Month: August 2019

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If 30% of retail sales are made online, do all retailers need to shut at least 30% of their stores?

IF 30% OF RETAIL SALES ARE MADE ONLINE, DO ALL RETAILERS NEED TO SHUT AT LEAST 30% OF THEIR STORES?

Boots, Marks & Spencer, Dixons Carphone, Debenhams – the list of retailers looking to close stores is growing longer by the day.

One simple reason behind this is the shift to online shopping meaning fewer sales are made in physical shops. 

The ease and convenience of being able to search an unlimited selection of products and have them delivered to your home – often in a matter of hours rather than days – has proven too enticing for many shoppers. 

According to the BRC-KPMG Retail Sales Monitor, e-commerce sales made up 30% of retail sales in May and analyst Retail Economics predicts 53% of sales will be online within 10 years.

As online penetration increases, should the number of physical stores reduce at the same rate?

Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, believes that retailers have around 20% to 30% too much space (the same amount that has gravitated online – coincidence?).

There are some compelling reasons to close at least 30% of stores:

  • The economics no longer stack up, footfall and therefore sales have been declining yet costs have only increased
  • Stores with marginal contribution levels have received zero investment so they become shabby, out of date and brand damaging
  • You no longer need a large number of stores to achieve maximum market share, a slick website will achieve the same goal
  • Many high streets have already become unattractive places to shop with too little choice
  • The generation who have grown up with mobile phones and online shopping will not visit a legacy store that exists only to get historic market coverage
  • A physical store can never compete with the availability levels of online. They just can’t hold the stock and cannot open 24/7.
The arguments for keeping stores open tend to revolve around brand immersion and omnichannel shopping behaviours such as click and collect, show rooming or providing a convenient place to take returns. However, none of these warrant large chains. 

In terms of true brand-enhancing flagships, these need major investment. Even retailers with t deepest of pockets could not afford to roll out hundreds of these stores.

When it comes to omnichannel behaviour, stores are a valuable touchpoint for customers.

At Next, more than half of online orders are collected in store and a whopping 80% of online returns are taken back to store. This level of convenience may well convince some shoppers to click the buy button, in fact Next boss Lord Wolfson has said he would be prepared to keep 120 loss-making shops open in the next 15 years to serve e-commerce orders. However, I doubt that many retailers could go to such expense.

The core reason retailers operate stores is to drive sales and profits – not to act as expensive distribution hubs.

The fact is most retailers have too many stores for the digital age and the omnichannel retail revolution is just getting started

Back in the 1980s, 200-300 stores would have given non-food retailers national coverage. By 2010, that had dramatically reduced to around 100 stores. Nowadays, most retailers need no more than 70 stores.

Unfortunately, some retailers are still living in the 1980s.  Large store portfolios are no longer needed.

There should be a simple acid test; the economics of a physical store location have to afford investment in the environment, visual merchandising, availability and customer service. 

Put another way, every store needs to be the ultimate manifestation of the brand. This will mean fewer, better, strategically located stores that really inspire and engage with the customer, making the visit a worthwhile experience.

The fact is most retailers have too many stores for the digital age and the omnichannel retail revolution is just getting started.

It’s time that retailers stepped into the modern day and adjusted their store estate accordingly, with a sense of urgency, as time has already overtaken many of them.

Maybe 30% isn’t enough…?

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Retail Realisation supports in the sale of Pretty Green to JD Sports ​

Retail Realisation supports in the sale of Pretty Green to JD Sports

“We engaged Retail Realisation to assist us with our contingency planning for Liam Gallagher’s fashion brand, Pretty Green. The Retail Realisation team undertook a comprehensive review of the business and provided us with a number of detailed and well considered exit strategies, in the event a sale of the business not be achieved.

The expectation was that there would be a pre-packaged sale of the business, however there was a change of strategy required at the eleventh hour whereby Administrators were appointed without an agreed sale in place. All 12 stores, which were spread across the UK, had to be kept open and traded whilst a sale was negotiated.

In response to the change in strategy, Retail Realisation were incredibly flexible, fast acting and able to have their team in all stores for store opening on the day of Administration.

While we continued to trade the stores the Retail Realisation team assisted greatly with their ability to control the situations that they were faced, particularly during the early stages when there remained uncertainty if employees would be paid and or keep their jobs.

The retail experience of the Retail Realisation team proved invaluable as it allowed the Administrators team to spend more time dealing with other aspects of the Administration and sale of the business knowing that the trading of the stores was in capable hands.

Retail Realisation provided timely, clear and effective communications to the Administrators regarding key issues which were likely to adversely affect or undermine the sale process and ultimately the Administrators were able to achieve a sale of the business, saving more than 70 jobs, and maximise the outcome for creditors.

Retail Realisation led a store closure process for those stores not included in the sale, which included transferring stock to the warehouse in a matter of days at the purchaser’s request. Stores were left clean and tidy and a comprehensive pack was delivered to the Administrators evidencing store closures. Retail Realisation then remained on hand to assist with any queries we had at the end of the process.

Retail Realisation’s expertise, communication and hard work were invaluable throughout the administration of Pretty Green and we will definitely use them for any future work.“

Tom Straw, Partner, Moorfields – Administrators of Pretty Green Limited

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What to do when the worst happens: 5 ways to make retail administrations as painless as possible

WHAT TO DO WHEN THE WORST HAPPENS: 5 WAYS TO MAKE RETAIL ADMINISTRATIONS AS PAINLESS AS POSSIBLE

For most retailers it doesn’t bear thinking about, but when the worst happens and a company falls into administration someone has to pick up the pieces and work out what has to be done next.

That’s where Retail Realisation comes in. We work with administrators to run insolvent businesses during that difficult period and help find the best – and speediest – solution for creditors and would-be buyers.

Take Pretty Green, the fashion brand backed by Liam Gallagher. The brand was one of many hit by the collapse of House of Fraser last summer. The £500k it was owed by the department store had a dramatic impact on what was still a relatively small brand, and earlier this year it plunged into administration.

When Moorfields was appointed as administrator, it brought in Retail Realisation to help.

Here’s five steps we took to make the process as smooth as possible:

STEP 1: CONTINGENCY PLANNING

Of course, administration doesn’t have to mean the death of a business, there are many possible outcomes. For a retailer, this could be a full sale, a sale of assets such as some or all stores, stock or intellectual property.

One of the reasons we were hired is to contingency plan. What would be the best option for creditors? How should the business be run in each possible exit scenario? How can you make sure the business and its assets are as saleable as possible and a transaction can be carried out quickly and efficiently?

Speed is of the essence. All of these questions have to be answered – and actioned – often within hours. That means comprehensively reviewing the business and understanding what the potential scenarios are and what each of them is worth.

But we don’t just come up with Plan A or Plan B, we must plan for scenarios C, D, E and F as well– and be willing to change tack based on the administrators progress with possible buyers.

Pretty Green was a case in point. A pre-pack administration was expected to take place, however, at the last minute the situation changed, and we needed to trade Pretty Green’s 12 stores. 

STEP 2: EXCELLENT EXECUTION OF YOUR PLAN

And that’s where the next great skill came to the fore – excellent execution. Keeping trading strong during this administration period is crucial. It makes the business more attractive to buyers and maximises the sale price.

We had to make sure all stores were open after the administration was announced – even if staff worried about their livelihood didn’t turn up.

Our experts with years of retail experience were there to make sure as far as customers were concerned it was business as usual.

STEP 3: MOTIVATING ANXIOUS WORKERS

Motivating staff that are staring into an uncertain future is no mean feat. Can you imagine what it feels like to come into work each morning not knowing if and when your contract will be terminated, and whether you’ll be paid?

That’s where our management expertise shines through. We’re retailers at heart with decades of experience in managing and motivating teams, even during the toughest of circumstances.

We reassure people and make them understand that, with their help, we can secure the best future for their business.

STEP 4: CLEAR COMMUNICATION

Being open, honest and clear to all stakeholders – be it administrators, staff or buyers of assets – is critical in fast-moving insolvency processes.

Issues we encounter might impact the sale process or stop the administrator delivering what potential buyers of a business want.

Staff might have quit, trading might be sluggish, or third parties might cut off supply or be unable to move stock quickly. It’s important to flag issues as soon as possible, as we were with Pretty Green’s administrator.

Moorfields partner Tom Straw says: “Retail Realisation provided timely, clear and effective communications to the administrators regarding key issues which were likely to adversely affect or undermine the sale process and ultimately the administrators were able to achieve a sale of the business, saving more than 70 jobs, and maximise the outcome for creditors.”

STEP 5: ACT WITH PACE AND ACCURACY

It’s also important to make any transaction following an administration as seamless as possible. This means transferring assets, such as stock and stores, as efficiently as possible to the buyer. In Pretty Green’s case, the buyer was JD Sports.

JD wanted Pretty Green’s brand and stock but opted to only keep Pretty Green’s Manchester flagship store open. That meant closing its 11 other stores and 33 House of Fraser concessions.

Once the deal was in place, we had to act as quickly as possible to deliver what the buyer wanted. For every day these shops remained open, JD would incur additional costs in rent and rates.

We managed to close all stores and concessions within three days, liaising with landlords, staff and the logistics company to make sure everything was done in a proper manner.

This means the property was clean and tidy, assets were transferred to the central warehouse, and all paperwork was in order.

Every ‘t’ was crossed and every ‘i’ was dotted to make sure no problems arose, or costs mounted, further down the line for either buyer or administrator.

Administration is a high-pressured, fast changing process and those managing it need to act with pace and accuracy. Running a steady ship during this process can ease the pain for all and help find the best solution for the business and its advisors. 

For Pretty Green, it was a pretty great result. 

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