“Phoney war” coming to an end

The current UK Retail scene has had until recently a “phoney war” feel to it. Everyone knows that shoppers either have less money in their pockets, believe that they will have less money in their pockets soon, or believe that they should be perceived by others as having less money in their pockets (human psychology coming into play!). Added to this have been negative elements such as a continuing “feel bad” factor and also the fact house prices stubbornly refuse to rise (a large proportion of the last Retail boom was predicated upon soaring personal equity levels). However it has been surprising that (until the last few weeks) there have been few significant Retail failures since the likes of Woolworths and Zavvi (the old Virgin Megastores) in late 2008

It is no wonder however that UK Retailers have remained under continuous pressure as consumer footfall declines and those customers who are still about are spending less. Add to this, raw material prices are rising and rents and rates costs don’t fall as revenues decline. Even though Retailers do tend to rival Farmers in the “glass half empty” stakes, it is difficult not to feel sorry for Retailers given the myriad of adverse issues currently facing most of them. That’s without even considering the impact that the Internet has had upon terrestrial retail sales and will continue to do so more and more. That’s the subject of a completely separate post however!

Retail bloodbath on the cards?

Therefore does the raft of recent failures (notably Jane Norman, Habitat, TJ Hughes, Homeform Group (Moben Kitchens and Dolphin Bathrooms)) plus Thorntons’ decision to close up to 180 stores and Kesa considering Comet’s future presage a belated High Street meltdown driven by a lengthy period of economic austerity? This is a tempting conclusion given the wide variety of Retail sectors involved and the longevity of some of the victims

However, I do not believe that this will be the case for a number of reasons. These range from the way that the UK consumer is wedded to high street shopping (it is our number one leisure activity after all), through the fact that many consumer groups are not actually severely impacted by the UK economic malaise (Jack Wills and Supergroup customers anyone?) to the truth that the best UK Retailers are superb operators who are fully equipped to ride out the severest of economic storms (admittedly often by passing cost pressures back down the supply chain!)

Individual rather than collective failure

A variety of individual factors appear to have caused the most recent Retailer failures and these are symptomatic of a sector under understandable pressure rather than one in terminal decline. Some of the recent carnage can be put down to a medium term decline in the housing market, consumer uncertainty causing high ticket purchases to be delayed/deferred, excessive corporate borrowing, poor overall “offer” and/or no convincing “Unique Selling Proposition”. I will leave you to match the reasons with the Retailer!

Best Retailers will just get stronger

The best Retailers in the UK (of which we have many) will ride out this economic storm and will emerge stronger. Their strengths are based upon the following:

• Quality product ranging
• Excellent “value” (not necessarily the cheapest)
• Great customer service
• Attractive and convenient locations
• Consistent and effective multi-channel operations
• Quality IT systems and related rigid cost control
• Effective partnering with key suppliers

Not all Retailers need to be “best of breed” in all of these categories. However, it would be impossible to name a successful Retailer who is near to the bottom of the class in many or all of these categories

Whilst the current economic climate is unlikely to lead to increased consumer confidence any time soon (and we still need to factor in inevitable increases in interest rates before too much longer), we can still be certain that our best UK Retailers will emerge even meaner and leaner and will indeed benefit from some of their weaker competitors having gone to the wall in the mean time