There won’t be a double-dip recession, Retail Week Conference delegates heard, but this year will be bumpy.
It has been one of the toughest years those working in and around the retail industry have ever faced. But despite the recent news that the economy has grown more quickly than was originally thought, and with a massive budget deficit and an election ahead, the over-arching theme of the conference was that in the next few years retailers will have to make their own luck.
But what does this mean?
DSGi chief executive John Browett it means leveraging the strength of the big brands his company sells rather than trying to underplay them. And it means a relentless focus on service and ensuring that his staff take ownership of problems.
For Amazon UK managing director Brian McBride it meant scotching speculation that the etailer will try to take on the supermarkets in grocery home delivery any time soon because he can more profitably focus on other areas.
It also means that eBay will increasingly be seen as a direct competitor or alternative channel to market for new goods, as indicated by its UK managing director Mark Lewis.
For Dwell founder Aamir Ahmad, it means having to prove the retailer’s differentiated offer to his bank, just as much as to his customers.
Not one retailer forecast that economic growth would take off any time soon, so individual business success will depend on retailers’ abilities to watch and respond to the market, and outmanoeuvre their competition.
Rose believes Bolland is worth every penny if he develops M&S
In what may be the last time Sir Stuart Rose sits on the Retail Week Conference stage as executive chairman of Marks & Spencer, he had more to discuss than ever. The appointment of the next chief executive Marc Bolland was raised within minutes.
And Rose is in no doubt that Bolland is “absolutely the right man for the job”. He said: “We needed someone who can grow the business, and Marc has international experience, brand experience, and proven experience in running a business. He ticks most boxes and at the end of the day we chose the best possible candidate.”
Bolland’s worth might be tested sooner than expected too - Rose said he will leave M&S “probably a little earlier” that the latest possible date of July 2011.
Bolland’s oft-discussed £15m pay package was met with a predictably smooth response. Bolland’s basic of £975,000 is “the going rate” and as for the millions extra, “it was a bit like a transfer fee”, he said. “Marc said to us: ‘There’s a slight problem in that I have £3.5m in a box and if I move I lose it,’ and some of that he will reinvest back into the business in shares.”
The remaining millions are dependent on business growth. “If he gets that £15m then he will have doubled the market capitalisation of the business. I think that’s good value for money,” quipped Rose.
What will M&S look like under Bolland? Rose said the Dutchman’s experience would give the retailer a chance to become a “brand umbrella”, potentially selling new goods such as branded cosmetics or services such as telecoms.
With Rose’s tenure drawing to a close, he appeared happy with his legacy. In 2004 it was, he said, “a mess and on the brink of disappearing”. “The big test for the new CEO is to look at how to move it forward,” he said.
Online becoming ever more important, says JLP’s Mayfield
When even retailers who don’t have as many stores as they would like admit that the internet is crucially important, it is a sure sign that store chiefs are beginning to think much more strategically when it comes to multichannel services than they ever have before.
That was the case for John Lewis chairman Charlie Mayfield, who opened the conference with a speech that talked of his desire to continually invest in stores, but an acceptance that growth through high like-for-like sales is not realistic.
“We don’t have many shops - 29 - so one key issue is coverage, and we need to increase our coverage in the UK. If I can have lots more Cardiffs I would be delighted,” he explained, referring to the highly praised Welsh department store John Lewis opened last year.
However, he added that he expects an acceleration of the impact of online on his business, and that “technology-assisted sales” will become much more important if store sales growth is flat.
“As a result of the growth of the internet there will be even more of a requirement to think about multiple reasons to go to a location [and open a store],” he admitted.
And where the retailer does open new stores, the use of space will be determined by people’s desire to shop using more than one channel. For instance, Mayfield explained that 25% of furniture is sold online at John Lewis, but a lot of people will have come and looked at it in-store first, so the company must think about complementary use of space in stores for the online and multichannel offer.
Similarly, Sir Stuart Rose said he expects stores to continually evolve as a result of changes in the way people want to shop. “It may be you don’t have racks of blouses. You might have a post office, a cafe, a place for online deliveries to be made. You’ll still have an M&S store, but it won’t be a traditional M&S store,” he said.
Templeman: ‘growth will be anaemic’ as economy recovers
A strong theme from the conference was that retailers had few but themselves to blame if they did not see the downturn coming.
The view was expressed most eloquently by Debenhams chief executive Rob Templeman. “I believe that there were some clues, and we were slow at recognising them,” he said, admitting: “A lot of companies were not following the banking markets.”
Templeman added that with household debt peaking, the savings rate collapsing to almost zero, and house prices unsustainably high, it should not really have been a surprise when the bubble burst, because it was cheap credit driving consumer spending.
He warned that this recession has been unique in some ways, particularly as there has been relatively low inflation, so the quick bounce back seen in consumer spending in the past cannot be guaranteed. Retail growth after recessions has historically been greater than GDP growth because of inflation.
Like several others, he forecast it is almost inevitable taxes will rise, and public sector cuts will lead to more job losses, which would then have a knock-on effect on consumer spending. While he does not expect the country to fall back into recession, or interest rates to rise far, he forecast “growth will be anaemic”.
At Debenhams the response to the financial crisis has been to innovate to raise average selling prices, and to focus on brand strength in addition to value and quality.
Opportunity knocks when the economy is on its knees
Many in the room would not have come across larger-than-life Chris Dawson before. But having seen his speech, none are likely to forget him.
The friend of Sir Philip Green and owner of general merchandise retailer The Range put his recent retailing success 80% down to the way he runs his business, and 20% down to the economy - which has allowed him to pick up the stock of failed retailers at rock bottom prices.
Dawson claimed to have made “an awful lot of money” out of MFI stock he purchased, and said that because of the continuing poor state of the economy, he is challenging landlords to reduce rents on his stores.
Similarly, he said the recession has allowed him to attract talent to the business more cheaply. But ever aware of where the markets are moving, he admitted that he will ensure their remuneration rises before managers are poached once the economy begins to pick up.
“We have got division one managers because the economy allows us to do so. You can get division one managers for division three prices,” he said, adding: “I’ll give them a few more quid before they spot the opportunity to go elsewhere.”
Dawson was similarly forthright with his view that more retail businesses will go to the wall. He asked the audience: “Has anyone got a business that is entering collapse?” And he certainly wasn’t taking their silence as a no.
Value proposition never stands still, says Tesco’s Green
Observers might assume that Tesco, purveyor of the £4 school uniform and the £3 T-shirt, has mastered the concept of value down to a fine art. But, said the retailer’s chief operating officer of clothing Terry Green, the value proposition is one that never stands still.
To illustrate his point, Green couldn’t help but give a quick, lighthearted plug for the retail fashion giant’s ranges. Pointing to his £275 shirt “deliberately purchased from a very well-known retailer”, he said: “I know where they make this, it’s in the same factory as our shirts, and I’m going to find the same material and sell it in Florence + Fred Couture for £25. Coming to stores near you by Christmas.”
Constantly adapting to consumers’ idea of value has been crucial to the growth of Tesco’s Florence + Fred brand, said Green. Selling the right stock for the right price is “no longer good enough”.
He said retailers now need the right stock, the right provenance and to provide ever increasing value for money. It has to improve every season and it has to be dynamic.
“Increasingly, consumers’ purchasing decisions come with caveats. In other words: ‘Don’t make us feel guilty for buying value.’” Shoppers now want value for money, great quality and design, without exploiting people or the planet, explained Green.
Tesco provides true value to its customers by focusing on several factors, he said. These include delivering ever lower prices. “Luxury for less, that’s all I believe in.”
Retailers must also make their provenance transparent - he said Tesco is working with factories so that they can improve productivity and pay higher wages.
The grocer also strives to continually streamline its business. Green explained: “We are working with fewer and more dedicated suppliers to deliver more value.” When you produce and sell product for less you sell more, he said.