Tuesday, 18 March 2008

Time for Government and Landlords to think!

The Finance Secretary in the US Administration has warned of grim times ahead in the US economy; Tesco has ordered cost cutting measures; Pre-Easter sales are being unfavourably compared year on year - there do seem to be a number of reasons for all retailers to be intensely aware of their costs.

For smaller retailers the largest costs tend to be staff and property - staffing in SMEs is generally at a higher level (number of staff against pound for pound spent in store) than in larger organisations so this might seem to be an easy step to take in reducing costs - except that in smaller units, a single member of staff is a significant percentage of the whole and can make the difference between making sales, having security, or even just trading for a whole week with adequate cover. Legislation now dictates the maximum number of hours to be worked as well as the minimum pay for that work; this doubles the pressure upon SMEs to limit the number of jobs available for the very people that Government is trying to protect - and it is a case that either the SMEs do impose these limits or else there will be no jobs at all in that sector, something that will do the least well paid members of society absolutely no good at all.

The issues relating to occupancy costs are legend and need not be rehearsed here, but an interesting observation has been reported by Jennifer Creevy in 'Retail Week' and commented upon in an editorial; she reported comments made by William Landale the CEO of Lombok, a furnishing retailer. He is reputed to have said "I hate Landlords"; and can't we all sympathise with Mr Landale for that heart-felt utterance? Of course, Mr Landale was probably not actually sticking pins into a doll version of any particular individual landlord when he was being quoted. Mr Landale was actually commenting that landlords seem to be oblivious to the trading environment of their tenants, and there not being any established mechanism for rents reflecting the levels of trade actually being achieved.

Retail Speak believes that this is a situation that has to be resolved - as the trading conditions deteriorate in this cycle, it would be sensible for agreement to be reached where rental agreements are linked to trade levels - it could offer a fair return for landlords, a more realistic base for the retailers to build their businesses from and level the playing field for the game between the larger and smaller players in what is currently an uneven place indeed.

Monday, 17 March 2008

Tesco un-nerved?

Goldman Sachs have recommended that investors sell Tesco shares - a move which will probably cause ripples throughout the stock market, especially in the retail sector. Tesco's themselves are reported to be surprised at the note; but should they be?

Certainly there are signs that this, the largest of all UK retailers has been rattled, else why, for instance, would it wish to resort to law to protect its name both here and abroad. The reports from Thailand show how Tesco are sueing two individuals, one of them a former MP and secretary-general of the Thai Chamber of Commerce is being sued for £16 million; his offence it seems was to make speeches that Tesco disapproved of concerning the expansion plans that they have for Thailand and the effect that it would have on the small businesses in their local economy. It is true that both defendants have admitted that they mistakenly suggested that 37% of Tesco's revenues were derived from that country, but surely that cannot have been a good enough reason to issue a writ. Perhaps it was that the speech, Tesco's are reported to claim, insisted that profits of Tesco Lotus are not re-invested in Thailand?

It does seem like a sledgehammer to crack a nut - but then Tesco does seem to have had over six years of problems in Thailand, along with Carrefour, Boots and a number of others. Perhaps their nerve is a bit frayed or perhaps it is wrong in Tesco's eyes to have a different world-view and a different economic model than that favoured by Tesco. Thailand has been selected by Tesco to be their third largest national market - the Thai's are being most unco-operative and disobliging not to mention ungrateful to their would-be benefactors. Not that the Thai debacle is their only foray into legal territory - it seems that a company that the CEO of Tesco has described as being a charitable organisation is doing a strangely uncharitable act by proposing to undercut Tesco's prices to its customers and Tesco have threatened to report Ocado to the Advertising Standards Authority; heaven forfend! Tesco would surely never stoop to such measures as undercutting prices to develop a market? Ethicalcorp.com reported last July that Tesco Lotus had entered the school uniform market in Thailand with prices averaging some 20-30% less than the local market was displaying - I wonder if they could be sued for such practices?

Perhaps the charitable company, Ocado, will be forgiven for not understanding the rules of the game. In the Times (October 4 2006) Tesco claimed that . “We are confident Tesco has brought a lot of benefit to Thai consumers" and presumably they believe this because of the low prices that they attract consumers with; does the same principle not equally apply to consumers in the UK? Perhaps there is another underlying reason for all these jittery nerves?

Is there a nervous reaction to the poor performance of the new venture in the US? Is there a jitter or two because of the non-food performance in the UK? Perhaps the fact that the good burgesses of St Alban's are voting in their local press about whether the local town centre really needs another large Tesco store (the count is in on Tuesday and it's not looking good for Big T); I wonder how they feel about the couple in Solihull who have vowed never to shop at Tesco ever again because of a fiasco, where the couple ordered groceries and after non-delivery were promised a refund - and that was to take over a week to arrive! It could be none of these things, it could be that the leader of the Liberal Democrats, Nick Clegg, according to the Guardian (March 13 2008), is scandalised about the development of eleborate corporate structures for Tesco based in the Cayman Islands to save millions of pounds in stamp duty. It might even be that they are jittery because banking analysts are saying that with rising food prices the profits of food groups are going to be seriously squeezed - the chief economist at Lloyds TSB, Trevor Williams, is reported to have said that if inflation rises above 2.5% then Tesco will be in real trouble. It has to be recorded here that Tesco has an explanation for each of these little issues, whether their explanation is any more or less valid than the originator's claims is a matter for others to decide.

Tesco have a 30% share of the UK food market and above 30% in Thailand, I wonder why it is that they are quite so un-nerved by small retailer competition and the opinions of people who are trying to champion the cause of SME retailers? It makes interesting reading, but what does the future hold? It may be that the solidity of these mega-retailers that local authorities set so much store by are not quite as safe as was imagined. I speculate that with the worsening global credit situation, the rise in food and fuel prices accelerating the inflation rate in the UK and the predicted squeeze on profits that one probable outcome would be the closure of poorly performing stores in the UK. Which stores would be targetted - those which are in areas populated by the lowest income groups because they will not attract a high enough revenue or create a demand for a wide enough range of products. In short the stores that would be the first to go, would be those where the lcoal businesses have long since been forced out - the creation of new food deserts in our urban centres.

Tuesday, 11 March 2008

Downturn in retailing - an opportunity?

The worry on the street is that there is a two-pronged attack on the strength of retailing in the UK; the global credit crunch has yet to fully impact on these shores - but surely will, and the the latest KPMG/BRC figures indicate a slowing spend in February.

Ordinarily I share the concern of others when viewing these sorts of single month statistics, but they do seem to be indicative of worrying trends spread over a greater period, and especially for SMEs. Given the trends of the past few years with the growth of the big food groups, there are considerably fewer SME retailers in the food and drinks sector - and this appears to be the only sector in real growth currently. There were other statistics out last week that indicated a change in the spread of spend giving the discounters and value stores a larger market share which complements the signals in other sectors that without discounting many people simply are not spending, and certainly not in sectors such as clothing. This may mean that SMEs are more vulnerable, but it may also provide a series of opportunities for partnerships with centre owners and local authorities to secure 'nursery' areas in town and city centres with advantageous terms to help establish new businesses which will bring a real economic benefit for the local area.

Jennifer Creevy in 'Retail Week' is saying that there is a glut of new space coming onto the market in new retail schemes in centres. Sir Stuart Rose is saying that he expects the latest retail downturn to last until 2011. It is reasonable to expect then that many firms who might have been expected by landlords to take space in these new schemes will not be doing so. That poses a threat to the viability of the schemes and to the town or city centres in which they are placed. There are new entrepreneurs coming to the market all the time, who are not in a position to take space in these new centres - but what could be worse for a landlord - reduced rentals to support new retailers for a fixed period, or no tenant at all? What could be worse for the local authority - reduced business rates or the thought of no rates from active retail businesses at all?

Time to take stock and have contingency plans in place for town centres and shopping malls - create the nurseries to provide the much needed nuturing grounds for the next generation of entrepreneurs.

Monday, 3 March 2008

New Rules for Trading

I wonder if the Consumer Affairs Minister, Gareth Thomas, realises the ambiguity of the press release that has today been issued by the Department for Business, Enterprise and Regulatory Reform (BERR)? It is entitled "Unfair Selling Rules Laid in Parliament", which I have to admit made me question whether the intention was to describe 'rules about unfair selling' or 'unfair rules about selling'.

Doubtless, I would have been less suspicious of such a message had I been aware of the identity of the 'business' whom it claims was consulted during the process of drawing up the rules, or perhaps, the proposed rules had been published too. I realise that Parliament has a right to vet any new rules likely to be imposed on an unsuspecting public, but in this case the rules (Consumer Protection Regulations or CPRs) are due to come into effect on May 26 2008 and this is appears to be undue haste if they rules require changes in operational matters by retailers.

The press release suggests that such things as the bogus 'closing down sale' are targetted, which I am sure will be seen by many as a good thing - however, the fact that some retailers have been able to trade this apparently unscrupulous way was because of the ineffectiveness of the enforcement agencies to enforce existing legislation - why will new regulation help, unless it is entirely ambiguous and open to a very illiberal interpretation by enforcers? Surely it would be better to clarify the existing law in Part III of the Consumer Protection Act 1987 and derivative regulations such as Statutory Instrument 2005 No. 2705 (The Consumer Protection (Code of Practice for Traders on Price Indications) Approval Order 2005).

More regulation may well lead to more confusion - in the minds of consumers as much as in the minds of retailers.