Friday, 21 November 2008
There is Blood on British High streets as the declining consumer retail spend is cannibalised by deep across the board discounting by all the major retailers. Marks and Spencer is cutting prices in its clothing and homeware departments by 20% for one day only on Thursday, its first one-day sale for four years. "The customer is not conditioned to expect M&S to do these things very often," retail analyst Fraser Ramzan, of Nomura, said. Some M&S stores will stay open until midnight for the discount day. BHS reacted to this unprecedented deep discounting by Marks and Sparks by launching a 3 day 30% discount event the very next day and Debenhams launched a 2 day 25% discount event whilst the same day Mark One, the fashion retailer, announced it had appointed administrators, no doubt the latest of many such retail failures.
Yesterday Sainsbury advertised 1 litre of Bailey’s Irish Cream Liqueur at £10, down from £17.99, today Tesco hit back with one litre at £8.00. I don’t like Tesco (http://daithaic.blogspot.com/2007/11/tesco-supermarket-which-arte.html ) but nobody can accuse them of being slow in responding to competition. M & S launched two dine in for £10.00 for a main course, side dish, desert and a bottle of wine for two, Tesco have launched a similar offer for £9.00 with wine and £5.00 without. Meanwhile Tesco have responded to the discounter challenge from Aldi, Lidl and Netto by branding themselves as “Britain’s Biggest Discounter” and launching copy cat ranges. Truly, in 2008 Credit Crunch Land retailing is strictly for the brave!
Debenhams, Marks & Spencer and Sir Philip Green's Arcadia clothes empire have all been slashing prices this week in an attempt to lure shoppers. The John Lewis decline extended the near 10% fall suffered in the previous week. Waitrose, the supermarket owned by John Lewis, joined the gloom. Its weekly sales fell 4.6%, a performance that suggests even large food retailers may have a tough Christmas. Retailers hope recent interest rate cuts will filter through to shoppers in time to rescue Christmas. The Bank of England is expected to cut rates again next month perhaps to 2.5%. Marks & Spencer saw like-for-like sales fall 6.1% in the 13 weeks to 27 September, while Arcadia Group, the owner of such retailers as Topshop, Dorothy Perkins and Burtons, experienced a 2.8% drop from 2007.
Sales on the UK's High Streets fell by a lower-than-expected 0.1% in October, figures from the Office for National Statistics have shown. The decline was much less than the 0.9% drop that analysts had predicted after sales fell by 0.4% in September. Retail sales grew at an annual rate of 1.9% compared with 1.7% in September. Many retailers have opted to hold pre-Christmas sales in a bid to boost spending at what should be their busiest time of year. Food sales rose 1% in October, but non-food sales fell 1.1%. Sales of household goods were down 1.5% and clothing sales fell 3.4%. "The drop in non-food sales clearly suggests that discretionary spending is taking a hit," said Vicky Redwood at Capital Economics.
The retail sector is continuing to suffer at the hands of the housing market slowdown with the Comet electrical goods chain warning yesterday that it is heading for a loss because of disappointing sales of refrigerators and washing machines. The company, part of the pan-European Kesa Electricals giant, believes that people are unable to move home and are not splashing out on new household appliances. Comet is also suffering because more people are shopping online. The scale of the setback during the three months of the year to the end of July surprised analysts. Sales at the chain of 251 stores fell by a thumping 9.9 per cent. This is far worse than the rival electrical chain Currys, which has reported sales 7 per cent lower.
However at the weekend the Celtic Sage at Comet’s out of town store in Aylesbury the Celtic Sage gained an insight into why Comet is such a poor customer proposition. The outlet is fine from the “Big White Shed” school of retailing and as you go in helpful young staff are on hand to assist and guide and the layout is clean and open with an air of activity to draw you in. However all the Sage wanted were 5 hoover bags for his Miele vacuum cleaner. These are £6.99 in John Lewis but here in Comet they were a whopping £11.99, an amazing 72% MORE EXPENSIVE than on the high street. I bought the bags under protest but made a mental note not to darken the door of Comet again for like every customer I know when I have been treated like a fool. So don’t bother to sell me a big ticket item, Barrow boy in Comet’s marketing department you have lost this customer’s loyalty. This is a mistake failing retail propositions make in thinking that customers will be price insensitive on accessories. Jessops the camera shop did the same to me by trying to charge twice what Argos would charge for rechargeable batteries; result I’ll never buy a big ticket item like a camera there.
The luxurious £11.99 vacuum bags from Comet!
Comet tries to defend its position and said it had protected margins by refusing to slash prices to draw buyers into its stores. "One day the cycle will tick up – in the meantime the business is refusing to chase unprofitable revenue," said an adviser in September 2008. Well I’m sure this sounded sensible then and he has left to pursue “new opportunities” elsewhere by now! Sales of laptops and televisions were more resilient, although the company admitted "we now anticipate Comet will make a loss in the first half". Kesa's arguments did not satisfy the stock market, which marked its shares down by nearly 10 per cent. Analysts slashed profit forecasts for the current year. Overall, Kesa, which takes in the French electrical chain Darty and other retail outlets operating throughout Belgium, Holland and Slovakia, reported a 4.7 fall in sales for the opening quarter. Darty fared better than Comet with sales down by 3.2 per cent, but conditions in France remain tough and the scale of the slowdown also caused concern in the market. Unconnected with the Celtic Sage’s rip off vacuum bags the CEO has fallen on his sword (sorry; “decided to retire”) and Jean-Noel Labroue will leave after a handover period to Thierry Falque-Pierrotin who is joining the Group on 5 January 2009 as Chief Executive Officer (CEO). I hope he does well but he will do it without my help, once you lose a customer he stays lost, and that is a home truth the Barrow Boys in marketing don’t understand and there is no point in paying large amounts of money to Finsbury PR whilst squandering customer loyalty!
Another company which is surprised that shoppers are shunning it is The John Lewis Partnership. Weekly sales at John Lewis's flagship London stores lurched downwards once again as shoppers held off on making purchases in the hope prices will keep falling. The Oxford Street store that usually does well whatever the economic weather saw sales off 12.6%. Other stores in highly affluent areas also struggled. The Peter Jones branch at Sloane Square was down 18.6%. Cambridge down 26.7%, Bluewater off 15.7% and Kingston down 17.9% continued the trend. This was part of a wider slump at John Lewis in the week to 15 November when sales across the country fell 14% on average. This is the worst weekly sales performance in at least a year and suggests that consumers are ignoring the lure of sales in the expectation that stores will be forced to slash prices again before Christmas. Barry Matheson, the retailer's head of selling development, said: "There can be no getting away from it that last week was a disappointment. "We are not immune from the reality of the economic crisis that grasps every headline. “Even John Lewis's internet arm is struggling, with sales down 8.8%.”
Well Barry Matheson, let me help you to understand why sales in Oxford Street and elsewhere are falling. Recently I went into the store to buy a pair of gray casual trousers. In the large Menswear department there was only one type for sale, A German “No Name” Brand I had never heard of but actually manufactured in Bulgaria and a rather frumpy looking wool / polyester mix amazingly priced at £80.00. I left and down the road at M & S they had over 20 different types in stock and I bought a smart looking wool / cashmere mix for £35.00. Similarly I went into Peter Jones in Sloane Square to look for a casual jacket. The cheapest available was a £220 “designer” jacket that looked, well, like nothing. Strangely under their “Never knowingly undersold” policy a stereo would be more expensive in John Lewis’s Milton Keynes store than in Peter Jones, Sloane Square. For the price comparison policy applies to retailers within 3 miles so there are lots of electrical discounters for audio equipment in Chelsea but not in Buckinghamshire! Look for an Irish “Claddagh Ring” or Indian style jewellery in John Lewis you will be disappointed for its buyers’ are firmly stuck in a twin set and pearls Home Counties mindset. And it is owned by its staff which frequently translates into overstaffed shops where customers are ignored whilst staff cluster with each other or, as in Milton Keynes, have to take a ticket and queue to speak to a staff member, a rather quaint approach to people who want to give you money. Or I could mention the ludicrous pricing and slapdash service in the “Place to Eat” which is always chaotic and is by any standards a premium priced self service. No doubt this is lost on Andy Street, the CEO, as he leaves the John Lewis Palace at 171, Victoria Street in his chauffeur driven Jaguar, how retro!
Happy Xmas, John Lewis?
Earlier this month, the Bank of England cut interest rates to 3% from 4.5% in the hope of putting more money in consumers' pockets and encouraging them to spend. However, some analysts say that any positive effect - if it comes at all - will be too late to boost sales in the run-up to Christmas as rising unemployment has also dented consumer confidence. So expect the “Dog eats Dog” atmosphere to continue on the UK High Street. And in this climate consumers will be unforgiving to retailers who underestimate their intelligence. Be they Comet with its rip off “bits and pieces” and bias towards overpriced warranties and John Lewis which consistently gets its price point wrong and is that bit “too popular with itself.”