The retail note - 11 August 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- UK consumers are continuing to spend. Figures from the British Retail Consortium (BRC) showed that total retail sales in July were up 1.4% overall and by 0.9% on a like-for-like basis. On the positive side, this was against a strong year-on-year comparative. On the less positive side, this growth was driven purely by food, with non-food sales static at best.
- Tightening of big-ticket demand was reflected in both DFS’ and ScS’ latest trading figures. DFS revenues were down 4% for the second half of the year, countering an increase of 7% in the first half, leading to overall growth of 1% for the year as a whole. EBITDA is reported to be at the low end of the £82-£87 million range. Order intake at SCS fell by 0.7% on a like-for-like basis, and order numbers declined by 5% in the second half of the year. However, on a two year like-for-like basis, order intake has grown 14.3%.
- Disappointing figures from New Look. The business reported a 4.4% dip in sales to £338.7m in Q1, with like-for-like sales down 7.5%. Online sales were 0.6% lower during the period, despite sales on third-party sites such as Asos and Amazon rising by 15.7%. Losses after tax grew to £15.2m compared to a £5.8m profit last year. Product shortcomings were blamed as the main drag on performance.
Stephen Springham, Head of Retail Research:
Some excellent research this week from British Land on quantifying the relationship between physical stores and e-commerce. As I articulate ad nauseam, online is an ally rather than adversary to the high street and physical stores work in tandem with e-commerce, rather than opposition. Figures for online’s share of retail spending and online sales growth are increasingly meaningless as the dividing line between channels blurs. But what is most definitely a truth (albeit one that is still not universally accepted) has hitherto been almost impossible to quantify.
British Land’s research (conducted in conjunction with Connexity Hitwise) has gone some way to quantifying the unquantifiable. Based on a sample of 29 retailers, the analysis shows that when a new store opens, traffic to that retailer’s website within the surrounding postal area increases by 52% within six weeks of opening. Moreover, this rate of digital traffic increase is then maintained over a much longer trading period. For retailers with a smaller store portfolio (<30 outlets), the increase in digital traffic is even more pronounced at +84%.
The message from this is blindingly obvious. A retailer’s physical stores and its website are inextricably linked in consumers’ minds. Stores drive traffic to websites and fundamentally fuel online sales. Online may get credited with the sale, but that sale would not have existed without the contribution of the store. In the same way that a centre forward may get the glory of scoring the goal, that goal would not have happened without the assist from elsewhere in team.
The British Land research focusses on the online dynamics of new store openings, what of the reverse – store closures? It seems to be universally accepted that retailers have too many stores and they could generate exactly the same sales levels with a far tighter store network, with online simply picking up the slack. While I agree that the UK is over-shopped, I still question whether all trade from a closed store is recouped through another store in the network or finds its way online. Some will, but not all.
By way of anecdotal example, my local Next store in Wimbledon has recently closed. As an analyst, I greatly respect Next Directory and Next’s online operation generally. As a consumer, I never use it. I am also highly unlikely to venture to the alternative local stores suggested on the hoardings – New Malden or The Tantem (sic) Centre in Colliers Wood (God forbid). Any spend I previously made in Next’s Wimbledon store is now gone forever.
While my non-divesion of personal spend in a single store is unlikely to change the course of the UK retail market, I think it reflects a deeper dynamic. As British Land’s research shows, stores drive traffic to websites. No doubt the reverse is also true. Take the store away altogether (as per my anecdote) and online may not necessarily fill the void. Another unquantifiable that would be great to quantify.