Getting on with the job…
The credit crunch has brought cries of woe from the retail sector but, as the economy tightens, there are those that continue to see sales grow. John Ryan reports.
Cast your eyes over the columns of the business pages of almost any UK newspaper, broadsheet, tabloid, or anything in between, and a recurrent theme becomes apparent. We are all going to hell in a handcart, our political leaders are doing nothing about it and penury is just around the corner.
And in the thick of all of this is the retail sector, seen as a barometer of all our woes as company after company reports falling profits, cutbacks and, in a few cases, the arrival of the receivers. It would appear that things are not good. Yet while there certainly are instances of individual chains going to the wall, think Ethel Austin and Dolcis perhaps, there are also some that are flourishing in spite of everything.
It is tempting at this point to think that these must all be discounters, particularly food retailers. After all, the phenomenon of the formerly comfortable middle-class trading down to snap up the bargains in Aldi, Lidl and Netto is pretty well-established. There is certainly truth in this and 2008 has seen hard discounter's share of the UK market taking off in a way that it has never done since the first low-budget operators arrived here in the 1990s.
Yet there are retailers that seem able to thrive in face of adversity and they wouldn't necessarily be drawn entirely from the ranks of the value food chains. Take jewellers for instance. At the top end, the received wisdom is that shoppers have been unaffected by the credit crunch and that therefore spending on luxury items continues apace. This might lead to the thought that the likes of Tiffany's or Cartier, for instance, would be doing just fine, while others lower down the scale would be feeling the pinch.
Except that it is not the case. Take Leeds-based Azendi. This is a decidedly mid-market jeweller that has been opening stores and expanding rapidly this year. A couple of weeks ago, it welcomed shoppers to its latest branch, part of the collection of retailers that have taken the plunge and leased units in the upscale Highcross shopping centre in Leicester. Currently, Azendi has 10 outlets and aims to take this up to 22 doors by the end of 2009.
According to Ian Jones, managing director, the cost of fitting out each of these relatively modestly-sized stores is £0.5m and he aims to boost turnover from the current £4m to £12m during 2009. This is hardly the action of a company that is under the cosh and looked at in isolation might be indicative of boom times.
The same might be said of the very much larger HMV chain. At the beginning of this month, it provided a trading update for the first 18 weeks of its trading year. With total sales growth of 8.6 per cent for the retailer's UK and Ireland operation, 4.3 per cent like-for-like, this does not look like a beleaguered operation. For HMV, the springboard for increasing sales appears to have been the launch of its "next generation" store in Dudley at the end of last year.
Since then, it has been rolling the format out and at the beginning of this month it unveiled its largest store of the kind to date, in the new Liverpool One scheme. Interestingly, Waterstones, which forms the other pillar of the larger HMV Group, was down 1.7 per cent like-for-like, reflecting in part what the company claims is "a weaker book market."
How then to account for Azendi and HMV's success while Waterstone's founders? The answer that has been provided by many is that when times are tough, we stay in and treat ourselves. This means maintaining the outward trappings of success and prosperity, namely jewellery and accessories, while ensuring that home are stocked up with DVDs to ward off potential boredom during those long evenings at home.
The fact that books aren't selling probably has rather more to do with the lack of new Harry Potter this year to drag people into the bookshops. In its trading statement, HMV excludes "the impact" of Harry Potter when producing its numbers. But it must be difficult to assess how many extra volumes might have been shifted by those coming to buy the book about the boy wizard and then choosing to buy a couple of extra items while they're at it.
It is worth noting at this point that the effect of the credit crunch on retailing is very varied. If your business is selling food, even at the top end, in Waitrose, times are reasonably buoyant, principally owing to food price inflation - although margins will be under pressure. The other point about the supermarkets is the extreme polarisation that has taken place. At one end are the shoppers that have made the move to quality, insisting on organic products whose provenance is clear for all to see, while at the other are the value shoppers. The two are not mutually exclusive. Visit a branch of Lidl and increasingly, organic produce forms a part of its narrow range.
And even in fashion's mid-market, there are those that seem to be performing reasonably. Both River Island and Top Shop continue to attract shoppers, mainly owing to their position at the younger end of the market where pocket money and unencumbered disposable income are more available than in the more mature age cohorts. They also happen to be at the leading edge of high street design, both in terms of the collections they offer and the environment from which they sell the merchandise.
The sector that seems most affected is without doubt homewares, which as it does not fall into the treating yourself category, is subject to the spectre of consumers locking away their wallets...unless the word IKEA appears over the door, of course.
So what does all of this mean for UK retailing en masse? In good times there will always be a layer of fat represented by 'me too' store chains. These operators have no obvious point of difference and when the economy tightens even a little bit, they are those most likely to fall by the wayside.
There are still a good number of retailers that are bucking the trend, merely by being better at what they do than their competitors. What we are witnessing is the natural operation of market forces and when we emerge from the current turmoil, the chances are that the chains that remain will be stronger and better-looking than when they went into it.
