Tag Archives: House of Fraser

‘Market Matters’ – August 2018

Consider the UK’s High Streets. Hard on the heels of House of Fraser’s announcement of dozens of closures and the rumours about Debenhams you could almost forget how long they’ve been a bad news story. It was back in 2012 the penny finally dropped they were in trouble and it couldn’t be blamed on the 2008 banking collapse or the previous Labour government. Grant Shapps MP, the keen young DCLG Housing and Local Government minister launched the ‘Portas pilot towns’ competition backed by David Cameron and Mary Portas banging on about Markets as the saviour of High Streets. But what happened then? Not much. The money and policy initiatives fizzled out as attention shifted to Brexit and Cameron and Shapps disappeared faster than a Blockbuster store.

The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates.

And yet somehow the High Street still staggers along. The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates. Here are a few Losers, Movers and Bruisers we’ve seen over the last few years….

The Losers:

Woolworths: Founded in 1909, 830 UK stores in 1995 then administration in 2008. What happened?

Our Price: Crashed out of Vinyl, DVD’s and Cassettes in 2004 thanks to online streaming. At about the same time Radio Rentals (remember them?) finally threw in the towel, followed by Blockbuster Video in 2013.

British Home Stores: Closed it’s 160 stores in 2016 amidst allegations that owner Philip Green starved it and the staff pension fund of investment. Well over half the former BHS stores still remain empty today.

Poundland: Owned by South African retail giant Steinhoff with 700 stores, many being former Woolworths units. Currently involved in a major accounting scandal – rather like Tesco 18 months ago.

New Look, Carpetright, Monsoon and Mothercare: planned closures announced.

The Movers:

Marks & Spencer: 280 stores in 1997 and now over 1,000 – shifted from fashions and clothing to luxury foods at edge of town locations.

Argos: 380 stores in 1996, now some 850 mainly at edge of town and retail park locations. Bought by Sainsbury and central to the Asda merger because of their excellent distribution network.

Currys/PC World/Carphone Warehouse: Merged then downsized and bailed out of the High Street to retail parks where they’re doing OK. Mind you Carphone Warehouse on the High Street is having a rough time with 100 closures expected.

Boots Chemists: More than doubled their town centre outlets from 1,000 in 1995 to 2,500 today by adding another 1,500 edge of towners.

The Bruisers:

Charity shops: over 11,000 in the UK at the last count. Welcomed with open arms by High Street Landlords desperate to avoid empty rates liability.

Coffee shops: Costa now have 2,200 stores across the UK. Don’t mention Starbucks, Vat and Corporation tax in the same sentence.

BooHoo: Doing very nicely online thank you amongst 16-30 year-olds thanks to no business rates and ‘Bricks ‘n Mortar’ overheadsA fine example of how to target a specific consumer group and their lifestyle.  

Mergers, consolidation, moving online and relocating to the edge of town is THE pattern

What this shows is just how little sentiment there is amongst the big boys. Mergers, consolidation, moving online and relocating to the edge of town is THE pattern. According to the Centre for Retail Research the number of online retail sales as a proportion of total retail sales has risen from 2.5% in 2004 to 22% in 2018. That is a simply staggering growth rate and any retailer who ignores the trend is dead in the water.

So who will replace multiples on the High Street?

So who will replace multiples on the High Street? The Centre for Retail Research says don’t despair – it will become a social centre. It will shift from commerce to leisure with more space given over to restaurants, ‘artisan’ foodstores, health & beauty and ‘lifestyle’ outlets. Less errr…’glamorous’ locations such as Mudford-on-Sea will have to make do with Charity shops, bookmakers and vape stores. ‘Lifestyle’ retailers such as Joules and Ted Baker are doing well, but only in top 100 towns. Future casualties will to be shoes, household goods, furniture, textiles and music/games. Those offers are increasingly replaced with Amazon collection boxes.

E-commerce is like one of those creepy robot lawnmowers

The CRR also highlighted the rise in ‘Showroom’ and ‘Concept’ stores. These are sparsely-staffed display units which allow Customers a hands-on experience but retain the cost advantage of selling online. E-commerce is like one of those creepy robot lawnmowers – it works for you 24/7 whatever the weather and if you’re a home producer selling on Ebay or Etsy gives you a physical showcase for your products.

Dyson have just launched an Oxford Street demonstration store where you can test drive their vacuum cleaners and hairdryers, helped by charming young men who can’t do enough for their lady customers – or for the men either come to think of it. Note the cunning combination of hairstylist and vacuum cleaner salesperson. Wow.      

You can’t underestimate how activity stimulates confidence

To attract leisure-users and investment High Streets need to differentiate– offer something which makes them more attractive than the High Street in the next town. The easy fix is to spend zillions on repaving and relighting but to my mind it is better to spend it encouraging small businesses. More rent and rates caps, pop-up shops in empty units, Town Council and landlord partnerships, events and Markets. You can’t underestimate how activity stimulates confidence. There are some towns where an energetic and innovative B.I.D or Town Centre Partnership is really making a difference.

Don’t feel you need to spend zillions on retail demand surveys

And finally, if you are a B.I.D. don’t feel you need to spend zillions on retail demand surveys. Henry Ford, the mastermind behind mass-produced automobiles was once asked what he thought about Customer research. He replied: “If I’d asked the public what they wanted they’d have said faster horses….’

 

Blockbuster

Boohoo

Alice and the red queen

In Lewis Carroll‘s ‘Through the Looking-Glass’ Alice takes part in a race with the Red Queen only to discover that despite running constantly she remains in the same place. The Red Queen is not sympathetic: ‘A slow sort of country!’ says the Queen. ‘Here you see it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast!”

Do you run to stay in one place or do you sprint to expand your business?

And that is the dilemma facing all Market businesses. Do you run to stay in one place or do you sprint to expand your business? You certainly can’t afford to be complacent and stand still or you’ll be going backwards. That same challenge is faced on a grander scale by the ‘Big four’ Supermarkets. Between them they sell some 70% of UK groceries – Tesco has 28% of market share, Sainsburys has 16%, Asda 15% and Morrison 10%. If you factor in the ‘LADS’ (Limited Assortment Discounters i.e. Aldi 7% and Lidl 5% ) then less than 20% of the UK groceries market is up for grabs and where do you run TO? They have to keep running to stay in one place and keep their shareholders happy. ‘Where next?’they constantly ask themselves

 If you are a truly international player like Walmart then you can play on an even bigger, global scale

Well, you can keep one step ahead by buying-up your competitors (Morrisons and Safeway) or buying better distribution (Sainsburys and Asda) or simply building more stores (Tesco in Eastern Europe). If you are a truly international player like Walmart then you can play on an even bigger, global scale. That seems to be one reason for the massive £12 billion Sainsbury/Asda merger announced at the end of April.

UK retail is arguably over-provided with supermarkets

Walmart bought Asda back in 1999 as a way to expand into the UK. But Asda has stubbornly lingered in third place because UK retail is arguably over-provided with supermarkets. The shift online has left many towns and shopping centres with ‘bricks ‘n mortar’ stores chasing Shoppers who have shifted online. This led to the downfall of Woolworths and BHS and has left House of Fraser and Debenhams struggling. As early as 2006 Walmart discovered their American retail formula did not work in Germany and sold-off 85 stores and took a billion-dollar hit.It clung on to its investment in Asda for another 10 years whilst privately conceding it was going nowhere so when Mike Coupe, the CEO of Sainsburys suggested a merger they must have jumped at it.

The merger of Asda and Sainsburys will with one leap knock Tesco into second place

The merger of Asda and Sainsburys will with one leap knock Tesco into second place. It will also enable Walmart to pocket £3 billion in cash whilst still retaining 42% of shares in the new business. That £3 billion can then beshovelled into the unconsolidated and rapidly-growing economies of India and China that ARE crying out for supermarkets. That’s globalisation for you.

And there’s another big reason behind the merger:  Amazon.

Go online and search for Amazon Fresh Grocery. Amazon is only now establishing itself in the UK groceries market but in the USA it has bitten big chunks out of Walmart. Amazon works on wafer-thin margins and is building seriously big distribution centres around the UK for next day deliveries – bicycles, baked beans or bread. Take your pick. It challenges the Big Four because it is all online without the bricks ‘n mortar overheads. There are rumours it could simply buy its way into the UK groceries market by purchasing Ocado.

You could almost feel sorry for the Big four

This has prompted wry comments from retailers such as Sebastian James, Chief Exec. of Dixons PC World and Carphone Warehouse. He has been widely praised for his mergers and relocation out of town to fight-off Amazon’s online dominance of the electrical goods market. He knows better than most what motivates Amazon and made the pointed comment that:“Why is Amazon getting into the food market? Does it really think it can make money by selling food online? Definitely not. It’s all about getting customers addicted to Amazon Prime and the rest of the Amazon online offer. Amazon doesn’t want to make money out of food and that could make it a big threat for supermarkets.” You could almost feel sorry for the Big four. Their sales are likely to be hit in the same way they have made traditional Market Halls suffer over the last 10 years.

There are a lot of very worried Supermarket suppliers

According to a Sainsburys’ statement both Asda and Sainsbury will continue to trade as separate brands with Argos concessions being put into Asda stores. Not surprisingly, Sainsburys’ shares leapt 20% at the announcement whilst Tesco and Morrisons fell by 3%. Sainsburys announced the new, combined network of 2,800 stores will enjoy operating cost savings of £500m p.a. so employee trades unions are understandably nervous – the merger affects 330,000 jobs. And there are a lot of very worried Supermarket suppliers. The Federation of Small Businesses is pressing for assurances the £500m savings won’t simply be achieved by pressurising suppliers into lower prices ‘a la Tesco’.

The CMA will be looking at whether replacing the Big four with the Big three will be good or bad for Shoppers and Suppliers

The merger is expected to be completed in about 18 months after first obtaining approval from HMG regulator, the Competition and Markets Authority. The CMA will be looking at whether replacing the Big four with the Big three will be good or bad for Shoppers and Suppliers. Sainsburys/Asda are likely to suggest the rise of the ‘LADS’ plus online competition like Amazon still guarantees variety of choice and low prices for shoppers. The CMA will also have to assess whether the 2,800 stores need to be reduced in number. It can impose takeover conditions to ensure Shoppers get a choice of retail outlets in their area. The ‘proximity test’ could bar the merger from operating two or more stores within a mile or a five-minute drive of each other. Some estimates suggest at least 80 Asda stores are located within a mile of a Sainsbury outlet so may have to be closed. This would be bad news for institutional Landlords as well as employees.

‘We’re in the money…’

Mike Coupe has good reason to look pleased. The merger could be a brilliant move, knocking Tesco sideways at a single stroke (and increasing the value of his share options by about £600k). Unfortunately Mike then dropped a clanger. Whilst waiting to be interviewed by ITV someone switched on the microphone and he was broadcast happily singing to himself ‘We’re in the money…’ – the hit song from the musical ‘42nd Street’.