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Retail Review - UK - March 2009

ISSUES IN THE MARKET
Key themes
Abbreviations
FUTURE OPPORTUNITIES
Trading Up, Trading Down, Trading Over
Retail Comes Alive
MARKET IN BRIEF
Retail in the front line of recession
Survivors to benefit
More failures likely in 2009
Consumers dumping debt and spending less on their homes in the recession
Younger people continuing to spend
Working families under pressure
Older affluent consumers well placed to ride out the recession
 RETAIL TRENDS IN 2009
It’s not all about discounting
It’s not all about market share
Diversify to generate new business
Better integration of online and store
Reduce, reconfigure, share; reappraisal of space use
Invest in service
Research more
Ideas and interest from abroad
MARKET IN CONTEXT
 HOUSEHOLD FINANCES SHOWING SIGNS OF PRESSURE
2008 figures yet to show impact of recession
Figure 1: Retail sales, annual change by value and volume, not seasonally adjusted, 2006-07 and 2007-08
Worst Christmas in living memory
Figure 2: December retail sales, annual change by value and volume, not seasonally adjusted, 2006-07 and 2007-08
VAT rate cut had minimal impact
Withdrawal of credit insurance sent several retailers into administration
 WORST IS YET TO COME
Rising unemployment to depress retail demand in 2009
Retail unemployment rising
Figure 3: Retail companies announcing redundancies, 2008/09
Business rate increases about to hit
Devaluation of Sterling to trigger upward price pressure
 OPPORTUNITIES IN THE DOWNTURN
Administrations create sales opportunities for survivors
Figure 4: Major companies entering administration, by annual sales, 2008-09
Abusing pre-pack administrations?
Retail companies announcing recruitment
Falling rents ease cost pressures
More landlords accepting monthly rent payments
 OSCARS OF 2007/08 POINT TO LIKELY WINNERS IN 2008/09
Fastest growing companies
Figure 5: Top ten retailers, by sales growth, 2006/07-2007/08
Lost sales in 2007/08
Figure 6: Bottom ten retailers, by sales decrease, 2006/07-2007/08
Biggest businesses gaining share
Figure 7: Top ten UK retail groups by sales, 2006/07-2007/08
Biggest growth in operating profits
Figure 8: Top ten retailers, by operating profits, 2006/07-2007/08
Highest net operating margin
Figure 9: Top ten retailers, by net margin, 2006/07-2007/08
Making acquisitions pay
Food outlet numbers driven by convenience
Figure 10: Most outlets opened, 2006/07-2007/08
FOOD AND DRINK RETAILING
 DELIVERING BETTER VALUE IN AN INCREASINGLY HOSTILE MARKET
Sector structure, trends and issues
Key indicators
High food inflation in 2008 masks slowing volume
Further consolidation as major companies tighten their grip
Competition Commission enquiry calls for action on competition and supplier relationships
Retailers squeezing suppliers ever harder
Discounters see the recession as an opportunity
Major grocers retailers fighting back on price and product
Greater emphasis on ideas will shift focus from purely price-led thinking
Asda, Morrisons and Ocado expect non-food to provide growth…
…but Tesco sees huge potential in financial services
Who’s innovating?
Speciality retailer looking to innovate
Waitrose getting closer to foodies
Give us our daily deal
Deals and developments
Another fascia to go
Oddbins back in British ownership
Holland & Barrett capitalises on Baugur’s problems
Greggs gives up on Bakers Oven
Private equity group rescues Whittard of Chelsea
Majestic Wine builds on fine wines
Emerging multiples and ‘ones to watch’
Spar multiple pushing on
Park & Shop extending its reach
Rhythm & Booze prospers in recession
Abel & Cole fighting on price
Wither organics specialists?
South East expansion for Bill’s Produce Store
Ethicalsuperstore.com focuses on values
M&S Simply Food and BP expansion continues
Headline sales growth strong
2007/08 out turn generally good but food inflation high
Relatively few negative trends
Figure 11: Food and drink retailers sales growth, top five gainers and trailing, 2006/07-2007/08
Good Christmas for food retailers
Figure 12: Food and drink retailers headline sales, at interim stage and Christmas trading, 2008/09
2008/09 profits weaker at Waitrose
Profits growth as margins maintained
Inflation helping to lift profits?
Recovery phase companies deliver strong profits growth
Figure 13: Food and drink retailers oprating profit growth, top five gainers and trailing, 2006/07-2007/08
Health food retailer has healthiest margins
Figure 14: Food an drink retailers net operating margin: top five gainers and trailing 2006/07-2007/08
Future opportunities
Recession a big test for organics, ethics and greener retailing
More in-store technology
Online sales growing
Retailers and investors have to get used to trading down
CLOTHING AND FOOTWEAR RETAILING
 RECESSION EXPOSING UNDER PERFORMING COMPANIES
Sector structure, trends and issues
Key indicators:
Redistribution of sales
Consumer attitudes
Supermarkets got grand designs on clothing sales
Trading up, trading down
Diversify to drive up sales densities
Maintaining relevance through segmentation
Driving additional sales through online
Catalogue retailers also converting more shoppers to online
Concessions versus stores
Footwear specialists flat-footed
Raising customer service standards to increase sales
Size segmentation versus inclusiveness
Rising costs a major issue
Production standards under scrutiny
Who’s innovating?
Dressing up discounting – it’s not all about price
Segmentation strategies maintain vitality
New concept – Best foot forward
Deals and developments
Numerous company failures as liquidity dries up
Figure 15: Clothing and footwear retailers entering administration, 2008/09
Mosaic Fashions emerges from administration as Aurora Fashions
Dune Footwear takes on The Shoe Studio
But no taker for Principles stores
Major companies looking to trim headcounts
And then there were two…
Freemans Grattan about to make major changes
Bhs to be subsumed into Arcadia Group
Key acquisitions:
Emerging multiples and ‘ones to watch’
Gearing up for further growth
Just in from abroad
Westfield London provides UK debut for international retailers
Looking to launch in 2009/10
ASOS leading online
Also taking off online
Private sales sites attracting attention…
…but one early exponent moving on
Ethical options
Sales trends
Volatility in trends
Online specialists and niche businesses shone
Major businesses expanding
Half of those losing sales did so by more than 5%
Figure 16: Clothing and footwear retailers sales growth, top five gainers and losers, 2006/07-2007/08
Primark continues to outperform the category
Young fashion companies yet to be hit by the downturn
Figure 17: Clothing and footwear retailers headline sales, at interim stage and Christmas trading, 2008/09
Profit and margin trends
Strong profits growth for over 30 companies
Strong sales growth not matched by profits growth as costs rise too fast
Nearly half of companies had lower profits in 2007/08
Figure 18: Clothing and footwear retailers operating profit growth, top five gainers and losers 2006/07-2007/08
Double-digit earners have room for manoeuvre
Low margin businesses a cause for concern
Figure 19: Clothing and footwear retailers, net operating margin, top five gainers and losers, 2006/07-2007/08
Insights and opportunities
Online integration
More use of in-store technology
DEPARTMENT STORES AND MIXED GOODS RETAILING
 UNDER PRESSURE FROM ALL SIDES
Sector structure, trends and issues
Key indicators
Volume up but value down
What was Woolworths good at?
Grocers increasing competitive pressure
Bargain stores driving through the recession
Not everyone wants to trade down
Shopping centre development pipeline drying up
TV shopping benefiting from digital expansion
Home shopping face PPI checks
Who’s innovating?
Argos wants feedback
Bargain shops see a future online as well as in-store
Investing to cut shrinkage
Deals and developments
Woolworths the biggest retail casualty of the recession
Figure 20: Department stores and mixed goods retailers entering administration, 2008/09
Woolworths’ demise not unexpected
Woolworths brand acquired by Shop Direct Group
Woolworths lives on in name and through small scale revivals
Collapse of Wrapit shows online not immune
Beales and Allders form strategic alliance
Tchibo gives up on concessions and may exit the UK completely
Job losses in response to slower sales
Job creation in response to new opportunities
Emerging multiples and ones to watch
Buy, sell and loan stores flourishing
TK Maxx launches HomeSense into UK
Casino to enter UK as pure-play online discounter
New ideas in online
Shops driving growth at Jo Jo Maman Bebe
National Geographic
Sales trends
Category under pressure but strong brands doing well
Marks & Spencer the significant company
Discounters showing well
Top five gainers and trailing
Figure 21: Mixed goods retailers sales growth, 2006-08
Interims show beginnings of the slowdown
Christmas trading very mixed
Figure 22: Department stores and mixed goods retailers headline sales at interim stage and Christmas trading, 2008/09
Debenhams damp 2008/09
2008/09 trading weak for John Lewis and Argos
Profit and margin trends
Wide variation in performance trends
Top five gainers and trailing
Figure 23: Mixed goods retailers operating profit growth, 2006-08
Department stores continue to make the highest margins
Figure 24: Mixed goods retailers net operating margin, 2006/07-2007/08
Heading for a fall?
Insights and opportunities
Sales and margin mix analysis critical to general merchandisers
Promoting quality, design and ideas
Investing in service to improve satisfaction
Integration of online to increase
DIY AND HARDWARE GOODS RETAILING
 LIVING WITH A STAGNANT HOUSING MARKET
Sector structure, trends and issues
Key indicators
Weak volume sales but prices holding up
Non movers not intending to improve
DIY to swing back into fashion
DIY not necessarily more attractive than DIFM (Do It For Me)
Who’s innovating?
B&Q goes premium
Leveraging brand trust into services
Budget brand does it for Focus
Deals and developments
B&Q abandons Trade Depot
Travis Perkins retail division expanding its tiling operation
Into and out of hot water
Strategic Retail Group places subsidiaries in administration
Job losses among retailers
Emerging multiples and ‘ones to watch’
Ohlson opens
Full Steam ahead
Sales trends
2007/08 topline growth generally good
Smaller companies gaining through expansion
Figure 25: DIY retailers sales growth, top five gainers and trailing, 2006/07-2007/08
Second half of 2008 a disaster for DIY
Wickes’ preliminary full year results equally bad
Kingfisher UK also down
Homebase sales very weak
Figure 26: DIY and hardware goods retailers, headline sales at interim stage and Christmas trading, 2008/09
Profit and margin trends
Profits growth rarely exceeded sales growth in 2007/08
Figure 27: DIY retailers operating profit growth, top five gainers and trailing, 2006/07-2007/08
Significant pressure on margins already evident in 2007/08 figures
Figure 28: DIY retailers net operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Major chains need to overcome their reticence about online trading
Taking online back from the know it alls
Re-igniting the DIY spark
FURNITURE AND FURNISHINGS RETAILING
 LIVING WITH WEAK DEMAND
Sector structure, trends and issues
Key indicators
Sales value down, volume sales even worse
Furniture felt the effects of the downturn first and hardest
Learning to live with lower sales
Slash adspend because it doesn’t work
Downsize and diversify to improve sales densities
Online gaining ground
Who’s innovating?
British manufacturers take lead on advertising product not price
Carpet colleagues follow
New ideas
Clearance websites
Clearance stores
Aggregator e-stores
Store-based retailers looking for a share of online sales
Deals and developments
Plenty of bad news
Figure 29: Table furniture and furnishings retailers entering administration, 2008/09
MFI’s failure provides branding lesson
Majority of MFI store leases surrendered to landlords
The Range snaps up MFI stock
Land of Leather also sags into administration
World of Sofas emerges from Land of Leather
Other companies taking remedial action to prop up bottom line
Smaller is beautiful for Sofa Workshop
Goodbye Rosebys hello Ponden Mill
Carpetright downsizing and diversifying to drive up sales densities in the downturn
Retiring early
Emerging multiples and ones to watch
Some smaller companies bucking the trend
JYSK looking to become market leader
Sales trends
IKEA dominant among the specialists
Strong brands and companies did well in 2007/08
Figure 30: Sales growth, top five gainers and trailing, 2006/07-2007/08
Sales fell sharply in second half of 2008
Figure 31: Furniture and furnishings retailers headline sales at interim stage and Christmas trading, 2008/09
Laura Ashley preliminary results sees profits dip
Dunelm like-for-like and operating profits slide
Profit and margin trends
Majority achieved good profits growth in 2007/08
Slower sales crippled operating profit performance
Figure 32: Operating profits growth, top five gainers and trailing, 2006/07-2007/08
High margin earners under pressure
Low margin earners under threat of failure
Figure 33: Net operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Making space work harder
Design to inspire
Making more use of technology
Investing in service to ensure satisfaction
TECHNOLOGY AND ELECTRICAL GOODS RETAILING
 THE FRONT LINE OF THE SHOPS VS ONLINE CONFLICT
Sector structure, trends and issues
Key indicators
Strong volume sales but prices tumbling
Demand for durables steady
Multichannel stores fighting back
De-space race
Adding value through service
Technological convergence making retailers look very similar
Who’s innovating?
Podcasting product information
Breaking rigid replacement cycles
Multi-brand approach to online by store-based electrical goods retailers
Deals and developments
Collapse of Empire Direct gives hope to store based technology retailers
Emerging multiples and ‘ones to watch’
Best Buy moving into the UK – but when?
So what’s different about Best Buy?
FNAC from France
Scope for a national lighting specialist?
Rent-to-buy specialist Brighthouse bucking the trend
Sales trends
Online leads the way
New stores driving growth through niche specialists
Signs of major problems at DSGi and Jessops
Two biggest general electrical goods retailers reported a moderately successful year
Figure 34: Technology retailers sales growth, top five gainers and trailing, 2006/07-2007/08
Mainstream electrical companies suffering in first half of 2008/09
Figure 35: Headline sales, at interim stage and Christmas trading, 2008/09
Jessops losses mount in 2008/09
Profit and margin trends
Online sellers profit performance stronger in 2007/08
Maplin’s expansion delivering strong profits growth
Smaller companies struggling to contain costs
Jessops’ losses widen
Figure 36: Operating profits growth, top five gainers and trailing 2006/07-2007/08
Online operators make only slender margins
Weaker margins among store-based companies
Figure 37: Net operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Competing against online
Digital help in the digital age
Range segmentation and diversification
HEALTH AND BEAUTY RETAILING
 DEVELOPING HEALTHCARE SERVICES AND NICHE FORMATS
Sector structure, trends and issues
Key indicators
Strong growth in value and volume
Spend on health is essential rather than discretionary
Pharmacy profits under scrutiny
Further development of pharmacy services
Consumers looking for better value on beauty products
Increased competition from supermarkets
Fragrance specialists competing with department stores
Who’s innovating?
Online opportunities in health…
…and in beauty
A rash of advice
Deals and developments
Biggest companies in the category cutting back
Passion for Perfume fails
Optical merger
Emerging multiples and ‘ones to watch’
Neal’s Yard Remedies
Rituals expanding
Amazon looking to health
Sales trends
Enlarged Co-op Pharmacy business now the third largest in the UK
New openings driving sales growth
Savers scaled down by AS Watson
Figure 38: Sales growth, top five gainers and trailing, 2006/07-2007/08
Modest growth at Christmas
Figure 39: Headline sales, at interim stage and Christmas trading, 2008/09
Profit and margin trends
Pharmacy chains all performed well in 2007/08
Specialist beauty and fragrance chains had mixed fortunes
Figure 40: Operating profit growth, top five gainers and trailing, 2006/07-2007/08
Category generally profitable
Co-op Pharmacy investing for operational benefits
Figure 41: Net operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Extension of pharmacy services
Pharmacies to do more to cater for aging population
Small is beautiful
BOOKS, STATIONERS AND GREETINGS CARDS RETAILING
 DISCOUNTING UNDERMINING SPECIALIST BOOKSELLERS
Sector structure, trends and issues
Key indicators
Volume down, value down
Store-based booksellers under threat
Failure of discount greetings cards formats
Stationers less exposed to competition from non-specialists
Who’s innovating?
Waterstone’s loyalty scheme expanding
Borders offers shares to motivate managers
Deals and developments
The Works bought out of administration but Celebration Group broken up
Figure 42: Booksellers, stationers and greetings cards retailers entering administration, 2008/09
WH Smith secures exclusive rights to airport stores
Emerging multiples and ‘ones to watch’
The Book Depository – fast growing online specialist
FNAC flying in from France
Sales trends
Stationers outperforming the rest
Figure 43: Top five gainers and trailing, 2006/07-2007/08
Little in the way of Christmas cheer
Figure 44: Headline sales at interim stage and Christmas trading, 2008/09
2008/09 year end results
Profit and margin trends
Strong gains in 2007/08
Figure 45: Operating profit growth, top five gainers and trailing, 2006/07-2007/08
Margin gains hard to come by
Figure 46: Net operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Online a long term threat, but people like visiting bookshops
New book technology offers new selling opportunities
Ecards: A last minute solution
OTHER NON-FOOD SPECIALIST CATEGORIES
 MOST LEADING SPECIALISTS PERFORMING WELL
Sector structure, trends and issues
Key indicators
Strong value and volume growth in 2008
Jewellery purchases under pressure
Garden centres need innovation
Music and entertainment: digital delivery cuts out retailers
Sports and outdoor leisure benefiting from more active lifestyles
Toys and games gone electronic
Other specialists
Who’s innovating?
Halfords riding out the recession on its bike
Turning a profit on recycling
Going green
Deals and developments
Zavvi dragged under by failure of EUK, part of Woolworths
New opportunities in online
HMV capitalises on zavvi break up and acquires Gamerbase
JJB struggling for survival
Rivals bailing out JJB through share purchase
Tesco’s acquisition of Dobbies complete
Job losses as companies look to cut costs
Diamonds and Pearls goes under
Services business fails
Emerging multiples and ‘ones to watch’
The Entertainer gearing up for multi-channel expansion
Games Workshop consolidating its UK store network
Hamleys of London
Smyths Toys continuing to expand
Hawkins Bazaar doubles in size
Belgian toy brand expanding into the UK
Build-A-Bear sees further growth potential
Play.com expanding into clothing
MandM Direct stretching out in the recession
JD Sports Fashion aims to gain from online discounting
Bite heading south
Sweaty Betty flexing its muscles
Go Outdoors getting going
Nevisport to climb back
Golf Town to hit UK fairways in 2009
Jack Wolfskin to develop standalone chain
Just for Pets leading the way
Jewellery Channel poised for profit
New to UK brand fronted by familiar face
Azendi expects to sparkle
Folli Follie set to grow
Italian jewellers arrive in London
Theo Fennell looking to grow
Sales trends
Strong year for growth in 2007/08
Games and entertainment leading the way
Evans Cycles developing its niche
Dobbies doing well before full impact of Tesco acquisition takes effect
Niche businesses doing well
Jewellers feeling the pinch
Sports Direct rues England’s football failure
Figure 47: Sales growth, top five gainers and trailing, 2006/07-2007/08
Sports goods retailers suffering most
Figure 48: Headline sales, at interim stage and Christmas trading, 2008/09
Profit and margin trends
Profit trends generally positive
Game’s profits surge on strong sales
Rising costs eat into profits
Figure 49: Operating profit growth, top five gainers and trailing, 2006/07-2007/08
Costs have to be cut
Jewellers doing well to maintain their bottom line
Figure 50: Operating margin, top five gainers and trailing, 2006/07-2007/08
Insights and opportunities
Jewellers under pressure
Exploiting gifting potential in music and entertainment retailing
Computer and video games retailing largely supply driven
Emphasis on active participation to help sports and leisure retailers
Toys retailing needs to be more fun
Think bike
Opportunities in niche categories
Garden centres contributing to greener lifestyles
CONSUMER OUTLOOK
Key points
 INCREASED IMPACT OF RECESSION
Figure 51: Change in people’s concerns, February 2008-January 2009
Young are most worried about job prospects
Affluent middle agers to kick start recovery
Older people less worried but likely to over react
 EXPENDITURE PRIORITIES FOR 2009
Fewer holidays as debt dumping takes precedence
Financial prudence to reduce spend available to retailers
Spend on major renovations, minor repairs and garden projects to decline in 2009
Demand for clothing, durables, furnishings and cars holding up well
Out of home spend holding up well
It’s all bad news so let’s celebrate
Figure 52: Expenditure priorities, 2007-09
Figure 53: The ten most important spending priorities for 2009, January 2009
Figure 54: The next 16 most important spending priorities for 2009, January 2009
Debt dumpers and new prudents directing spend away from retailers
Cars, clothes and going out – younger adults want to spend
Who can still afford to repair and spend on the garden?
Furniture and furnishings
Few families going out…
…or taking holidays
Special occasions not being stinted on
Charities and retailers to work together
APPENDIX – MARKET IN CONTEXT
Figure 55: Companies reporting operating losses, in both 2006/07 and 2007/08
APPENDIX – FOOD AND DRINK RETAILERS
Figure 56: Food and drink retailers sales growth, 2006/07-2007/08
Figure 57: Operating profits growth, 2006/07-2007/08
Figure 58: Operating margins, 2006/07-2007/08
APPENDIX – CLOTHING AND FOOTWEAR RETAILERS
Figure 59: Clothing and footwear retailers, sales growth, 2006/07-2007/08
Figure 60: Clothing and footwear retailers, operating profits growth, 2006/07-2007/08
Figure 61: Clothing and footwear retailers, operating margins, 2006/07-2007/08
APPENDIX – MIXED GOODS RETAILERS
Figure 62: Mixed goods retailers, sales growth, 2006/07-2007/08
Figure 63: Mixed good retailers, operating profits growth, 2006/07-2007/08
Figure 64: Mixed goods retailers, operating margins, 2006/07-2007/08
APPENDIX – DIY RETAILERS
Figure 65: DIY retailers sales growth, 2006/07-2007/08
Figure 66: DIY retailers, operating profits growth, 2006/07-2007/08
Figure 67: DIY retailers, operating margins, 2006/07-2007/08
APPENDIX – FURNITURE AND FURNISHINGS RETAILERS
Figure 68: Sales growth, 2006/07-2007/08
Figure 69: Operating profits growth, 2006/07-2007/08
Figure 70: Operating margins, 2006/07-2007/08
APPENDIX – TECHNOLOGY RETAILERS
Figure 71: Technology retailers, sales growth, 2006/07-2007/08
Figure 72: Technology retailers, operating profits growth, 2006/07-2007/08
Figure 73: Technology retailers, operating margins, 2006/07-2007/08
APPENDIX – HEALTH AND BEAUTY RETAILERS
Figure 74: Health and beauty retailers, sales growth, 2006/07-2007/08
Figure 75: Health and beauty retailers, operating profits growth, 2006/07-2007/08
Figure 76: Health and beauty retailers, operating margins, 2006/07-2007/08
APPENDIX – BOOKSELLERS AND STATIONERS
Figure 77: Booksellers and stationers, sales growth, 2006/07-2007/08
Figure 78: Booksellers and stationers, operating profits growth, 2006/07-2007/08
Figure 79: Booksellers and stationers, operating margins, 2006/07-2007/08
APPENDIX – NON-FOOD RETAILERS
Figure 80: Non-food specialists, sales growth, 2006/07-2007/08
Figure 81: Non-food specialists, operating profits growth, 2006/07-2007/08
Figure 82: Non-food specialists, operating margins, 2006/07-2007/08
APPENDIX – CONSUMER OUTLOOK
Further demographic breakdowns are available from Mintel upon request
Figure 83: How concerns of the British population have shifted, over the past year 12 months, Feb 2008-Feb 2009
Figure 84: Personal concerns, January 2009
Figure 85: Personal concerns, January 2009
Figure 86: Spending priorities, by gender, age, socio-economic group, lifestage, special groups, region, ACORN group, technology users, daily newspaper, commercial TV viewing and supermarket used, January 2009
Figure 87: Spending priorities, by gender, age, socio-economic group, lifestage, special groups, region, ACORN group, technology users, daily newspaper, commercial TV viewing and supermarket used, January 2009
Figure 88: Spending priorities, by gender, age, socio-economic group, lifestage, special groups, region, ACORN group, technology users, daily newspaper, commercial TV viewing and supermarket used, January 2009

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