The retail note - 27 October 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- Some positives beneath seemingly bad headline figures from Debenhams. Full-year pre-tax profits were down 44.2% to £59m, but these were depressed by exceptional charges of £36.2m relating to its Redesigned strategy. Total gross transaction values grew by 2.0% to £2.95 billion and full-price sales grew by 1.7%. Debenhams Redesigned, the fundamental aim of which is to make the business the "leader in social shopping", is very much still in its infancy but the initial signs are good.
- Slightly disingenuous to compare Debenhams (a national mass-market operator with 160+stores) with Selfridges (a premium operator, with just four sites), but most in the media have. Selfridges revealed that its sales rose by more than £200m to £1.6bn in the year to 28 January. Operating profit reached a record £180m, up 18% on the previous year. The year before, Selfridges' operating profit had fallen by 1.9% as a result of a £300m capital expenditure programme.
- Dire trading figures from Bunning’s failed to provide any comfort on the DIY retailer’s strategic direction. Sales slumped by 17.5% to £276m compared to the same quarter the previous year. Like-for-like sales decreased by 11.9% and overall sales fell by 13.8% against the previous quarter. The eight Bunnings pilot stores are reportedly seeing solid sales, but the 230+ Homebase stores are evidently suffering from neglect.
Stephen Springham, Head of Retail Research:
The early manifestations of the horror that is Black Friday and Costa’s financial results both caught my eye this week. Both completely unrelated and actually not retail in the truest sense, but both speak volumes about the retail sector in their own way.
Costa’s quarterly results caused some consternation in both the City and the media. Having been a powerhouse of growth for so long, Costa’s like-for-like sales rose by just 0.1% in the three months to the end of August, compared with the 1.1% in the previous quarter. Three years ago, sales were soaring by 7% a year. Total sales still rose by 8.3% on the back of 108 new openings, but the real story is that underlying growth is slowly grinding to a halt. First-half operating profit also fell 4.6% to £61m.
It was the various explanations that particularly caught my attention. Rising import costs in the wake of Sterling’s devaluation, higher labour costs on the back of the national living wage increases and business rate rises, coupled with intense competition and the challenges of being a mature business with over 2,300 stores.
Costa being a foodservice operator rather than a retailer, the one perennial explanation that was missing was the growth in online. When a retailer reports weak figures, there is invariably reference to the digital revolution and some lazy fall back on sales increasingly gravitating online.
However, retailers are subject to all the same fundamental pressures identified as conspiring against Costa, yet these are seldom given the same airtime. Resorting to the online argument as the sole reason for under-performance is as facile as it is wrong.
Much will be written about Black Friday in the coming weeks, so this is just an opening salvo. One of the features of last year (and one that will inevitably continue this) is that Black Friday is increasingly being stretched over a longer time period.
‘Black Friday Weekends’ soon morphed in ‘Black Friday Weeks’. The rationale is twofold: firstly, to avoid the supply chain headaches of having everything concentrated on a single day. Secondly, to milk it for all its worth.
I was wondering who would be the first to fly the Black Friday flag this year and last week I had my answer – TalkTalk. The fact that is a telecommunications company, a full month before the day itself shows just how ludicrous the whole Black Friday phenomenon has become. Black Friday was conceived as a single day retail extravaganza (and, to certain degree, remains so to this day in its native US). In the UK, Black Friday has degenerated into the laziest marketing strapline for any sale/promotion any operator from any B2C sector wishes to undertake from October onwards.
Black Friday is slowly but surely becoming the ultimate in white noise. And, thankfully, consumers are increasingly seeing it as such.
Read the latest Knight Frank Retail Newsletter - Issue 7