argos_sainsburys

Home Retail Group: two retailers, two profit trends

On the one hand Argos is delivering profit growth, mostly from cost management activities rather than a new digital strategy, and on the other hand Homebase are battling against a shrinking customer base coupled with tougher competition.

So does that mean that one retail strategy is working and the other isn’t? No not really. Neither retailer, both owned by the Home Retail Group, is shy of trying something new in the face of a shifting market.

Argos are going digital and opening as concessions in Sainsburys, as well as being a collection point for eBay customers. It’s move into digital formats still feels gimmicky and although feels right for the market doesn’t yet look right on paper. Digital sits on top of Argos’ strong distribution model comfortably and makes strategic sense but it’s no surprise that we are still lacking any evidence that the new digital format is delivering any material benefit.

The capital requirement for a rollout means it will take time to gain traction and gives the retailer a window of opportunity to refine the format and work out how to make it profitable. But when was a new format ever profitable in the first year? It takes time and tweaks and scale before profit can be realised, that’s if it is the right format at all. Some formats sink without trace, consumed by the next new idea.

We cannot knock the stream of innovation and modification that flows from HRG HQ, new ideas pave the way to capture customer’s imagination, and decisive plans to fix what is broken are played out. Homebase took the bold move last year to close about a quarter of its estate and reduce range in the remaining stores to make room for the concessions to build its lifestyle credentials.

When the market moves, the retailer must move with it, in fact ideally ahead of it which is what Homebase is attempting to do. How profitable the remaining store portfolio will be is yet to be seen, but whatever the result, it won’t just be as a result of the store closures and concessions, HRG will have a few more ideas to play out in the coming months.

The story this year was a tale of 2 different profit trends, but there is every possibility that the trends could both be reversed next year. Homebase can return to profit growth by cutting out the rot and reconnecting with what customers want and Argos could expand digitally, which if it follows the online grocery profit model, could take some years to deliver profit.


If you would like to chat about any aspect of your retail offer, formats, space productivity or estate, Retail Remedy’s team of consultants are more than happy to listen and then help you take the next step. Get in touch.

tesco trolleys

Is this as low as Tesco can go?

Dave Lewis will be reporting Tesco interims tomorrow, facing analysts, pundits and retail consultants, and he will certainly be planning on this being the last of the bad news. What’s the saying? The only way is up?

The share price may have a little further to fall when Tesco reveal anything up to a £5bn loss which will include property write-downs, a pension black hole, accounting errors and costs to restructuring, but with sales edging upwards and all the bad news dispensed with, there is reason for his optimism.

The business is being restructured to be more customer-facing, offering a level of service reminiscent of the good old days when Tesco was a trusted grocer on the High Street. The upside to the loss of jobs and is that the business should be more agile and efficient, and able to respond to customers in a way that builds that trust. A streamlined head-office conveys a feeling of agility and simplicity for suppliers and a lower cost structure which customers may feel will permeate through to shelf prices too.

Proof that the restructuring will have the desired effect is thin on the ground with only a couple of trading quarters under Lewis’ belt. However like for like sales are getting better and will be taken as a positive indication that the decisions taken so far are the right ones and that Lewis is the right man for the job.

The city could be further reassured should Tesco announce progress on a deal to dispose of Dunnhumby, or a partnership arrangement to make use of overspaced stores, although that may be wishful thinking and could be premature.

What we don’t really want to hear is another round of price cuts. Price could be a sensitive subject in the coming weeks as Which? pursue its super-complaint of price duping in supermarkets. The Big 4 have all been cutting back on promotional activity to reduce confusion for the customer including Tesco, and any investigation into misleading price activity will undermine the trust that Lewis is working so hard to recover.

Tesco will not be another discounter. It could however be creating a new simplified business model for supermarkets that others will want to emulate: more customer facing staff, simplified promotional activity and supplier terms and collaborative partnerships with other retailers.

Lewis has started his tenure well and although will be facing tough questions tomorrow, has a calm quality that conveys confidence.


Retail Remedy have worked with retailers large and small to deliver customer focussed retail strategies. If we can help you, get in touch.

sainsburys store

Sainsbury’s Walk Round April 2015

by Phil Dorrell, Partner, Retail Remedy

PR departments are peculiar. They are there as part of the marketing team and deal with the media face of the specific retailer. They promote good press relations and brand equity and occasionally have to deal with the odd bit of negative media attention.

They also arrange media facing walk-rounds, launches and retail results announcements. Populated by hard nosed people who exude both confidence and style. Sainsbury’s today was exactly this, a walk round for retail consultants and analysts, chaperoned by the PR, a brief 7 minute section review with some of the directorate before moving on to another section. Manifesto like in it’s delivery, it told us all the things we largely knew and wondered if they would really make the difference. I enjoyed it and the store looked superb in Wandsworth, run by an old GSM of mine, Ziggy, top chap.

These media days perhaps rely on an old marketing ploy called reciprocity, they look after us, we look after them in our reviews of their business and plans. The truth is somewhat more brutal however and any journo or retail commentator who is worth their salt has to report their view, although sometimes that view is not well studied, and for these reporters the exercise provides as story. It’s just not the whole story.

Sainsbury’s face a daunting 24 months, facing more Tesco stores than anybody else they have more to lose from a resurgent market leader, and they are / will be resurging. For all the lovely people (and JS people always do themselves proud in this ) there lacked the retail strategy and tactics required for such a fight. We heard of great services, really cool products, increasing online and click and collect, even the belief in pricing simplicity. I for one didn’t get the sense they had the pricing strategy clear across all areas, nor the marketing synergy in store that extolled the simple pricing philosophy. Being so far behind Tesco and Asda in clothing and non-food sales just means they have a greater reliance on food profit, almost treated as a traffic driver by the bigger two retailers. Asda specifically have such heritage in clothing and non-food that they are willing to sacrifice much of the profit from food and drive footfall and goodwill because of it.

Sainsbury’s have some great products, super people and well placed stores, but they need a lot more people going in them instead of competitors and they need to look to their pricing and promotions on foods to do this. The simple pricing would be a good start but too conceptual to comment yet. The next 24 months for Sainsbury’s will be very tough, nothing I heard today convinces me otherwise.

coop food store

Which retailers have a convenient advantage?

What does the ultimately convenient supermarket look like? Like a Co-op? Like an Aldi?

Co-op delivered 3.2% lfl sales in its core convenience estate last year. Its TV advertising is all about convenience, its opening schedule of 100 stores for this year is all about convenient locations. Smaller stores can be less efficient with lower margins however, and that is something Co-op is addressing in its turnaround programme.

Aldi’s enviable growth now has the grocer as the UK’s 5th largest, having just overtaken Waitrose. Aldi is not a typical convenience store but there are elements of its proposition that fit that format: a smaller range of brand alternatives and products making the selection process far more efficient, a self-packing checkout streamlines the process cutting queuing time, and locations more convenient than some of its competitors.

Then there are the Big 4. Sainsburys and Tesco have a strong convenience estate, Morrisons has slowed the roll out of what was already a slow foray into the format and Asda has avoided convenience stores altogether. Large supermarkets are being closed and development plans shelved, all pointing towards a smaller average supermarket for the future.

The reduced space in a convenience store inevitably means a reduced range which can be a hindrance for the retailer when the customer cannot find what they need and has to go to another store. If the convenience format were able to claw back some space though, more range could be offered resulting in fewer missed sales. One drain on space are the tills themselves. What could be more convenient than not queuing to pay at all? Amazon have applied for a US and UK patent for a system that identifies the customer as they enter a store, identifies the products they carry out with them and charge them accordingly; All quite feasible given the technology that is available today.

We aren’t quite at the point where the customer is the point of sales yet but the next battleground for food retailing is convenience in our opinion. Co-op has an advantage to other retailers if it can improve its margins and refine its offer. Aldi also has an opportunity as it pinpoints the locations to extend its estate into. Both have a convenient advantage.

M&S_Silverlink

Is Marks and Spencer’s retail strategy finally paying off?

Could the fashion tide finally be turning for Marks and Spencer who have suffered 15 consecutive quarters of declining sales or is the predicted improvement just a hopeful blip?

Marks and Spencer’s general merchandise performance has been dreadful over the last 4 years. A ferociously hyped new fashion team did little to stem the decline, a relaunched website weakened already poor fashion sales and fulfilment problems at the new DC made a bad situation worse during a mild Autumn. Its retail strategy looked to be failing.

So what has Marc Bolland done in the last quarter to change the seemingly determined path to failure? There hasn’t been any radical strategy shifts or store turnaround plans to be able to point to, but there is a steady hand on the wheel. Could it be that patience has paid out?

The investment and cost cutting plans could just be coming to fruition. After years of underinvestment and basic complacency, the business needed to be overhauled to catch up with its competitors and that is what Bolland has done. It may have taken longer than planned but he has generally been doing all the right things.

We can still point to dull stores once you get past the flagship locations and head to a typical High Street, and we can still see an over proliferation of sub-brands to confuse the customer and ranges that attract the wrong customer, but there are small signs that the business is moving forward.

It might look like M&S has been taking tentative steps, but M&S wouldn’t describe them that way. Changing the direction of a big ship is no easy task. It needs major effort and that effort can be rewarded with only a subtle effect, which is what we believe we are now seeing. But once it starts to move, it is easier to keep it moving.

With an improvement in fashion sales could come the confidence the business lacks to up the pace and start to gain traction with John Lewis and Next which have lured the M&S customer away. The strategy to build margins rather than sales looks to have born the buds of what will become fruit, but it is still Spring and that fruit isn’t ready for picking yet. In the meantime, Bolland and the team can be reassured that they are on steering the ship the right way, they just need to crank up the speed before the market moves too far ahead.


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