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Retail 2010: The good, the bad and the grocery


It has been another tough year for the UK retail industry, but despite the cautious statements issued by CEOs and Finance Directors across the country on a weekly basis, 2010 has thrown up some very interesting stories.

Neil Saunders, Verdict Research’s Consulting Director, answered Retail Gazette’s year-end questionnaire, explaining who he thinks were the winners and losers from 2010 and what he expects to see from retail in the 12 months ahead.

Who were the retail winners of 2010 and why?

  • A stand-out performance was delivered by the John Lewis Partnership with both the department store division and Waitrose doing exceptionally well. The latter is now arguably one of our most innovative retailers with a whole host of initiatives - from the acquisition and re-launch of Duchy Originals to physical expansion and format diversification - helping to deliver market-beating numbers. That it has done all of these things while never losing sight of its core customer is a real underlying strength.

  • Swedish furniture giant Ikea also notched up a good set of numbers. While growth was far from heady, given that the home and furniture markets are still shrinking, Ikea has performed well and has grown its market share.

  • Amazon and are both clear online success stories, with convenient, compelling and well-established propositions that are delivering growth in sales and profits.

  • Superdry was a floatation success, with a strong brand, interesting product, compelling store environments and sensible pricing architecture all part of this winning formula. And standing behind it all is CEO Julian Dunkerton, whose customer centric ethos of making retail about pleasure and enjoyment is very much in tune with the way people shop.

Which retailers will not look back fondly on 2010 and why?

  • Argos, that staple of the high street, delivered a series of disappointing numbers. Given the retailer’s exposure to the difficult home retailed markets, this may not be surprising. However, more worrying is the growing influence of the supermarket multiples all of which are encroaching more and more on Argos’ traditional catalogue territory.

  • HMV is another retailer that will look back with some regret on 2010. Generally speaking, HMV is a good retailer: its stores are reasonably well merchandised, staff are knowledgeable and friendly, and it does have authority in the music and film space. However, the elephant in the room is that the traditional music specialist format is little more than a dead man walking. The convenience of the internet, the adoption of more on demand film and music services and the cost of running a physical store all mean the economies of the traditional music and video retailer are becoming increasingly unattractive and will eventually be unsustainable.

  • While most of the grocers did well in 2010, Asda was the laggard of the pack and overall performance was disappointing. While the company did well during the midst of the recession, benefitting from its money saving stance, it was simply unable to hold on to customer gains in the more benign environment of 2010. A repositioning exercise, which includes greater focus on quality, will probably pay dividends, but not until well into 2011

Which retailers are best placed to expand in the 12 months ahead?

  • Tesco will continue to grow physically and despite its size and maturity still has an impressive pipeline of space which it will roll out. Likewise, Sainsbury’s has seen good growth from new store openings in 2010 and will be keen to keep up the momentum into the new year.

  • John Lewis and Waitrose, of course, are both still physically immature businesses and the growth opportunities for both remain significant. The John Lewis at home format seems to have been performing well and more new openings can be expected throughout 2011. Waitrose will deliver new space for both full line stores and its new convenience store format.

  • Despite the pressures in the sector, the home arena will continue to be a place of expansion. Mid-size retailers like Dunelm will open future stores and non-home specialists such as Zara, Next and Marks & Spencer could all look to roll out further branches of their dedicated home formats.

What will be the main themes/trends of 2011 in retail?

Rising unemployment, higher household costs and weak wage settlements will all combine to create a much more muted demand environment. Against this weaker level of demand, retailers will face their own cost pressure, which will make it more difficult to discount in order to stimulate the consumer into buying.

As a result:

  • It is likely that price inflation will remain in the market; this won’t be anywhere near the heady levels of the 1970s or 1980s, but it will be higher and more persistent than at any time for the past 15 years.

  • Unemployment will rise and the consumer mindset will be cautious and frugal. However, 2011 will not necessarily be the year of trading down; it’s likely to be the era in which consumers seek value for money - perhaps trading up but buying less often in order to fund more expensive purchases.

  • In a market where volume growth is virtually non-existent, more retailers will assess their routes to market and optimise their store portfolios. This will be a key way of saving money and enhancing margins.

  • Despite the difficulties, retail will remain a lucrative market and foreign entrants will continue to land in the UK and expand; this will add to the competitive pressure facing incumbent players.

Compiled by Ben Sillitoe

Published on Thursday 30 December by Editorial Assistant

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