By Andy Coote, Writer And Editor Of Bizwords
Following on from the recent sale of Waterstones to Alexander Mamut, the High Street has been the focus of a welter of news, not all of it bad. Some businesses are failing or retrenching whilst others seem to go from strength to strength. Should we be worried and can we learn anything from it?
Bloomberg reported last week "retailers saying sales volumes increased from a year ago outnumbered those reporting declines by 18 percentage points, compared with 21 points in April" according to the Confederation of British Industry (CBI)."High Street sales growth is subdued and is likely to remain sluggish than some time," John Cridland director-general of the CBI said in the statement. "Household budgets are being persistently squeezed by the gap between price inflation and weak wage growth." (To read more: U.K. Retail-Sales Gauge Falls for First Time in Three Months)
The Telegraph (see: Retail sales rise following Royal Wedding and public holidays, reporting the same data from the CBI, put a more positive spin on it, suggesting that the slower rate of growth was well above retailers expectations that sales would be flat. They reported Cridland as saying, "given these challenging consumer conditions, it is good news that retail sales growth is stable, not falling."
News elsewhere in the market was mixed as well. Focus DIY, already in administration, is now expecting that up to 3000 jobs are to be lost that Focus had 178 shops and employed 3920 people when it collapsed but administrator Ernst & Young managed to sell 55 stores in tranches to B&Q owner Kingfisher, rival DIY chain Wickes and discount chain B&M Retail, saving some 900 jobs (read more: Focus DIY to shed 3,000 jobs as stores close).
JJB sports, which avoided going into administration earlier this year, announced that its pre-tax loss increased to £181.4 million in the year to the end of January, up from £68.6 million loss the previous year. Mike McTighe, chairman was quoted in the Telegraph (JJB Sports says it will take five years to fix business after £181m loss) as saying, "the restructuring of JJB will not be easy or quick and will most likely take 3 to 5 years. The retail environment is challenging, will remain so for some time and we face intense competition. But the work undertaken over the past six months together with the crucial support of all our stakeholders, has given JJB a chance to survive and ultimately to prosper."
Marks & Spencer reported results for the year to April 2 and said that pre-tax profit over the year rose by 21.9% to £780.6 million, including a £66.3 million exceptional gain from items including a one-off pension credit and fair value movement of financial instruments. Underlying pre-tax profit was £714.3 million, up 12.9% on the year.
According to the Telegraph (£2bn Marks & Spencer makeover 'less than inspiring'), Mark Bolland, who took over from Sir Stuart Rose last May, has now ordered a raft of new store designs and said that the company will spend £600 million over the next three years implementing a new vision. Under the new plans M&S will launch a range of different store formats based on the age, affluence and demographics of people in the area and the retail competition. This local focus – being called the “cluster” model internally – will start to be seen by customers from October.
B&Q winning a gold medal at Chelsea last week and Homebase also having a show garden at the prestigious event, it seems that for some marketing budgets for brand building are still available. In the Guardian report on Focus DIY they note that analysts say that Focus had always been squeezed by B&Q and Homebase and had never managed to carve out a niche for itself. (read more: Gold standard: B&Q's incr-edible garden takes top prize at Chelsea Flower Show).
It does seem that the market is beginning to polarise into those whose success has meant that they have the necessary resources to continue to grow and those who have always operated at the margins and who with the downturn are beginning to feel pressure. This may mean that we begin to see fewer brands on our High Streets and Retail Parks and that other names that are currently seen on them will go the same way as Focus.
Is this a bad thing? For the individual businesses and their employees, yes. For the overall market, probably not. What we're seeing is just the way in which markets operate. In the good times, more brands arise and are able to make enough of a profit to continue in business. When the inevitable cyclical downturn arrives, those who are marginally profitable will begin to struggle and some will inevitably go out of business or be bought up by their more successful rivals. The fact that those rivals are not buying up a significant part of a failing chain (Focus) this time, suggests that the market is already operating at (or beyond) full capacity for what the retailers expect to be available spending power.
When, as it inevitably will, the market begins to recover and grow, we will begin to see new names and new offers appear. Some of those will grow to replace some of the household names that are currently successful. The lesson of Woolworth’s is that brands that seem unassailable to one generation, become peripheral to another. Which brands that currently ride high in the High Street are already exhibiting the signs that Woolworths showed in its final decade? Time will tell.
For any one brand, however, it is not inevitable that it will eventually fail. The successful brands in the High Street have, in many cases, been around for some time and have been adept in reinventing themselves. Marks & Spencer have been through their own cycle of success and relative failure over many years (and generations) and this redesign is another sign that they are never satisfied with what they have and are always looking for better. So it is with our businesses whether in retail or in any other sector.
Never being satisfied and always striving for better has to be a sensible strategy for any business to adopt.
Andy Coote is a writer and editor and runs Bizwords providing writing services for businesses and individuals. He has edited the Virtual CEO Newsletter for over 4 years. As a former retail manager (at B&Q and Texas Homecare) he is an observer (and customer) of the UK retail market.
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