Retail Day
Retail Week, today
Archive for February, 2010
The boys Dun good
Sorry for the lack of posts this week, has been a crazy few days with the Retail Week Conference and Awards coming up next week. Has been a pretty quiet week for news but interesting to see that Game is trimming its store numbers and concessions. It’s a sensible approach to what are difficult conditions in its sector, and coming out of Debenhams makes real sense - I can’t imagine the department store is much of a destination for game geeks.
A retailer doing better at the moment is Dunelm, which pleased the City yesterday with another strong set of numbers and a return of £43m to shareholders, which is good news for the founding Adderley family as they still own a 35% stake in the business. Dunelm is about as unglamorous as it gets and the family keep a very low profile, but its customers love it and when you visit the stores you can see why.
There are no frills to the business but everything about it is traditional - the product, the service and especially the prices. I remember walking around the store in Nuneaton a while back and trying to get my head round it. But the business doesn’t exist for me, but for a huge swathe of middle England that values the old fashioned virtues on which it’s based and it’s reassuringly consistent delivery. It has also made some shopping missions its own - kitting out your children for their first student digs for one, which is not surprising as the prices are as cheap as chips so it doesn’t matter if they trash the stuff.
If I had a pound for every rival retail chief executive who’s told me they’ve sat in a Dunelm cafeteria and watched the shoppers to try and understand the magic, I might not be a rich man but I’d certainly be a bit better off. But Dunelm is a one off, and almost impossible to emulate - the mighty Home Retail Group has tried with its Home Store and More format, but it has only four stores and it’s taken ages to even get to that stage. The thing with Dunelm is it’s everything that’s good about traditional family retail businesses, and the Adderley’s deserve every bit of their success.
Kicking off
Exceptionally quiet weekend for retail news in the papers - in fact I don’t think I saw a single story in the business sections - and not much going on to start the week, except Mike Ashley up to his old tricks, trying to derail the Blacks restructuring plan, as the saga of who owns the Kaupthing stakes in Blacks and JD rumbles on. I don’t understand why he can’t just concentrate on running his own business.
We’re flat out here with the plans for next week’s Retail Week Conference and Awards, which promise to be better than ever this year with a host of big name speakers for the conference and a few surprises lined up for the awards. It meant sadly I had to forego the launch of Morrisons’ sponsorship of England’s World Cup bid at lunch time, and Jen went up to Wembley instead, although she did bring me back a cake which bears the flag of St George on it as a souvenir of the occasion.
Morrisons had roped in Teddy Sheringham and Alan Shearer for the launch, but Jen isn’t very impressed by footballers and instead chose to hang out with Morrisons retail director Mark Gunter and his wife, who apparently invited her to tea in Harrogate. Mark has been at Morrisons for years and along with commercial director Martyn Jones is one of the survivors, providing an invaluable a link between its brave new world and the heritage of the business which has been so vital to its recent success.
Morrisons traditionally shied away from such high-profile sponsorships but as it showed before Christmas with its tie-up with Disney’s A Christmas Carol, it is now going all out to really build the brand nationwide under marketing director Angus McIver, who not only bears a likeness to ex-LibDem leader Charles Kennedy, but actually went to school with him too.
Tying up with the England team must pain a proud Scotsman like him - especially as Morrisons inherited the sponsorship of the Scots national football team from Safeway - but the brand-building is working and helping Morrisons punch above its weight in terms of profile. In much of the country it is still a relatively new brand and initiatives like today’s will help cement it in the consciousness of shoppers.
Well, those south of the border anyway.
Stepping on the gas
One of the problems of writing for a weekly magazine is that sometimes you can write something on a Wednesday which is then overtaken by events before the magazine comes out on a Friday. A case in point was George’s City column on Halfords, written on Wednesday to come out today, where with great prescience George speculated that despite all the talk about Hobbycraft or Blacks, its first deal might be for a service-based company.
And so it turned out, when yesterday it bought car servicing company Nationwide. The shares soared on the back of the deal and the company is certainly in favour right now. With plenty of cash available to spend, more deals could be in the offing.
David Wild is doing a very good job of turning Halfords into everything a specialist retailer should be, with authority in its sector, a good multichannel proposition and range extensions into related categories, although in my limited experience of Halfords as a shopper - I don’t have a car - the service doesn’t always live up to expectations. Wild has turned out to be a very good hire, bringing a wealth of experience from Tesco and Walmart to the role.
But moving into services is a risky business. We frequently hear about retailers doing it - Boots and B&Q spring to mind - but doing it well and profitably is hard and carries reputational risk. Wild will also be conscious as he expands of the spectre of Ward White - which everyone mentions whenever Halfords is mentioned with any deals. However, Wild has the benefit that Nationwide is an established business, and he is safe pair of hands - it’s hard to think of him doing anything too rash.
Core blimey
The opening of an Apple store never fails to amaze me. There is almost a cultish feel to the way the staff all stand by the door and applaud customers in, occasionally making weird howling noises like wild animals. All very odd but seems to work and its first store in the city was certainly drawing the crowds at the opening of the extension to Eldon Square in Newcastle this morning.
The problem with Apple is that it tends to take over a shopping centre opening, and so today the queue barriers where shoppers were waiting to get in were getting in the way of everyone else getting to the other shops in the extension. That was causing a little bit of friction, but minor and very temporary niggles aside this was a very good opening day and has brought some very great stores and new brands to the city.
Aside from Apple and Paperchase the extension is very fashion focussed and features a very good Debenhams store with particularly strong looking home and beauty areas, plus most of the Arcadia brands, River Island, New Look, Superdry, Republic, All Saints etc etc. Debs didn’t have a store in Newcastle before, which is extraordinary, and their retail director Nigel Palmer told me they’d been trying to get in for 15 years. They’ve arrived in style and were doing very well today.
Among the interesting things I saw was a new look for Miss Selfridge, which is rather tucked away on the upper floor of a store shared with Dorothy Perkins and Burton, but borrows more than a bit from Anthropologie. Ian Grabiner was there and looked pleased with the work, which he’s brought in David Dalziel from Dalziel & Pow for after his successful work for Topshop. Topshop and Topman share a good-looking store across the way, hampered only by the lengthy walk back upstairs from the Topman basement - there’s no up escalator.
The problem with extending shopping centres is it always shows up the weaknesses of the old part, and that’s certainly the case with Eldon Square. Its owner CSC is planning a rolling programme of smartening up the older parts of the centre and that’s certainly badly needed, as parts of it look dated and shabby. It’s always going to be a hard centre to manage though because of its sprawling nature. While on that subject, can anyone enlighten me as to why one part of it is called Chevy Chase?
I know this its sacrilege to say this to a Geordie, but I popped into Fenwicks and wasn’t over impressed. There was a really odd mix of merchandise by the main entrance and quite a lot of empty shelving, and a lot of the rest of the store looked pretty tired, like a John Lewis that hasn’t been done up in a long time. I know it’s Newcastle’s department store, but I got the sense the John Lewis across the way must be giving it a run for its money.
McPhail and Co fail
An embarrassing morning for New Look’s owners Apax, Permira and Tom Singh, and especially its management - led by Carl McPhail - after they were forced to shelve their IPO plans this morning. I hinted a couple of days ago that scepticism was growing about whether it would succeed and a combination of doubts about the company’s growth strategy and the weakness of the equity markets have killed off the plans, or at least led to their postponement, to use the company’s own wording. Of course this is second time unlucky, as the owners’ last attempt to sell the business in 2007 also failed.
Yesterday’s shelving of the Travelport and Merlin floats was probably the final nail in the coffin, but New Look won’t be able to just blame the markets. The story about future growth prospects in the UK and overseas wasn’t washing, and there was a lot of resentment about the Payment in Kind (PIK) notes which were to be paid off by the float, and would effectively have meant a second payday to the recipients of the original special dividend which the PIK notes funded.
One source has already told George he thinks New Look may come back pretty shortly but at a lower price - they don’t have many other options. It’s bad news too for Ocado, I can’t see how they’ll get that away if New Look has failed.
Greed isn’t good
We’ve just put up the story that John Hargreaves has pulled the sale of Matalan, because the bidders were nowhere near his £1.5bn price tag. A lot of people put a lot of work in on offers but they were struggling to get much above £1bn and with the super-rich Hargreaves having no need to sell the outcome is not a surprise.
I suspect he was trying to catch the wave of investor enthusiasm for the sector which was widely expected at the start of the year as banks and private equity houses re-opened for business. But apart from the sale of Pets at Home to KKR for the truly staggering price of £955m, there’s not much certainty about other deals going ahead. As I wrote here last week, the question of Lord Kirkham’s succession will make DFS a tough one to get away.
The same goes for floats and with every day scepticism appears to be growing about both Ocado and New Look’s IPOs. How can the loss-making (at pre-tax level) Ocado be worth £1bn when Tesco is only valued at £33bn, people say, while with New Look there seems to be a lack of confidence in the rationale behind the deal and in the story being told about the potential for the overseas business. These are going to be nervous times for those trying to float businesses.
Boots, made for walking
Boots tends to keep a relatively low profile since it went private, but Jen and I spent a very interesting day at its Nottingham headquarters on Friday. We had a really packed schedule and met people in all parts of the business across its giant campus on the outskirts of the city.
The first thing that strikes you is just how big the site is, the size of a small town I’d say. It has a nice feel too - the buildings are all low-rise with a lot of space between them so if the sun comes out, as it did on Friday, I imagine it’s a nice place to work.
We spent time with Alex Gourlay, who runs the UK health and beauty business, and Simon Roberts, who runs the stores - very enthusiastically too - plus some of their less well-known collagues in the DC and call centre and on the product side. What impresses me about Boots is that while most private equity deals are based on a very clear vision, Stefano Pessina has backed his up by investing in what makes the business unique and in improving systems, stores and customer care.
We got a glimpse of that when we visited the product development teams, in a building affectionately known as Pizza Hut because it looks like a restaurant on a retail park. There were boffins in white coats testing products but we also met some clearly very commercial people who were from a scientific background and had achieved great success with No 7 Protect & Perfect and Soltan. The ability to combine retail and marketing nous with genuine product innovation is one of Boots’ strengths and Pessina, being the bright guy he is, has built on that rather than decide it was non-core.
That’s not to say there hasn’t been some pain - there have been job cuts and the move to a new distribution centre on the site has clearly been quite difficult, although paid off in real efficiency and availability improvements. The scrapping of the final salary pension last month has also inevitably caused some strife.
But there’s no arguing with the performance of the business and that the dismantling many feared when Pessina did his blockbuster deal in 2007 hasn’t been realised. By putting Boots lifers like Gourlay in key positions he has been able to remain true to the company’s heritage whilst also implementing a pretty ruthless modernisation, and so far the deal has been one of the unsung successes of the private equity boom days.
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Ocado, or Ocadon’t?
Had a very interesting day in Nottingham at Boots on Friday, but will save that for my next post and instead concentrate on the weekend’s big story, the news that Ocado has appointed advisers ahead of a possible float.
Ocado has long been the darling of the business sections, I think at least in part because they’re written by the type of people who love shopping with Ocado. And from a customer point of view, it is without question a brilliant business. Its customer service is first class, it achieves levels of accuracy with its orders that put its rivals in the shade, and its warehouse in Hatfield is a model of technical innovation.
The other side of the argument is that the fact it provides such great service is no reflection of whether it’s a good business to invest in, and there’s no skirting around that while it is profitable in terms of EBITDA it has never made a pre-tax profit. That’s not unusual among dotcom business but Ocado is ten years old and it’s a big ask of institutions to invest in a business which has never actually made a profit.
The three former Goldman Sachs bankers who set up Ocado don’t like this being pointed out and went bananas with us ahead of a perfectly reasonable comment piece by George which we published last month, even though they didn’t actually know what it was going to say. God knows how they’ll have reacted yesterday, particularly to the coverage in the Sunday Times which took a pretty sceptical tone.
The founders say Amazon didn’t make a profit for years either but the two businesses are very different, and the big worry with Ocado is its reliance on Waitrose. Metropolitan yummy mummies shop with Ocado not just because its service is good but it sells Waitrose groceries. But Waitrose is expanding its own Waitrose Deliver service, which is also very good, and who’s to say at the end of its current contract it won’t simply want to start delivering from its London stores itself, particularly as everyone says the cultures of the two organisations are slightly at odds, to put it politely.
Now Waitrose retains a corporate tie with the company because the John Lewis Pension Fund owns a 30% stake in the business, but it could quite conceivably sell this down over time. And because Waitrose products are so core to what Ocado is all about, this adds another element of risk for potential investors. None of this makes Ocado a bad business, and it could quite conceivably be a highly profitable success in time. But, as with any float, there are no guarantees.
Chim Chimney….
We had business mininster Lord Mervyn Davies speaking at Retail Week’s 100 Club last night at the Ivy. Davies is unusual in not being a career politician - he was a non-exec at Tesco and ran Standard Chartered Bank - and was impressively frank with his views on the economy and the election.
I didn’t agree with a lot of what he said though and he seems to have a massive chip on his shoulder, bizarrely blaming the media for all the country’s ills and saying that there was no real reason to worry about the economy or the public finances.
That didn’t wash at all with our audience of retailers, who gave him a right going over in the Q&A, with Superdrug boss Jeremy Seigal, who I’d previously thought of as a mild-mannered sort, leading the charge like a man possessed.
Interestingly none of the questions were about retail specifically, but more on the national defecit, public sector pensions and credit insurance. Davies’ answers didn’t do much to win the audience over, along the lines of “I agree but what can I do about it?” George did a good job just to control the debate, otherwise we’d still have been there for breakfast.
This morning I’ve combined two of my favourite things - walking around the City of London and walking around building sites. I was with Land Securities looking at its One New Change development, which sits dead opposite St Paul’s and has attracted retailers like Topshop, M&S and Next, with Banana Republic rumoured to be signing too.
Regular readers will know I’m a bit of a London obsessive and few sights are more likely to put a smile on my face than walking up Watling Street towards St Paul’s, particularly as it’s getting dark. It always puts me in mind of the film Mary Poppins, probably because of the ‘feed the birds’ scene on the steps of St Paul’s. Anyway, the new scheme sits between Cheapside and Watling Street, directly facing the Cathedral, and is going to have some pretty amazing views of it, particularly from its rooftop terrace which will have a restaurant.
In what will be a first for the City, seven-day trading will be a condition of the leases, which may raise a few eyebrows given how quiet the area has traditionally been at the weekend. But with all the tourists heading to St Pauls and Tate Modern, plus the success of Canary Wharf having shown that office areas can become weekend shopping districts, it has a good chance of succeeding.
Out with the old, in with the Newton-Jones
A very enjoyable evening last night at a dinner hosted by Shop Direct Group at Soho House. Shop Direct is of course the company a lot of people still call Littlewoods, but the Barclay Brothers-owned business has been moving at breakneck speed to transform itself from the dowdy catalogue and store business of old to a company where, at Christmas, 65% of its orders were being received online.
That transformation is being driven through by energetic Brummie Mark Newton-Jones, and inevitably is not without pain. Last week the company announced 1,500 job cuts in its call centres, a sad but inevitable function of people now ordering less by phone and more online. And it’s important to point out that the results of the changes still need to feed through into profitability.
Nevertheless, the business would be in a much worse state were it not going through these changes and bold moves like buying the Woolworths brand and renaming Littlewoods Direct as Very are the sort of things the company needs to do to ensure it remains relevant to a new generation of customers.
Shop Direct is keen to be seen as a leader in the online sphere, hence the dinner where there were talksfrom Google’s very engaging UK boss Matt Brittin, who I was fortunate enough to be sat next to, and a very unassuming chap called Liam Wood, who runs an online business called Enviro Lights, selling eco-friendly lightbulbs, having successfully launched a business selling hoover bags with his brother which now turns over £1m a year.
His tale was instructive. He worked in Morrisons while his brother ran a small shop selling vacuum cleaner bags in Derby. But the cost of rent and rates, combined with the threat to his footfall posed by the city’s new Westfield centre, meant his brother realised online was a better place to be and where he could develop a much broader reach for his brand, which he has successfully done through his site dustbag.co.uk
Now the brothers are aiming to launch a new site every year, with the lighting site already managing £200k in sales. These very modest entrepreneurs are a great example of the opportunities the web opens up to people who’ve spotted a niche in the market to reach many more customers than one shop ever could.
