COMMENT: The last quarter of the year is the most important for the retail sector, and in recent years the level of intrigue has reached new heights given the advent of imported retail events such as Black Friday, and innovation-driven marketing campaigns such as Cyber Monday, writes Revo chief executive Ed Cooke.
And anticipated results from last year are no different – especially given the apparent woes in the sector, which are driven by factors including the geopolitical situation and its macro-economic impact, and of course, the evolving role of technology in informing and supporting consumers’ purchasing choices.
There has been a lot of negativity, almost hysteria, about retail failures, profit warnings and apparent pleas for support before and over Christmas. I’m not denying that the market is tough – it is one of the toughest I’ve known in all my years in this industry – but I strongly believe we also need a sense of perspective. Even more importantly, the industry has to work collaboratively on solutions to the challenges presented by consumers’ evolving buying trends. Revo is well placed to lead this more collegiate approach.
A complex market
The market is complex, but often overly simplified, so the discourse focuses on whether retail is either performing well, or badly. Of course, the market is not as binary as this.
It is worth reflecting on the KPMG/BRC retail sales figures. The data showed that total sales growth in December was a respectable 1.4%. A significant proportion of this growth came from food sales, as non-food remained, overall, in decline for the third consecutive month. However, fashion, and health and beauty, performed particularly well, while jewellery and home appliances lingered.
What about at a company level? Although there have been high profile stories about the demise of Toys R Us, and profit warnings from Debenhams and Mothercare, there is good news out there as well. In a recent note from Nick Bubb, one of the retail market’s most well respected retail analysts, he reminds us that Games Workshop’s sales were up by 54% in the six months to the end of November, Topps Tiles’ Q1 sales were up by 3.4% like-for-like, and Joules’ retail sales were up by 19.2% gross over the past seven weeks, with gross margins in line with budget.
And those of you planning your “dry January” clearly stocked up in December as Majestic Wine revealed that like-for-like sales were up by 1.3%, versus a tough comparison of 7.5% in 2016.
The effect of discounting
Much has been made of the level of discounting in the retail sector as a means of encouraging consumers to part with their hard-earned cash. The impact this margin erosion may have on earnings will be seen in due course, but the big question in 2018 remains: how long can retailers sensibly stay on the discount conveyor belt, and how has all the pre-Christmas discounting affected consumers’ attitude to what price we are willing to pay?
One thing is for sure: government has a role to play in helping the sector to manage the costs of doing business in the UK. For example, and as BRC chief executive Helen Dickinson said in a recent note, with consumer spending likely to remain under pressure in the next few years, it is imperative that the government does all it can to avoid adding new tariffs to existing price pressures as they negotiate our route out of the EU.
I believe in 2018 customers will continue to search for convenience, experience and value. Those retailers, working with partners in the property sector, who can deliver a combination of these three will succeed. Those who deliver none will perish.
And what of the apparent response to pursue a consolidation strategy from some of Europe’s biggest property investors, as an answer to the changing dynamics in the retail market? Well, there’s a long way to go before we see the results of the Unibail-Rodamco/Westfield and Hammerson/intu acquisitions, but either way it illustrates an element of investor confidence in the UK and European markets that should be celebrated, and may well be the catalyst for more consolidation in the market over the next few years.
