Retail Week on the Road: Scotland

Scottish retail has consistently performed below the UK average over the past 15 months. This year, while the recession has double dipped and unseasonal weather blighted both winter and summer months, Scottish retailers proved to be a hardy bunch and are determined to fight back.

One such is Scotmid, the Scottish Co-operative Group. It is 150 years old and at present operates 190 food convenience stores across Scotland, as well as 140 health and beauty stores under the Semichem fascia in Scotland, Northern Ireland and the north of England. Additionally there are seven Fragrance House stores and a funeral service.

It has certainly been bashed by the recession. The group, which predominantly comprises retail, posted a 27% fall in operating profit for the year to January 28 to £6.5m, although turnover increased 13% to £427m.

“We are in a new era and what came before in retail is not representative of this time,” Scotmid chief executive John Brodie explains. “Never in our working lives have we come across situations like this. From our outlook it does not appear the economic environment will change in the next few years.”

Scotmid’s outlook epitomises what many retailers across the UK forecast, but Scotland is especially hard-pressed.

The Scottish Retail Consortium KPMG Retail Sales Index revealed flat like-for-like sales in June against the UK’s 1.4% lift. And while the month’s total retail sales in Scotland increased 1.2% on a year ago, the UK was ahead 3.5%.

Amid such tough conditions, it does not come as a surprise that even national events such as the Jubilee did not lead to the same sales jump as the rest of the UK.

“The current market is challenging but equally it presents opportunities. We’re looking at opportunities that complement what we do and the skills we have,” says Brodie.

Indeed, Scotmid recently expanded its portfolio after acquiring 49 Botterills Convenience Stores in 2010, which strengthened sales during the second half of last year.

The retailer now has good coverage of the country. Brodie says there are no plans to extend across the Scottish border because there are still opportunities in Scotland. Scotmid continues to review its property estate, relocating where necessary to get the best location and rents possible.

New business developments have been key for retailers in Scotland as they combat harsh conditions.

Scotmid, for instance, developed Semichem’s website – the only transactional one in the business – to attract and generate sales from further afield such as the south of England and even Europe.

Dobbies

Garden specialist Dobbies has kept customers coming through the doors, despite the torrential rain disrupting summer shopping patterns.

Part of its success is down to Dobbies diversifying to become a destination retailer offering a wider range of products.

The retailer is headquartered next to its Edinburgh branch, which has been operating for the past 70 years. Founded by James Dobbie in 1865, Dobbies now runs 32 stores across the UK.

“Offering a wider selection of products has helped spread sales across the year,” says chief executive James Barnes. “It’s really a different psyche behind the visit and people will therefore dwell and look and browse, which might be different to looking around a supermarket. If we can then add other leisure activities to the mix, it’s a far softer experience.”

Dobbies does not just sell flowers and shrubs but has extended its reach to garden and conservatory furniture, pets, books and even outdoor clothing and children’s toys.

Barnes adds that a strong uplift at Dobbies’ restaurants has offset weaker sales across its outdoor offering, which were dampened by the rain. “This summer, if I can call it a summer, has certainly been one of the worst I’ve ever experienced in my time in this industry,” he adds.

Dobbies has improved its offer and focused on quality and range building and emphasising value. Barnes doesn’t believe Scottish shoppers are buying differently to other UK shoppers – all are erring on the side of caution when it comes to spending cash.

Barnes has been key to growing the business, leading a management buyout in 1994 and floating it on the stock exchange in 1997.

Dobbies had been doing so well that in 2007, prior to the recession, it caught the eye of grocery giant Tesco. In the subsequent deal the grocer initially acquired a 65.5% share in Dobbies, valued at £156m, as Scottish retail tycoon Sir Tom Hunter firmly kept hold of the remainder of the company through his Garden Centre Group Wyevale.

It was reported at the time that Hunter had suggested that the Dobbies’ board, led by Barnes, had failed to get the best price for the company. Hunter had paid up to £18.45 for his shares, while Tesco acquired shares for £15 each.

In 2008, Tesco took 100% control of Dobbies with the intention of building it further. At the time of the deal Dobbies operated 22 stores, generating £80m sales. Sales have now hit £136m, and 10 additional stores have been opened.

Despite Dobbies’ well-known parent its stores and website show no signs of the ownership.

The partnership works through Tesco selling Dobbies products in-store in its gardening sections, while Dobbies benefits from the increased buying power and expertise Tesco can bring to the table.

“Through Tesco there is a tremendous skills base we can leverage in terms of how to manage the business, as well as the central distribution – one of the best in the world,” adds Barnes.

Since the takeover, Dobbies has introduced its own food range, styled on farmhouse food stores offering high-quality local goods, but Barnes says there are no plans for Tesco produce to be sold in his stores.

It could become more collaborative, as Dobbies and Tesco have plans to work together in the future at two locations where the retailers will share a site.

At another store, which is yet to receive planning permission, the pair could share the same entrance.

Barnes emphasises that these initiatives are trials. “It’s more about exploiting the Dobbies brand,” he says. “We have some quite bold ambitions. We want Dobbies to be the leading garden retailer in the UK.”

Dobbies aims to become a £1bn retailer, operating from 100 stores within the next 10 years, as it increasingly focuses growth in the south of England.

Although classed as out of town, Dobbies is just a 20-minute ride away from Edinburgh’s historic and tourist-heavy centre, which attracts millions of people each year.

Edinburgh

However, Edinburgh city centre’s once-booming retail landscape has taken a knock. That is due in part to the global economic difficulties but also in particular to the delayed – and over-budget – tram development linking east to west, which has damaged trade.

“We should be sitting here now in 2012 with trams of people coming into the city centre from the airport and going down to Leith,” says Edinburgh Chamber of Commerce managing director Graham Birse.

The reality is a network of ugly trenches and difficult-to-navigate streets. The tram project should have been completed this year but has been pushed back to 2014. Contractual disputes over the budget, as well as other construction quarrels, have blighted the initiative, which has been under construction since 2008. Construction is still in full flow and road works and road closures have caused havoc around the area.

The main shopping road, Princes Street, reopened at the beginning of the month to allow buses through but there is still a way to go before it returns to normal. Boutique and independent retailers on the west side of the retail district have been hit hard and some long-standing independents have had to close.

But Birse believes the pain will bring a lot of gain. He says: “The tram project is good news for the city centre. Evidence from other cities has shown that the commercial property and retail along tram routes increases by 20% to 30% in value and turnover.”

Nonetheless, more upmarket retailers have diverted away from Princes Street to George Street, distancing themselves from the havoc and creating a street of top-end retailers that include Jo Malone and The Kooples.

But others are now making plans in anticipation of the tram works completing. It is understood that Sainsbury’s has completed a deal to take on the old Habitat store, which will have a tram stop outside.

“The Apple Store is coming to town, while Henderson Global – a major investor – is discussing plans for a large retail development in and around King James,” Birse adds.

“Edinburgh is a fantastic city and a popular tourism destination all year round. As tourism numbers have climbed, investment has grown and the city has continued to prosper, but its city centre has slipped down the retail rankings. It really ought not to be the case.”

But Birse stresses that Edinburgh’s retail ranking was slipping even before tram works started because of the unusual one-sided main shopping strip along Princes Street and the old buildings retailers must adapt to.

A big pull for Edinburgh is the Harvey Nichols store located just off Princes Street on Andrew Square. Another destination retailer, the famous department store chain is a must-visit for shoppers.

Celebrating its 10th anniversary this year, the store is the pinnacle of Edinburgh’s high fashion offer, believes Gordon Drummond, director of Harvey Nichols regional stores.

“We are fortunate that we have less competition in Edinburgh than in many of the cities we operate in and we tend to the be first stop for designers. We have 87 exclusive brands here, which is fantastic for shoppers,” he says.

Drummond believes shoppers in Edinburgh view the store’s offer as aspirational, and since its launch it has helped draw more high fashion retailers to the district.

But for Harvey Nichols, the cavernous holes in the pavement directly in front of the store have proved to be very frustrating.

Glasgow

An hour’s drive down the M8, Scotland’s largest city, Glasgow, offers a shopping experience with a broader range of retailers than Edinburgh’s more quirky proposition.

As Edinburgh struggles under its infrastructure woes, Glasgow seems to be a buzz of activity, but Savills’  Allardice says the surface activity can be misleading.

The city’s retail mile, known as the Golden Z, comprises Sauchiehall Street, Buchanan Street and Argyle Street. “What has tended to happen to this pitch over the past three or four years, which was traditionally quite strong, is that it has been polarised by the two ends, almost going from a ‘Z’ to an ‘I’,” he explains. “This is due to Sauchiehall and Argyle suffering from a lot of vacancies because of administrations.”

But Allardice believes the new Atlas development at the top of the ‘Z’ will strengthen that area when it opens early next year – with retailers such as Forever 21, Fat Face and Paperchase – even though this may detract from Argyle Street.

Tourism in Glasgow has remained strong, adds Allardice. “Glasgow is recognised as being a better shopping area than Edinburgh. Glaswegian shoppers like to spend more money on clothes.”

While in Glasgow, Retail Week revisited family-owned menswear fashion store Slaters, which operates shops in both Glasgow and Edinburgh, to gauge the current retail climate in both cities. Chief executive Paul Slater says: “The Glasgow psyche is very much to spend. There are key differences between Glasgow and other parts of Scotland, where you may get more privately educated people and antiques, and outdoor pursuits are more of a priority than fashion.”

He says the Slaters stores in the two Scottish cities are not hugely different. But what he calls a “more classic” layout in the Edinburgh store illustrates the difference in clientele there, particularly because Edinburgh is a big financial centre.

Founded in 1973 by Ralph Slater, the retailer is approaching its 40th year. Paul Slater says there has been a boom in suits over the past few years as they have grown in popularity, particularly among the younger, prom-going generation. However, the casualwear market has been tough as families have been forced to tighten their belts.

As a born-and-bred retailer with such long experience, Slater laments the demise of independent retail. “When we opened [our first] shop there were 30 independent menswear retailers in the market and now there are none,” he says. “It’s sad and I can’t work out why it is. Maybe young people don’t see retail as an exciting business anymore. Or if they do want a retailing job they look to join businesses like Topshop rather than open their own stores.”

But as long-established retailers plough on, determined to deliver future growth, a new generation of passionate retailers will be key to keeping such businesses, steeped in Scottish history, alive.

• Next week Nicola Harrison heads to the Northwest of England. Click here to view previous reports.