A raft of retailers ranging from John Lewis to Argos and spanning food to homewares updated last week. Retail Week examines the picture they paint of retail conditions.
CONSUMER SENTIMENT AND THE ECONOMY
Next chief executive Lord Wolfson, whose comments on UK retail are frequently taken as gospel, turned weatherman as he issued Next’s interims.
The retailer said: “If the economy had a weather forecast the outlook would be overcast – patchy rain for the foreseeable future.”
Wolfson believes it will take consumers, businesses and the Government some time to work back to being able to afford the sort of lifestyle to which people became accustomed before the credit crunch hit.
John Lewis Partnership chairman Charlie Mayfield agrees consumer demand remains fragile, but believes conditions have stabilised and continues to see opportunities to grow.
Dunelm boss Nick Wharton also believes that the consumer environment remains tough.
He says: “2013 feels a bit like [it will be similar to] 2012. There doesn’t seem to be much on the horizon to change sentiment.” Although he is cautious about the outlook he, like Mayfield, remains “confident” in his company’s ability to grow.
Wolfson says: “The UK is working very hard to stay in the same place, with all the disruption and uncertainty that entails.” He believes the experience of Next is similar to the economy more widely and what appears to be modest growth masks “far larger forces at work”.
Despite a 10.2% jump in underlying profits, disappointing sales in August and early September reinforce “the wisdom of this conservative approach”, according to Wolfson.
Argos-owner Home Retail Group also continues to plan cautiously despite the multichannel retailer’s “solid first half”. Chief executive Terry Duddy says although he expects full-year profits to be in line with expectations, everything remains dependent on the crucial Christmas trading period. He points out that although there are few signs of conditions improving dramatically, neither are they getting worse.
WHAT SHOPPERS ARE SPENDING ON
A broad mix of products with little reliance on summer ranges was the key to driving sales, as demand for seasonal product was often undermined by appalling weather.
Sales of e-readers and tablets helped drive a 1.4% increase in second-quarter like-for-likes at Argos. There was a similar story at John Lewis, which delivered a 16% rise in electronics sales, showing consumers were willing to spend on indoor entertainment to make up for the wash-out summer and the popularity of new technology.
John Lewis department stores also benefited from exclusive tie-ups, such as the retailer’s Olympic sponsorship and partnership with British womenswear designer Alice Temperley. Somerset is Temperley’s first high street range and sales of the 60-piece collection have “far exceeded expectations”.
John Lewis chief executive Andy Street says: “The great thing about John Lewis is you can find products from the deeply traditional to the cutting edge. We’re increasingly becoming a place where brands choose to launch products, such as the Jamie Oliver cookware range, Barnes & Noble’s Nook ereader [which will also be sold in Argos and other selected retailers] and new Samsung TVs.”
The specialist breadth of product at Dunelm and its Simply Value For Money positioning have enabled it to withstand both the weather and weak consumer confidence. The retailer has been particularly pleased with the performance of its entry-level range, Spectrum, and intends to expand it in the coming months. Dunelm chief executive Nick Wharton says: “We’re looking to innovate at the bottom end. We’ve got a breadth of offer, which means we have got a large customer base.”
Next has benefited from the exclusivity of its own-brand offering, including add-ons such as Lipsy. Next has also increased its appeal by extending its offer in categories such as home.
How consumers are buying
Multichannel continues to be a key avenue of growth for retailers that have matched their offer to their customer.
Online played a big part in a 60% leap in profits at the John Lewis Partnership in the first half, and at sister grocer Waitrose sales online jumped by 50%. The retailer says its click-and-collect service is increasingly popular. Online sales at the department store business rose more than 40% and now account for 24% of the total.
Argos also cites multichannel as a key growth area. Sales via the online check-and-reserve service advanced 24% in the second quarter and now represent 30% of the total. Internet sales increased 16%, making up 42% of all Argos sales. Total multichannel sales represented 52% of Argos’s revenues, up from 47% a year earlier.
Independent analyst Nick Bubb says: “John Lewis is still seeing huge sales increases in this area, driving its overall growth in market share, helped by its powerful multichannel business model.
“And Argos has joined the party, reporting some modest like-for-like sales growth over the last quarter thanks to its exposure to this booming market.”
Dunelm also reported “strong growth” in multichannel, which accounted for 2.5% of revenue in its last financial year – a period in which the homewares and furniture retailer launched a reserve-and-collect service as well as a mobile site.
And Next Directory notched up a 22.1% increase in profit to £137.7m in the half year to July, and the performance of the home shopping business more than compensated for a like-for-like decline in stores.
SERVICE SELLS
Service is highlighted as more important than ever to win custom in harsh conditions.
Dunelm has reassigned staff in stores away from non-customer facing tasks to help provide shoppers with “knowledgeable, friendly service”. The homewares retailer says that is an important point of differentiation.
Dunelm has created departmental rotas to ensure that high-service areas of its stores, such as its made-to-measure curtain section, are always staffed during periods of high footfall.
Dunelm chief executive Nick Wharton says: “Product awareness and knowledge among our colleagues remains a priority and we continue to invest in training to this end.”
The retailer has also expanded its Dunelm At Home service, enabling customers to select bespoke curtains with a free home consultation, which it says is delivering high levels of customer satisfaction.
Dunelm is also investing to offer customers more choice, particularly through multichannel, including offering an improved delivery proposition “to provide speed and choice in line with market norms”.
John Lewis Partnership has consistently benefited from its high standards of service.
John Lewis Partnership chairman Charlie Mayfield says growth in electricals, home and technology is driven by consumer confidence in its Never Knowingly Undersold price promise and the product expertise of its staff.
Next is also improving service by enhancing delivery options through initiatives such as same-day, evening and Sunday delivery.
Competition in grocery remains stiff
Waitrose reported a surge in profits as a combination of continued strong organic growth and its Brand Price Match, which was introduced in May and matches the price of 1,000 branded products in Tesco, paid off.
Managing director Mark Price says: “The consumer is getting to a place where they realise that Waitrose is not 25% more expensive than Tesco, but that it is 0% more expensive. If a brand is not stocked at Tesco, we try to at least match Sainsbury’s.”
Price believes the initiative offers transparency and “removes the smoke and mirrors” behind price comparisons in grocery. Having demonstrated Waitrose’s price competitiveness, he believes that other factors such as in-store experience, accessibility of stores and quality of product will increasingly come into their own.
However, vouchers continue to dominate the wider grocery market, such as money-off coupons when shoppers spend a certain amount, coupons at the till and deals on petrol, including Morrisons’ Fuel Saver deal, which offers shoppers money off when they buy other retailers’ gift vouchers from Morrisons.
“What has been remarkable is that we’ve continued to achieve good sales without offering coupons to the extent our competitors have,” says Price. “They are very prevalent in the market at the moment.”
Price also believes the food-to-go sector offers significant opportunities as shoppers move towards smaller, more frequent shopping trips to convenience stores and get used to buying hot food in grocery shops.
“We are looking to expand our food-to-go offer in our Little Waitrose and high street stores,” he says. “We are looking at how to offer a breakfast, lunch and dinner offer and our coffee is so popular we are a strong competitor to Pret, Eat and the coffee shops.” Tesco has also recognised the market’s value and opened a food-to-go shop-in-shop in its Chester store in July.
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