brexit and british retail

Brexit and the impact on British retail

The nation, which includes many that work in retail or own retail businesses, has voted to leave the European Union.

The consequences of Brexit and British retail are only just apparent, some predicted, some not. We will not really know the extent of its impact for at least another two years, subject to Article 50 being set in motion.

The British economy was just getting back on track after years of recession that claimed many businesses. Now fresh threats are jeopardising livelihoods within our retail industry. A volatile stock exchange and currency market makes imports expensive. Retail prices have been in deflation and while this could mean that we will see inflation return to prices as retailers are forced to pass on cost price increases to its customers, the risk that customers will seek bargains elsewhere is very real. The suggestion that margins will improve in this market though, feels misguided.

Small retailers are most vulnerable. Cash in shorter supply to weather the storms ahead could mean the banks become leaner with loans and overdrafts; it could also mean customers reigning in their spend. Negotiating power is weaker when potential smaller volumes are on the table. Competition is more polarised from those that do have the cash and the power. This is not a time to resign to fate however. This is a time to remind customers of the value that small retailers offer: expertise, customer service, shopping experience, and being fleet of foot on the offer.

We have read quotes from retail leaders, notably B&M boss Simon Arora, who said “The whole of UK retail will see some pressure on imported goods but it’s a level playing field so it doesn’t change the fundamentals of our business.” This is simply not the case. Cash poor retail businesses sourcing in dollars, those that haven’t hedged against currency fluctuations, those that were already in a position of competitive weakness will be hit first and hardest by Brexit.

The impact is not only on UK sales. Ocado has just released its half year trading update. We have been expecting an announcement on an overseas partnership for some time and while Steiner says it is progressing, it is clearly now progressing at a slower pace than it was. Ocado’s share price was rocked when Amazon Fresh launched in London recently and a heavily impacted market is not going to support a share price recovery in the short term making any deal less attractive.

For retail in the UK, the priorities must be cash management, margin preservation and productivity improvements. If there are any chinks in the strategic armour, now is the time to address them in preparation for tougher trading. If there are any quick wins, now seems a good time to take them.

Investing in your future may feel counter-intuitive right now, but that is exactly what retail should be doing, building for the long term. The landscape is changing and the best defence is offence.

Tesco store front

Tesco on a Mission, or rather several missions?

Having been shown round one of their newest large stores by the UK COO Tony Hoggett it is clear that Tesco are engaged in a couple of programmes. First they intend to utilise the customer insight they have been gaining for years and second they intend to be more up-front with the media and pundits on how they are using it. Sounds like a mere semantic shift? No, I think it is quite a bit more than this and anything that brings human faces and personalities to the front of a previously grey and overly corporate body like Tesco can only be a good thing.

There is no doubt that with Hoggett they have a retailer who understands the power of customer insight, proud of the advances they are making in meeting customer needs but also ambitious and honest enough to recognise where they are not, yet.

Ensuring the store layout reflects the different missions is a key pillar of the Project Reset. According to Tesco customers fall into 4 main categories:

  • To buy something to eat now
  • To buy something to eat later today / tonight’s tea
  • To top up on known larder items
  • To complete a full main shop

With nearly 49 Million (yes that is right) transactions each week they have a lot of data to work on from those of us (most of us) who chose to use Tesco Clubcard. This has helped Tesco build a store that allows an ease of shop for each shopping Mission and although it not revolutionary, is a step ahead of merely putting sandwiches by the front door.

Tesco have created zones that grow from one another; the snacks now at the front, joined by the fresh food areas, joined by the grocery ambient and finally joined by the non-food perimeter of more discretionary purchased lines. I questioned if this removes the ability for customers to add to the basket on impulse and was assured this was not what the stats were saying. My word of caution would be that Tesco may have to ramp up the impulse displays off-shelf to gain margin back in the more regularly shopped areas.

Another point to note was the space given to fresh. Bicester store had wonderfully wide produce department aisles and a complement of Fish, Deli, Salad Bar and cooked chicken all offering a slightly more premium and potentially lower unit volume offer to customers. Looked good, or rather it looked like most other supermarket fresh food offers in the last 10 years – well-presented and fresh, yet lacking real ambition and in a geographic area where the premium range would do well. It seemed a missed opportunity not to have expanded that and gained some real foodie kudos. It’s okay being good, but it’s a long way from best. The investment in this service offer and allowing customers the colleague interaction is great to see however.

The seasonal events aisle was full of Euro 2016, Father’s Day offer and some Outside Summer. Being told how successful this offer is for Tesco was necessary, as frankly it did not look like it would be particularly successful. Not ambitious or in any way destination, it looked like success comes from putting ranged lines in the mix and claiming the benefit to the event, again more commitment needed here.

F & F was tidy, neat, well merchandised but not geared for the area and the mens offer is a big disappointment on range. An important profit area of their operation seems to be too much of a secondary consideration, more room for improvement and growth here.

BWS looked great and the range rationalisation on wine does clarify the offer as much as range intensification on craft beers and ciders. It all seems the right thing to do and when placed in this format looks so browse-able.

I left this store feeling that Tesco are no doubt improving their offer and by concentrating on their own customers (not those of fringe businesses) they will be driving positive LfL’s quickly. Still lots to do in reaching not just the customer mission but the individual aspirations of customers. We expect a tricky year on profit but a renewed sales line that will in time turn into profit growth.

amazon-fresh

Amazon Fresh – a fresh threat to UK grocery

The launch this week of Amazon Fresh in London is undoubtedly another irritant for the supermarkets. The question is whether Amazon present a real threat to the UK grocery market or will it find its level as a niche retailer in the market?

From a cost perspective £6.99 a month in addition to Amazon Prime membership might be a barrier to many. But it is realistic pricing and is very convenient with same day delivery offered. Amazon deliver to every postcode in the UK but can Amazon Fresh do so? Cities will naturally be at the core of the roll-out as it offers the greatest potential and the business model is based on volume. Low margins in food and everyday low prices dictate that. It might take years for Amazon to penetrate the market, both geographically and in terms of market share, so volume could be a long time in coming, and with it, profit.

We would not expect any of the key retailers in grocery to do anything radical to happen in the short term – no knee jerk reactions on price or online fulfilment model. We would expect the scouts to be out testing the service, dissecting the model and looking for weaknesses and for opportunities to evolve in a market that is increasingly moving online.

Over time though, if a retailer is chipping away at several points of your business, there will be a tipping point at which the irritant becomes a pain. Brushing away the irritant becomes ineffective and you will regret not taking action sooner.

There is no doubt in our minds that Amazon will disrupt an already disrupted market. A launch with more than 130,000 lines, offering same day delivery, that is costed to be profitable, that operates with distribution excellence, that offers free substitutions, is not going to quietly go about its business without provoking a reaction somewhere.

Morrisons are supplying Amazon Fresh of course, which adds a little twist. Add a dash of Ocado and a drop of Waitrose and you get a recipe that could be plated up in many different ways. Sainsburys are in the process or acquiring its own distribution excellence and increased range with Argos so expect a few punches from Coupe. Asda and Tesco are both refocussing and building online convenience propositions.

We have had a price war which has quietened although not reached a truce. We predict the new war, the Fulfilment War. The new battleground will be online fulfilment: delivery price, same day delivery capability, substitution policies, convenience, range, and customer experience. Expect delivery vans facing off on your street and expect it sooner than you would have imagined.

Guess How Much facia

High Street Confidence – GHM and the birth of a new destination?

By Phil Dorrell

Kindly invited to have a gander at the new GHM store on the day prior to opening I was more interested in the position of the group rather than the execution of the single store. Nice to see a new retailer, born from scratch, raise its head above the retail parapet.

Guess How Much facia

Joining its Pepkor stablemate and including 90% of its clothing range, the new GHM (Guess How Much) is a bold venture that could too easily be dismissed. Knowing that it has an incredibly cash rich sugar daddy would suggest on its own that this would be foolish, combine that with the knowledge that this is being directed, managed and staffed with some good retailers further suggests it could be a winner.

It’s clearly no surprise that the GHM HQ is in Leeds and the amount of ex-Asda colleagues in the store is remarkable, I’d suggest that expansion will in time pick up some more of these ex-colleagues. The leadership and strategy seem solid, pragmatic and above all else aware they are on a learning curve. With many of the answers unknown yet, but recognised as such, they are not fooling themselves one bit.

So on to the store. In good old Asda fashion let’s look at Likes, Concerns and Suggestions!

Likes

  • Branding from the outside looks strong, in bold colourways and the brand-name is catchy with a story behind it.
  • Size of footprint (this store c.8,000 sq.ft. ) is very portable to a number of High Streets and shopping park locations. It also reduces the property costs.
  • Pricing, they have made some statement prices on grey market lines (25-30% of sku count) but have also undercut the non-food competition in many ongoing ranges.

ghm2

  • They know their customer well (even though they have not really yet got any!) and the attention to their needs is evident in both ranging and pricing.
  • Clothing range is as impressive as Pep & Co which is no surprise at its comprised of 90% of the Pep & Co range.

guess how much

  • Health and Beauty is far more authoritative than expected and will be a key sales and margin tool.
  • Ample seasonal space allows for flexible merchandising and the lack of mass store product movement as they trade though the seasons.
  • Willingness to have a go, see how it works and make changes based on results and feedback is refreshing.
  • Systems and back-up logistics borrowed from Pep & Co lend a massive hand to a small chain start-up.
  • Lots of people employed who know what they are doing and have worked in similar teams before, they also share some cultural ideals.

Concerns

  • Good pricing and tight fixtures make this a tricky and potentially costly store to replenish. Use of SRP is good, but not consistent and shelf depth and a 48 hour lead time might make availability tough if it takes off.

guess how much

  • Depth of warehouse reserve stock on fashion looks very light. They appear to only have one delivery a week and this might be too few unless they improve fast selling inventory position.
  • Some ranges appear to have too much authority (shopping bags) and others too few (SDA’s ). They will need to have a quick range autopsy within the first 4 weeks.

guess how much

  • Navigation and instore price indication is mixed. It goes from expressive to difficult to define price; navigation is not facilitated greatly by signage / beaconing.
  • Branding the clothing Pep & Co is right on the product as it reduces cost and gives some reassurance. Having it as a beacon on the wall seems to confuse the brand message of a new start-up.

guess how much

  • The aisle with the least amount of “theatre” was the seasonal aisle, reasons explained but seems a miss for a new venture.

guess how much seasonal

Suggestions

  • Continue with the attitude of try it and see, bold, brave and pragmatic.
  • Have an improved contingency for stock order, especially on clothing.
  • Be bolder on the internal presence of the GHM brand, and improve any areas of poor price indication and navigation.
  • Review how productivity can be assisted through merchandising and ease of replenishment.
  • Introduce a J-hook and clip-strip programme to enhance sales and margin.

I look forward to seeing it in the next 6 weeks and its slightly larger sister stores in Isle of Sheppey and Kirkstall Leeds. It may not be the re-birth of the High Street but such stores do give a more positive outlook on its health. Good luck, you’ve earned it.