Author: Retail Realisation

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The virus that killed retail as we knew it?

THE VIRUS THAT KILLED RETAIL AS WE KNEW IT?

The pace with which events have unravelled over the past few weeks as been sonic. It wasn’t that long ago that we were talking about the supply chain effects of a virus far away in China, roll forward a few weeks and all physical stores selling non-essential items are closed and online retailing is gradually heading the same way.

What are the current side effects for retailers?

Stores have been mothballed, placed in hibernation and there are already estimates of large numbers of these stores never opening their doors again. The Centre of Retail Research has estimated that 20,000 will never reopen, that would be a 28% increase in closures compared to 2019. At the time of writing that sounds optimistic, if stores remain closed for longer than a few weeks, this number will only increase.

It is estimated that over 3 million people work in retail in the UK, 1 million of them might be furloughed (granted leave of absence), therefore saving the retail industry approximately £1.5 billion in employment costs over a 4 week period. A welcome intervention which will buy time and will be life saving for some. It also means that colleagues will stay on the payroll in order to be entitled to the 80% and therefore be available to work when the time comes.

Most retailers have withheld their rent payments and it has been reported that some are using this time to negotiate lower rents with landlords, often looking for turn over rents as future sales levels are so unclear. As several large landlords have announced that only 30% – 40% of rents were collected at the end of March they may well sit up and listen.

There are numerous reports of retailers not paying their creditors. With director’s duties relaxed somewhat (although there is not 100% clarity on wrongful trading) they are taking the role of preserving a future for the business further than the norm. However, this puts future supply chains and cash flows at risk as suppliers shut down or demand vastly improved payment terms for future orders.

In keeping with the above, many retailers are not placing orders for new stock. They have stock sitting in closed stores and no idea when it will be possible to open the doors to buying customers. Without revenue, cash flow will not permit purchases, which means that the stock will age, and in some cases become seasonally inappropriate and therefore be worth less.

What is the impact of the interventions available?

There is no doubt that the interventions are helpful in the short term. However much of the support is a deferral; HMRC payments, rents, loans and so liabilities will have simply been built up. To use a topical analogy, the help is not a vaccine that provides future immunity, it is akin to extra oxygen in a ventilator which stands a good chance of keeping those without underlying health conditions alive.

How long will it take to recover?

This is a difficult question to answer without knowing how long the social distancing measures will be enforced. Last weekend the government mentioned measures being in place for up to 6 months and that they will be gradually relaxed. The short sharp downward shock is therefore likely to be followed by a slow gradual return to “normality”. Most experts are predicting 18 months to 2 years recovery time.

For bricks and mortar stores, recovery will be determined by the pace at which footfall returns to the hight street. This is also difficult to predict, there is a school of thought that there will be pent up demand and customers will come out in their droves to buy everything that they have put on hold. Others suggest that habits will have changed for good, reluctant online shoppers will have tried it out and might have liked it more than they imagined, therefore the ongoing decline in footfall will undoubtedly speed up.

Making a full recovery will require change, store portfolios must be reviewed with urgency, online capability must be quickly enhanced, routine roles must be automated.

What will the death rate be and who will survive?

Strong brands will survive, some brands will have enhanced their reputations, especially where they have taken authentic action to protect employees or shown support for their communities. Timpson said it will keep its 5,500 employees on full pay while its shops remain closed. Tesco giving 12 weeks paid leave to staff over 70 and Pregnant employees. Boden is providing nightwear and clothing through the Helpforce charity to NHS staff who are unable to return home at the end of hospital shifts and to recovered patients, unable to get clothing from their families in hospital due to the risk of infection, and Boots helping to test the amazing NHS at drive through centres

There are also those who will have caused themselves damage, following the government shutdown, Sports Direct increased the prices of some products by as much as 50%. Those employers who immediately furloughed staff without paying any top up to the government allowance may suffer poor morale and loyalty once we get to the other side of this crisis.

It will amount to survival of the fittest, well led retailers with strong balance sheets and good brands will come back stronger, they will face less competition from retailers who have been limping along with underlying issues for some time.

According to GlobalData, the overall UK retail industry will see a hit of £12.6bn this year. Clothing and footwear brands are predicted to suffer the most, seeing a sales decline of £11.1bn. If a retailer has limited cash reserves and if Spring Summer stock is left sitting in shops until July and therefore has not been turned into much needed cash to buy for the coming season, that business has a real problem.

What will retail life be like after the virus?

Challenging though these times are, for the retailers able to weather the shock the future is bright. Relationships with landlords will have to change, there will be an even greater focus on cash, there will be a better understanding of critical expenditure, there will be better cross functional working, reaction / implementation times will have been reduced.

It is possible that attitudes will have changed, there could be a step change towards the high street of the future. After the crisis management subsides, leaders and their teams will have time to pause and reflect, the rhythm of the business week and month will have been interrupted. There is time to think, to really think about the stores of the future and how to get there, and most importantly of all, how retailers, landlords, councils and government work together to help deliver the reshaped High Street of the future. 

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Will your business survive the Amazon onslaught?

WILL YOUR BUSINESS SURVIVE THE AMAZON ONSLAUGHT?

125 retailers fell into administration last year and when deconstructing the reasons behind many of these casualties – Toy’s R Us, Maplin, HMV – the name Amazon looms large.

The online retailer is an unstoppable force in retail – net product sales surged 20% last year and 25% the year before – and is undoubtedly stealing many traditional retailers’ lunch.

Amazon is dominant in so many categories that it is most retailers’ biggest competition. 

But which type of business are most at risk? Here’s our top three:

DEPARTMENT STORES

The reason department stores exist is to offer a variety of goods across many categories – they are a one-stop shop for whatever the customer wants. 

However, Amazon stocks 120 million products, literally at your fingertips, many of which are available for delivery the next day at unbeatable prices. 

It’s the ultimate one-stop shop.

ELECTRICAL RETAILERS

The sector has already been obliterated with the demise of Maplin last year and Comet in 2012.

The internet, rather than physical stores, is where most research their electrical purchases and part of that research is finding the best price. 

Here, again, Amazon generally wins. Competing with the online giant on price would destroy margins for high street retailers – many of whom already have a higher relative cost base in the first place.

ENTERTAINMENT RETAILERS

Blockbuster, Borders, Zavvi, even online pureplay Play.com – the list of defunct entertainment retailers is long.

This sector was hit firstly by the migration of shoppers online, and then, the digitisation of entertainment with the rise of Spotify, Netflix, Steam and the like.  According to the Entertainment Retailers Association, ‘digital’ now accounts for 85% of entertainment revenues, with rental services and subscriptions a sizeable chunk of this – 62% of music sales, 63% of video and 58% of games.

As well as driving the shift online, Amazon is also a major player in the subscriptions market with Prime Video and Amazon Music.

SO WHAT CAN RETAILERS DO TO COMPETE?

1

EXCLUSIVE PRODUCT TO DIE FOR

Make product your differentiator. If you sell products that Amazon doesn’t then you don’t have to compete with it on price.

In some sectors this means investing in own brand, however, where branded goods are crucial – like all of the sectors listed above – this means working closely with the big manufacturers and securing exclusive product deals.

2

AMAZING STORES THAT CUSTOMERS LOVE TO VISIT

Retailers undoubtedly need to close unprofitable and marginal stores in order to survive but the shops they do have should be true inspirational flagships.

Amazon will win out when it comes to price, convenience and range, so make experience, service and discovery of new interesting products your focus.

There’s no one to talk to at Amazon – it lacks humanity. You don’t tend to shop on Amazon without a clear idea of what you’re looking for. Your USP in store is the ability to inspire and engage

3

SUPERBLY ACCURATE AVAILABILITY

If people are going to come to store, they want to walk away with the product they’re looking for. There is nothing more infuriating then being told to look online when you’ve schlepped to store. Retailers need to make sure store stock levels are displayed online – and they’re 100% accurate

4

THE BEST CUSTOMER SERVICE ON THE PLANET

Amazon is a machine but it’s not particularly known for its great service so there is an opportunity for retailers to win customer loyalty through fantastic service. You have to exceed expectations and be sure that your customer believes that you care about them. Amazon cannot provide personalised, one on one service from real people for real people.

Department store John Lewis and electricals etailer Ao.com – which both operate in areas where Amazon is a huge threat – have prioritised this. At Ao.com, call centre staff can spend whatever it takes to fix customer problems fast. If a shopper hasn’t received their order, they can send out a new product, same day delivery – and follow up with a bunch of flowers to say sorry. 

When you’re at the receiving end of such treatment, you’re likely to go back to the retailer.

5

TRUST LIKE NO OTHER

Tied into great service is trust. As much as price is important, when it comes to big ticket buys like electricals so is peace of mind. Shoppers want great independent advice – and don’t want to be unnecessarily upsold – and if anything goes wrong with such products, they want to be confident the retailer will rectify it. 

Having a reputation for solving problems is sure to create brand evangelists who recruit new customers without you needing to say a thing.

6

CHANGE YOUR MODEL

Amazon’s success lies in reading where customer behaviour is going and being first to react. Is there an opportunity for your business to do likewise?

Ao.com has launched a rental service with customers able to rent white goods for as little as £2 a week in response to the wider consumer trend to rent rather than own. It is likely to benefit as this trend grows.

7

DON'T USE AMAZON AS A MARKET PLACE

Perhaps the most controversial of points, but surely if you give your product away, you are allowing your rival access to your source of competitive advantage. There is a short-term gain but longer term pain from this decision.

Not all retailers will survive the unstoppable march of Amazon but by nailing areas where the online giant is weak, they will give themselves a fighting chance.

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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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