DoomGloom in Britains Retail Industry
What is the problem with Britain’s high street names at the moment? Yesterdays profits warning from Marks and Spencer is the fallen giant’s second year. The much-vaunted autumn fashion ranges have failed to woo shoppers who have found the weather too warm to buy woolly Jumpers and winter coats. Paragraph 2: Storehouse, the BBS and Motherboard retailer, is no stranger to profits warnings itself, and produced another yesterday saying losses could hit Meme in the first half.
Having already lost its chief executive in the spring, the group is again noninsured a takeover target. Paragraph 3: The list of high-profile casualties does not end there. Kingsbury is still losing ground to Tests and Sad and seems unsure of which way to turn. Boots shares have lost a third of their value since January on the threat of a supermarket price war. And WHO Smith has yet to prove it can cope with the strategic challenge posed by Internet sales of books and CDC.
Paragraph 4: These retailers, many of whom were pre-eminent in their sectors at the start of the decade, now face a far less certain as the Nineties draw to a close. Paragraph 5: What does it all mean? Are we witnessing the start of a major change on the British high street, where the top names of yesteryear are gradually replaced by younger, nimbler competitors. Or can the problems be attributed to short-term, company-specific issues such as management failure or the odd, seasonal buying mistake?
Paragraph 6: There are certainly company-specific issues in all the above cases, and WHO Smith has recovered from its weakest point of couple of years ago. But both M&S and Kingsbury failed to notice how rapidly their markets were changing and have been heavily punished for management lethargy. Storehouse under-invested in both BBS and Motherboard, and Keith Delano, the former chief executive, paid for consistent under-performance with his Job. Paragraph 7: According to Philip Dorian, retail analysis at West LB Panderer, some of these companies grew too used to success. It can’t be a coincidence that all the groups are struggling. They were never as good as we thought they were”. Paragraph 8: What has humble these former giants is a combination of factors ranging from price deflation, over-expansion, increased high street competition and the threat from new channels of distribution such as the Internet and interactive elevations, as well as growth in re-invigorated areas like catalogue shopping. Dooming in Britain’s Retail Industry By nbvcxw321 to raise prices, retailers suddenly find they are having to operate in a new era of low inflation or even price deflation.
According to Kevin Gardener, a senior economist at Morgan Stanley, it is not clear if this signals a change in pricing power from the retailer to the consumer or if it simply illustrates a fall in input costs. Paragraph 10: What is clear is that retailers that are able to offer good value are prospering. The success of Natal and New Look are Just two examples, while TX Hughes the discount department store group underlined the trend with good results yesterday. In food, Sad has based its huge success on a low price proposition.
Paragraph 1 1: An often overlooked point is the shift in the supply and demand equation. It should be stated that there is little wrong with demand for retail goods in this country. Official figures for August show that sales by volume were up by 3. 6 per cent on the same month last year, a perfectly respectable figure. Paragraph 12: It is true that this figures disguise huge differences between certain arts of the high street, with sales of mobile phones and personal computers booming while clothing and footwear sales continue to struggle.
Another factor is that fragile consumer confidence combined with the ” rip off Britain” campaign has made shoppers keener to drive bargains, meaning retailers are often forced to make their sales at lower margins. Paragraph 13: But a far bigger problem is over-supply. Pushed by a need to satisfy shareholders hungry for growth Retailers have over-expanded in a market that is already saturated. Kingsbury provided an example earlier this summer when it announced plans was to open 1,000 small convenience stores despite its considerable problems in managing its existing portfolio.
Paragraph 14: It is a problem that is set to continue. According to Mike Goodling of Verdict, the retail analysts, the nest five years will see the I-J clothing and footwear retailers open 10 million sq Ft of extra space. That is the equivalent of six new Lakeside Truck shopping centers or 250 full-size Marks & Spencer stores. And this is in precisely the sector of the market that is already oversupplied. Paragraph 1 5: Changing spending patterns are another important factor.
Spending is gradually shifting from goods to services, as more and more people feel they already have as many “things” as they need. Hence spending is stronger in areas like holidays, eating out and health club memberships. Paragraph 16: The final set of factors is increased competition. In food retailing for example, Wall-Mart’s E. Bin takeover of Sad has already led to a supermarket price scramble. In clothing, the growth of cut-price like Natal has showed that low price does not necessarily have to mean low quality. And Ezra which have carved out niches for themselves with differentiated products.
As Mr. Goodling puts it: “There is no doubt that price is now higher up on consumers’ list of priority is still the quality of the range. ” Paragraph 18: The threat of new forms of distribution adds to the competitive headache. The internet may only account for 0. 2 per cent of I-J retail sales at the moment, but according to Verdict, that figure is set to rise to 2. 5 per cent by 2003. The nascent digital television market will add to the pressure, as will the growth in hoe- shopping catalogues being launched by everyone from M&S to Iceland.
Paragraph 19: And where will all this leave the high street in five years time? It is likely to lead to a process of consolidation as retailers choose to grow by mergers in the face of a mature market. Verdict also predicts a plantation among I-J high streets, with shoppers prepared to travel further to quality centers rather than simply visiting their nearest. Paragraph 20: Another change will be a shift towards more service oriented, added- value stores on the high street as commodity purchases drift towards direct sales channels like the Internet or catalogues.