2018 – The End of Retail?

2018 – The End of Retail?

Pro Ganguly Blog, Retail

2018. A year like no other for the retail industry and for those who work in the industry.

So far, this year:

• Maplin and Toys R Us have disappeared from our high streets
• Poundworld is in administration with the search for a buyer not looking promising and 5,100 jobs at risk
• M&S, Mothercare, House of Fraser, Carphone Warehouse, New Look, Carpetright and even the John Lewis & Partners have announced a raft of store closures
• John Lewis have issued a profit warning stating that first half year profits are “likely to be close to zero”
• Bunnings Homebase sold to Hilco for £1 with wide scale store closures and job losses likely on the cards
• Several retailers already progressing with or exploring the options of Company Voluntary Arrangements (CVAs) to cut rent costs
• The merger of Tesco/Booker was approved
• The merger of Co-op Food/NISA was approved
• Sainsburys and Asda are to merge pending the CMA approval creating the largest supermarket chain in the UK
• Tesco just announced a strategic tie up with French supermarket chain Carrefour

And it’s only the beginning of July!

Figures show that in the first 6 months of this year, 1,200 shops on the high street have either shut or at risk of closing, affecting almost 22,000 retail jobs. The figures will only get worse with chains such as The Original Factory Shop planning to shut 30 shops and N Brown planning to retreat from the high street altogether.

A report by PwC and the Local Data Company found 4,000 High Street shops opened last year and 5,800 closed, causing a net loss of 1,800.

Bad weather (remember the ‘Beast from the East’?), a reduction in consumer spending driven by low wage growth, a rise in online shopping, increasing overheads (minimum living wage, business rates), the fall in the value of the sterling and the uncertainty over Brexit have all been blamed for the current state of the retail industry but is it really all doom and gloom and is retail, and more importantly, bricks and mortar retail a dying formula?

Short answer: No.

Despite all the doom and gloom, there are retailers that continue to flourish. The hard discounters are showing little sign of any slowdown – both in food and non-food sectors. You only have to look at the performances from chains such as Aldi, Lidl, B&M and Poundland to see just how well the sector is doing and interestingly, none of these retailers have transactional websites so aren’t in the digital race.

There is no doubt that outside factors have played a big part in the failure of retailers but some of the reasons for their failure were self-inflicted. As in the case of Toys R Us, they failed to move with the times (failure to adopt online, tired stores/lack of in-store theatre) or in the case of Poundworld, followed the wrong strategy despite customer feedback (the rapid conversion to multi-price format from a single price point eroding their value credentials amongst their very loyal, price sensitive customers). Poor management decisions, as in the case of Wesfarmer’s decision to convert all Homebase stores to Bunnings would have also played a significant part in the failure of all these companies.

Retailers need to change the way they operate as standing still will move them backwards. With significant consolidation in the industry with the Tesco/Booker/Carrefour tie up and the looming Sainsburys/Asda/Argos merger, small/medium retailers will have to work even harder than they do now to make sure that they remain in the retail race.

Retailers need to ensure that they capitalise on all trading opportunities. Despite the dismal first quarter with poor weather, since then we’ve had a Royal Baby and a Royal Wedding. We are in the midst of a prolonged heat wave with temperatures breaking records across the country and at the time of writing, despite exits from Germany, Spain, Portugal and Argentina, England are still in the World Cup so there’s plenty of optimism in the economy and opportunities for retailers to trade.

Cost control, driving profitable sales and volume and sustainable growth will be the key to ensuring their survival as will be the transformation of their business model to adopt/react to the constantly evolving omni channel market.

At 4c, we have a proven track record of working with leading retailers to develop and deliver better buying programmes which establish and delivers significant cost savings and margin improvements for retailers. With expertise gained from multiple retailers across the UK and Europe, 4C provides a bespoke service for retail and PE backed organisations across both GFR and GNFR.

With a proven, repeatable delivery model, our teams provide high value, structured EBITDA savings and working capital benefits.

We deliver our programme of work through the use of dedicated high-quality resources that combines sophisticated technology and analytics, category depth and delivery expertise and not just generalist consultants.