The retail note - 1 June 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- The usual disconnect between economic logic and actual consumer behaviour. The BRC reported that food prices rose at their fastest rate in May for more than three years, up to 1.4% from 0.9% in April. Interestingly, non-food remains deflationary (-1.5% for the year to May). Despite a growing gap between headline RPI and wage inflation, consumer confidence is improving (the GfK Consumer Confidence Index increased two points in May to -5) and quarterly retail footfall increased at the fastest rate in five years (+1.6% according to Springboard).
- A mixed week for Tesco. Nielsen’s latest data showed that Tesco’s sales again grew at the fastest rate of the ‘Big Four’ (+2.2% for the 12 weeks to 20 May). The business also struck a mutually-beneficial deal with Dixons Carphone to open Currys PC World concessions in two Tesco Extra stores (Milton Keynes and Weston Favell). But the proposed £3.7bn takeover of Booker was inevitably called in by the CMA in what will undoubtedly be a long, drawn-out and messy enquiry.
- Stellar figures from Mountain Warehouse. Sales surged 30.8% in the 12 months ended February 2017, while profits increased 22% to almost £20m. The outdoor specialist opened 41 new stores during the period taking the total network to 262 at year-end, including over 60 in six international markets. A further 40 stores are planned this year. The business is ultimately targeting a UK portfolio of at least 300 stores.
Stephen Springham, Head of Retail Research:
When is a department store not a department store? No punchline I’m afraid, just a debate we retail analysts (anoraks?) sometimes have and one that has resurfaced with the launch of the Days concept in Carmarthen last week. The concept is the brainchild of Phillip Day, the owner of the Edinburgh Woollen Mill Group, which has steadily bought up a portfolio of ‘failed’ retail brands and businesses (Peacocks, Austin Reed, Jane Norman, Country Casuals, Ponden Mill, Rosebys and, most recently, Jaeger). The Carmarthen store is a former BHS outlet and effectively unites all these brands under one roof. Further branches are expected to open soon in Newcastle and Bedford and the ambition is to ultimately operate at least 50 stores across the UK.
Days Department Store has a certain ring to it, but the smart anoraks would argue that it is actually a store with departments, rather than a department store in the strictest sense, in the same way that Arcadia’s Outfit stores are basically just an assembly of Philip Green’s brands. But beyond these semantics, the key question is whether the concept has legs.
My recent travels have yet to take me as far as Carmarthen for a site visit, but the obvious big question mark is the relative lack of synergy between the various brands. There is some commonality in target market between Austin Reed, CC and Jaeger, but Peacocks and Edinburgh Woollen Mill are much more downmarket, as is Ponden Home (the homewares amalgam of Ponden Mill and Rosebys). As a much younger brand, Jane Norman is a different proposition altogether. The brands would seem to sit uncomfortably side-by-side, unless their respective positionings are also modified so that there is greater convergence. But to do so may undermine any residual brand value that Jaeger, for example, still has.
But Philip Day’s track record does give some benefit of the doubt. He may have acquired the various businesses opportunistically, but he has an excellent reputation of proactively reinvigorating them and making them fit for purpose. Above all, his reputation is of being an excellent retailer who understands consumers, as opposed to a deal-maker in search of a fast buck. Perhaps the best manifestation of this is in EWM’s trading figures – for the last reported year, operating margins were a staggering 15.6%. Not bad for a hotch-potch of failed businesses. In other hands, the Days concept would seem far less viable.
Replacing my retail analyst anorak with my retail property hat, Days is almost definitely an MSU operator. And credible MSU operators are in perilous short supply these days. The property sector badly needs strong MSUs to absorb what is often problematic space and breathe new life into more secondary centres. Whether Days is a department store or not, landlords and high streets in general have a very vested interest in hoping that it works as a concept.