The retail note - 23 November 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- Kingfisher (owner of DIY specialists B&Q and Screwfix), has reported a 3% rise in total group sales to £3,043m in Q3 (to 31 October 2017). This reflected a 0.3% rise in constant currencies, but like-for-likes were down 0.5%, reflecting continued weak sales in France. In the UK and Ireland, sales were up 2.5% (+1.5% LFL) to £1,274m, largely fuelled by Screwfix, which saw total sales rise by 16.6%. Sales at B&Q fell 2.8%.
- Self-styled ‘working man’s John Lewis’, The Range continues to go from strength to strength. The value operator saw double-digit revenue growth of 12.9% to £761.3m for the 12 months to 29 January 2017. Pre-tax profits grew by 18% to £67.5m. Some 19 new stores opened last year, with a further 14 opening in the current year to date, including a number of former Bhs sites.
- Strong Q1 sales at upholstery retailer SCS. For the 16 weeks ended 18 November, like-for-like orders increased by 2.9%. Like-for-like orders were up by 3.6% in the company’s standalone stores, but down 6.4% in its 27 House of Fraser concessions. This mirrors a slowly improving trend in furniture generally – the ONS showed that furniture sales declined by 0.6% in the first 6 months of the year, but had rallied in the 2nd half to date (up 5.1% for July and October compared to 2016).
Stephen Springham, Head of Retail Research:
Black Friday. The horror… The horror…
Thankfully, most retailers are scaling back from the folly we have seen in previous years, although this may not be obvious from the amount of noise being made by their respective marketing departments. Many UK retailers have realised that the sales generated from such an artificial ‘event’ were in many respects fool’s gold and most no longer regard Black Friday as a potential sales bonanza, much more an exercise in damage-limitation.
Our expectations for 2017? Essentially, we expect a continuing evolution of the scaling back seen the last two years:
- Further elongation of the Black Friday period
- An online, rather than store-based event
- Increasingly an electricals-dominated event
- A growing disconnect between the levels of marketing noise and actual ‘discounted’ stock
- Increased indifference amongst consumers.
Black Friday means different things to different retailers. We would summarise five key segments of response:
1. ‘Full Embracers’
Retailers that still make a major strategic play for Black Friday. By and large, these are electricals retailers (e.g. DSG, Amazon, Argos), who still have a vested interested in the mechanics of Black Friday. But it is worth stressing that the majority of ‘promotions’ in electricals are actually anything but – they are not core merchandise offered at a discounted price, but special purchase goods manufactured and bought in specifically for the event. Electricals retailers can partake fully as it is not margin-eroding for them to do so.
2. ‘Desperados’
Retailers that haven’t learnt from the past and still offer a blanket (typically 20%) discount across the store. As few retailers are willing (or can afford) to take a direct 20% hit to their gross margin, these retailers will be few and far between.
3. ‘Caught in the Crossfire’
Retailers that partake in Black Friday, but more from a defensive than offensive standpoint. In other words, they only get involved because they feel they have to. In our view, John Lewis falls into this camp, principally because of its high exposure to the electricals markets and its ‘Never Knowingly Undersold’ price-match pledge. Whatever POS (point of sale) and management may say, the approach towards Black Friday is increasingly lacklustre.
4. ‘Paying Lip Service’
Retailers seemingly embracing Black Friday, but in reality doing next to nothing. These will be in the majority rather than the minority. Marketing and POS may appear heavily supportive of Black Friday, but these are unlikely to be matched by similar depth of stock on Black Friday offer. Any promotions that are offered would have been offered anyway and have just been brought under the catch-all banner of Black Friday. Less margin eroding but nevertheless disappointing that these retailers feel the need to ‘keep up with the Jones’s’
5. ‘Abstainers’
Retailers that make absolutely no play for Black Friday at all (e.g. Next, Marks & Spencer, Fat Face). They have either realised the folly of the whole event and are willing to forego some lost sales in favour of maintaining gross margin. And above all, have faith in their brand and don’t wish to undermine it through following the noisy herd.
Click here to access my full blog on Black Friday