The changing face of retail

26th March 2012

But this doesn't appear to be quite the whole story. There have been positive results from Next, Kingfisher and Debenhams. Internet retailers have also seen strength. Is the picture in fact, simply showing a changing retail sector rather than one in crisis?

This Guardian piece suggests economists are split on the issue. For example, Howard Archer, economist at IHS Global Insight, says: "The data puts a real dent in hopes that the consumer may be perking up appreciably and tempers hopes that GDP will see a relatively decent return to growth in the first quarter after the 0.2% contraction in GDP suffered in the fourth quarter of 2011."

Whereas, Richard Driver of Caxton FX sees some reasons to be cheerful in the results: "Some high street heavyweights like Next and Debenhams February's retail sales numbers were weak by most measures. Sales volumes fell 0.8%, worse than many analysts had predicted. January's unexpectedly strong figures were also revised down. The reaction was the standard gloomy fare with one Commerzbank economist saying "The hoped-for recovery [in] consumer spending certainly doesn't look to be there."hams posted some decent profits recently and with the Olympics on the horizon, as well as the relaxing of Sunday trading laws, the UK retail sector could be in line for a much-needed boost."

Simon Ward, chief economist at Henderson Global Investors says: "The monthly numbers are noisy. Taking January and February together, sales volumes ex fuel were 0.4% higher than in Q4. Overall consumer spending grew by 0.5% in Q4. I think the consumer picture is better than a year ago."

Certainly, it appears that the strong are getting stronger. Next saw upbeat results, as it managed to maintain margins by using cheaper suppliers, though chief executive Simon Wolfson said that the retail market was still tricky: "2011 presented the retail sector with the perfect economic storm. Consumer demand was anaemic, held back by a combination of high inflation, low growth in wages and limited growth in consumer credit" Wolfson added.

Stronger groups have managed to capitalise on the weakness of competitors. This is particularly true for groups such as Majestic Wine, who turned out to have the right business model as many of its competitors went bust: "Structurally, Majestic is a winner benefiting from the demise of Oddbins, Wine Rack and Threshers. Majestic is targeting the "non-supermarket market", where there is no other wine retailer with such a wide range, scale and a differentiated positioning in the UK," observes Wayne Brown, analyst at Collins Stewart.

The High Street is in the process of significant structural shift – as shown by this recent report from Deloitte: ""The majority of UK retailers have simply got too many stores," said Silvia Rindone, a director in the retail consulting practice at Deloitte and author of the Store of the Future report. Total floor space has dropped in recent years, she noted, and this will continue as consumers shop more on the internet, with online sales forecast to reach £43bn by 2015, accounting for 14% of all retail sales. Some 22% of people did not buy their last item of clothing or accessories in store, and only 9% of customers want to see the full product range in shops."

The high street has long become commoditised and may shortly be just a nostalgic memory. A study from PricewaterhouseCoopers and the Local Data Company found that in 2010, 5,268 shops were closed by major retailers and only 5,094 opened: Matthew Hopkinson of the Local Data Company, which conducted the study, said: 'Bricks and mortar stores are not as important as they used to be. The writing's on the wall for town centres.'

But this is not necessarily bad news for retailers. It simply means that they have to adapt to different ways of doing business. The Deloitte survey showed that the more innovative retailers are already doing this: "Burberry, for example, turns its London store into an audiovisual bonanza with big screens and iPads at the beginning of each season. Ocado and Tesco have developed smartphone apps enabling customers to order groceries while on the move. Big department stores are offering "click and collect" where shoppers order online and pick up from a store of their choice. House of Fraser, Debenhams and John Lewis are also trialling smaller stores with internet kiosks where customers order for home delivery."

This piece, written by Red or Dead founder Wayne Hemmingway, argues that large chains closing stores on the high street may actually bring about a regeneration of retail, making way once again for smaller boutiques: "In many ways today feels like the early 80s and we are seeing a renaissance of a variation of the serendipitous market. In Wembley, north London, shops have closed on the high street and have been turned into multi-business outlets by the Asian community. In Gateshead, there are examples of creative communities getting together and attempting to reuse empty spaces such as the Shed project on Gateshead High Street where, working with the council, they have brought vibrancy back to this area of a town that was sinking fast."

The piece brought plenty of community comment, with many questioning whether this could really happen. gauteng29, for example, says: "I'd rather a Tesco, next to a Poundland, next to a Boots, next to a Greggs, giving people affordab
le products and providing employment than a row of boarded up shops. To think that empty and derelicted high streets is a good thing is absurd. It is fairly easy for wealthy people like Wayne to put a premium on diversity and independence, but his outlook is vainly quixotic."

But it does present a different perspective to the prevailing view that the retail sector has embarked on an inexorable slide. It may be that people start to get the high street they claim they want – less commoditised, with independent retailers and only the strong national franchises – Sainsburys, Next, Majestic – alongside them. There are obstacles in the way – stubborn landlords, reluctant banks – but the retail picture may not be as bad as billed.


More from Mindful Money:

The future of the High Street

Has Tesco forgot 'retail is detail'?

Shopping around for success

To receive our free email newsletter sign up here.  

Leave a Reply

Your email address will not be published. Required fields are marked *