The OFT needs to be allowed to take a broader view when making decisions, says Ian Cheshire
The downturn may have started right back in 2008, but the reverberations are still being felt. Indeed, in retailing we seem to have entered a new phase of consolidation, the inevitable shake-out that follows any recession.
In recent weeks, we’ve seen a second wave of administrations, as Habitat, Homeform (the Moben and Dolphin business) and Jane Norman have all collapsed. Sadly, there will be more, as the combination of high rents, high inflation and weak demand take its toll.
In the short-term, the effect is a period of disruption for other competitors in the market as the administrators conduct a fire sale of stock to raise funds to pay creditors - or, at least, the administrators’ fees.
But in the longer term, the structure of the market changes as capacity is taken out. The more peripheral or marginal stores close and the rest get picked up by rivals, as happened with B&Q’s purchase of 31 of the former Focus DIY stores. We’ve seen this too with the likes of Habitat and Jane Norman.
This is where the regulatory authorities have a part to play. The Office of Fair Trading could be a force for economic recovery, saving jobs and protecting investment in local communities, but the current competition regime makes this difficult to achieve.
Kingfisher’s acquisition of 31 Focus stores, is a case in point. It is being looked at by the OFT, which is due to make its decision on how many of the 31 stores we will be cleared to trade as B&Qs at some point before August 5.
The problem here is that the administrators publicly stated some time ago that they would close the stores by mid-July and make the 700 staff redundant. The cost to the taxpayer of this would be about £4m in statutory redundancy costs and unemployment benefit. But, as its stands, these factors cannot form part of the decision-making process.
Led by the diligent Dr John Fingleton, the OFT has a tough job. Its hands are tied by the system and the narrow nature of its remit, which is solely to ensure that markets work well for consumers. But it is often these very consumers who are affected by the job losses that can arise from mergers.
Perhaps the Government can help here? In the review of the competition system that is currently going on, the Government could give the authorities a broader remit, so they can take other factors, such as jobs, into account, when making decisions.
As the downturn drags on there will be more examples like this. With economic recovery in the balance flexibility is crucial; from landlords, from local councils, from regulators and from the Government.
This will mean that we help our most successful retailers create the growth for the recovery. Retailers themselves also need to be more dynamic and flexible, focusing on costs and cash, but also on finding innovative ways to excite customers.
Downturns aren’t pleasant, but they do provide opportunities, and there will be better times ahead for those prepared to take them.
Ian Cheshire is chief executive of Kingfisher