and MFI.  Some, such as Focus, JJB, Nicole Farhi, MFI and Comet were PE owned.

With banks having tightened up so significantly on lending in recent years PE sources of funding are inevitably more focused on investors such as pension funds and not surprisingly fund managers are generally risk averse being responsible for other people’s money.

Despite the economy picking up, the buy, refinance and flip PE model may not work in the way it did. The growth in online shopping, concentration of retail parks, intense competition and changing consumer habits may yet thwart many PE deals.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Politicians and Retailers are Still in Denial as they Focus on Window Dressing

Once again retailers have blamed the weather for stagnant sales, only this time it was a couple of weeks of unexpected sunshine in September rather than the three weeks of snow that were blamed for dire pre-Christmas sales last year.
Both politicians and retailers are still in denial about the High Street. Most initiatives are aimed at stimulating consumer spending whether discounting or sales, talking up the recovery and promoting spending or window dressing by Mary “Queen of Shops” Portas.
The fact is that consumers in the UK are undergoing a huge change in their approach to consumption and credit. They are spending less on unnecessary goods and this in turn is having an adverse impact on retailers.
Over the last thirty years our excessive consumption has driven the UK economy, creating the illusion of growth while all the time we became ever more dependent on the retail sector. Our consumption based growth was fuelled by ever more debt, not just personal debt but national debt, creating an ever increasing huge balance of payments deficit. This combined debt, consumer, corporate and national borrowings, represents 466% of UK GDP.
However the debt has to be repaid, and we have finally faced up to this harsh reality, paying back a net £200 million in September according to the British Bankers Association.
Companies like JJB Sports, Jane Norman, TJ Hughes, Walmsley and Alexon with its 990 shops all recently joined a growing list of struggling companies going bust, while the Home Retail Group, owners of Argos and Homebase, has reported pre-tax profits down 72%.
We need to challenge the notion that all these high street retailers should survive. If we are going to consume less, can we sustain the current number of retailers?
In addition to adjusting their UK retail business models some, including Debenhams and Argos, are focusing on international expansion.
As turnaround specialists we are arguing that we need a vision, we need export oriented manufacturers and services to effect a transformation if we are to become a producer economy with a balance of payments surplus.

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Business Development & Marketing Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

How Many High Street Names Will Survive to the End of 2011?

Traditionally UK retailers expect sales in the fourth quarter of the year(Q4) to be significantly boosted by pre-Christmas shopping and by year end sales.
However, according to figures released on January 21 by the Office for National Statistics retail sales volumes dropped 0.8% in December compared with November. It was said to be the weakest annual performance for any December since records began in 1988.
Among those that have already reported sales drops are Clinton Cards, with sales down by 2.1% in the last five weeks of the year, and Mothercare posting a drop of 4%. HMV reported falls in December sales of 10% in the UK and 13.6% in Ireland and issued a profit warning.  Next said it had lost £22 million in Christmas sales.
Many blamed the three weeks of December snow that seized up the UK’s transport system and even online shopping options were no help because many distribution services were unable to guarantee pre-Christmas deliveries.
Sainsbury’s, however, reported sales up 10.1% for the four weeks to December 25, compared with the same period in 2009.
The Q4 figures and further retail results may show that there has been some late-December cheer as consumers rushed to beat the January 4 VAT increase, from 17.5% to 20%.
But it is looking as if the end of year boost the retail sector traditionally relies on may not have quite materialised for most and may have left them less well placed to face the difficult trading conditions expected in 2011.
The most difficult issue facing retailers will be maintaining their profit margins. Margins may have been propped up in December-January by the rush to beat the VAT increase, especially on the larger items but commodity prices on basics like cotton, wheat, rice, maize and sugar are expected to continue to rise thanks to global financial speculation.
Without a fundamental examination of the business, cost cutting (wages, premises,  equipment etc) may not be sufficient for survival in current conditions.
Perhaps a high street retail presence is no longer sustainable and more fundamental and innovative solutions, such as moving the emphasis to online selling, may be the only way some retailers can survive.