BHS administration

BHS – you should look a £1 gift horse in the mouth

When BHS entered into the CVA, Darren Topps CEO of BHS, stated that they do not have a sales problem, but they do have a cost problem. Naively said, Darren.

When Retail Acquisitions bought BHS for £1 from Phillip Green, there was a long stream of accounts showing that the retailer was in trouble, loss-making, tied by debts, a pension pot deficit, but they did have property. But even the sale of its flagship Oxford Street store was not enough of a lifeline to shore up the promised rescue package that was made when the business was bought.

The focus of the rescue package was all about the costs and sales were not given enough air time in the press or in the head office communications. A few weeks ago, we suggested that BHS would benefit from productivity modelling and that advice still stands. A prompt review can start to deliver cost savings, sales growth and profit growth within weeks. Could we have rescued BHS? Well, hindsight is a wonderful thing.

Given hindsight, where did BHS go wrong?

BHS changed its name (sort of) and its logo, but in terms of an offer to keep up with retail and customer trends, they were well off the pace. We are not talking about the last 2 years, we are talking about a decade ago, within Phillip Green’s ownership. BHS dragged their feet over going online, which left them playing catch up with their competitors, Debenhams and Next. But then the offer that they had to put online was not a leading offer, and their customers were not early adopters of ecommerce.

Simply put BHS did not adapt.

Now 11,000 members of staff are facing an uncertain future. There could be a buyout, but it’s unlikely. Any offers would have to be from experienced retailers, not from another conglomerate. The business now needs clear direction.

More likely is a piecemeal sell off of the stores to be used as strategic sites for other retailers like John Lewis, Sports Direct or possibly Next. Any remaining sites would be closed, and the BHS brand would disappear from our High Street.

As nostalgic as any of us might feel towards the brand, BHS needed customers that were shopping elsewhere. BHS lost relevance and the consequences are now apparent.

paying for national living wage

Paying for the National Living Wage

The National Living Wage was introduced on the 1st April, and since then we have read too many articles about how retailers are creating more issues through the way in which they are offsetting the increased business cost.

From Waitrose to community convenience stores, retailers are looking at pay increases that their businesses just can’t absorb whilst maintaining profit. They are already stretched to breaking point and see the national living wage as the last straw before something snaps.

We are completely in support of the national living wage, every employee should be able to work and afford to maintain a standard of living without having to rely on additional tax credits to support their families. However, if their employer is considering cutting jobs in order to balance the books, how does that help the economy?

There is a common trend that has businesses looking within payroll to compensate for the living wage. Cutting overtime, Sunday premium rates and bonuses have been reported on multiple occasions already this month, leaving some employees worse off than before the ‘pay rise’. There are other cases of employee perks being cut. Not only that, but instances of retail prices increasing to cover the increased cost. So the customer has to pay for the pay rise? We don’t think so.

Let us ask a question. Are you sure your retail operation runs as efficiently as possible?

In our experience, whenever we have gone into a retailer to undertake productivity modelling, we are able to deliver cost savings back to the business within weeks, saved from an inefficient operation and wasted man hours. Not only that but the remodelled retail operation can offer better customer service, leading to improved sales and higher profit. Have a look for yourself.

Isn’t that a preferred scenario to absorb the National Living Wage into your business?

Get in touch to see how we can use productivity and process improvement to add to your bottom line and manage payroll costs.

dave lewis tesco

Tesco getting back on course, slowly

  • Q4 Like for Like sales up 0.9%
  • Q4 Like for Like volumes up 3.3%
  • Full Year like for like sales  down 0.7%

Tesco still hold the record for the biggest loss in UK retail history but with these financial results it is clear that Dave Lewis has been busy.

He had more on his to-do list that any of the other Grocers but he has been steadily ticking things off: the accounting scandal, closing Cheshunt head office, selling South Korea division, launched a discount facing sub-brand, created new store flow and merchandising formats, written down capital on undeveloped sites, negated both Asda’s and Sainsbury’s brand matching, and got the business closer to growth.

First and foremost, Lewis has made great strides in getting Tesco closer to its roots, being a good retailer. Selling off peripheral businesses was needed in order to regain focus on the core business and return to growth. Tesco’s decision to continue to divest niche peripheral investments and businesses in the coming months is welcomed, as it recognises where its strengths are, supermarkets.

With that decision to focus the business back to supermarkets, comes the realisation that there is still a very long way to go. They have the biggest space challenge of all the Grocers and have yet to identify anything convincing to fill it with.

The investment into price and price perception still needs to be recovered. The right way to do this is through higher volumes but these are hard to come by in the current market. We are yet to see how Lewis intends to do this. Accepting Sainsbury’s customer’s Brand Match vouchers won’t be it.

The first person to admit that Tesco has more to do is Lewis. Some may criticise the pace of change even for the biggest tanker on the seas, but we challenge that Lewis is now captain of a far steadier ship than the one he took on. Deeper change was needed and that is what Lewis has delivered to date. His leadership has been strong and according to most sources fair. He has promoted wisely and not been shy of facing the unethical practices that were uncovered.

Let’s be clear, the future is not guaranteed to be a shade of rosey for Tesco. A resurgent Morrisons, hungry discounters, a stronger Co-op and Sainsburys holding course all come together to make a marketplace where complacency is very dangerous. Can Tesco return to the profitability of a pre-Clarke era? No, but it can be a highly profitable business in the medium term.

Waiting to see the Sparkle return to M&S

  • Q4 Food Like for Likes flat
  • Q4 Clothing and Home Like for Likes down 2.7%
  • Total group sales up 1.9%

As the end of his first week in his new role as M&S CEO ends, Steve Rowe has already ticked off a few things on the to-do list that send very clear signals to the city, the shareholders, the customers and the competition.

His week started in store talking to colleagues and customers. If there is one thing that Marks and Spencer has been accused of it is that it has lost touch with its fashion customer who have defected to Next, John Lewis and Primark for some of her wardrobe. Yet the customer flocks to the food hall.

With another decline in M&S Clothing and Home sales in Q4, we can expect Rowe to “kitchen sink” the full year results in May leaving him with a clean sheet with which to start his tenure as CEO. He has also said he will continue to oversee General Merchandise for the foreseeable future, clearly indicating that his focus will be on its turnaround.

It has become standard practice for new CEO’s bring out the dead, and leave themselves with a low base from which to grow. The downside are the problems that could be buried deep which can come out to bite you as Dave Lewis knows only too well.  Rowe will have an opportunity to blame previous M&S leadership but somehow we suspect he will not do so. Instead he will be tenacious in his forward thinking; you cannot change the past, just learn from it.

So what of the future?

One of the first strategic reviews we would welcome from Rowe is a review of the M&S target customer. We are not talking about the customer that the business thinks it has, we are talking about the customer that visits the food hall. That customer has disposable income, is already frequently visiting stores and will find themselves brushing passed clothing. That customer can easily and inexpensively be acquired and converted with the right ranges.

The next challenge is availability. We know that M&S has had success with key fashion pieces that have been well publicised in the press. However the availability of those pieces was limited to the top few stores, so the marketing success is not translated into sales.

The quality price ratio is the next challenge that we want to see addressed. Great quality is what the M&S food business has been built on, and translate that into fashion, superior quality fabrics from sustainable sources, knits that don’t pill, buttons that stay attached, on fashionable ranges and M&S has an inherent value positioning that they can get back to.

The last strategic issue on Rowe’s agenda in our opinion is the bland stores. While some stores are modern, light and inviting some are still stuck in a time that fashion and modern retailing forgot. High level navigation is wanting in many of the stores we visit, compounded by the proliferation of in-house M&S brand messages. Range rationalisation and navigation can be addressed once the customer has been identified and space can be reassigned, perhaps giving food a bigger slice to better serve the customer.

We have a good feeling about Rowe, he has spent time in stores, has delivered food success and has started his first week in the best possible place, in stores with colleagues and customers. Here is to a successful few years delivering M&S back to its eagerly awaiting public. They have been very patient after all.