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It’s disappointing to hear that HMV, an iconic retail brand has decided to close 60 stores following poor Christmas trading. I would have thought that being the only music and entertainment retailer on the high street would be a saving grace for the business but the competition from on-line retailers and supermarkets combined with the increase of digital downloads and music streaming is proving too much. Despite diversifying into live music venues, ticketing, cinemas and widening the product proposition, the future looks tough having just appointed KPMG’s debt advisory team.
Ordnance Survey have recently compared 27 million retail addresses between now and October 2008 when the financial crisis began. It found that banks, recruitment agencies, estate agents and pubs were increasingly leaving the high street while the prevalence of betting shops and hairdressers grew. The data showed there were 280 more betting shops on the high street compared to before the recession, representing a 5% rise. The change represents a consumer shift to the internet for shopping, and services including job searches and travel bookings. However services that cannot be accessed online have seen their presence grow on the high street with a 3% rise in hairdressers and a massive 28% increase in the number of car washes.
Demand for pound shops, pawnbrokers and bakers are also in evidence from the figures, “demonstrating the increasing social stratification of the high street as wealthier shoppers drive to out-of-town retail parks and malls”. Known as the “doughnut effect” in the US, where shoppers migrate from the centre of town to the periphery, Britain’s high street is fast becoming boarded up with the national high street vacancy rate soon to exceed 15%.
I’m hopeful that HMV doesn’t ultimately go the same way as Woolworths. The Chief Executive of the British Property Federation commented that “there is no point harking back to the old high streets we claimed to love. We need to be more creative in looking for new roles and uses for these empty shops”. I’d be interested to hear your views on what the high street is going to look like in the future, surely we’ve reached saturation point with mobile phone and coffee shops and with the big chains finding they can cover the county with 50 stores and a decent website what is going to fill the increasing number of vacant buildings, after all aren’t we supposed to be a nation of shopkeepers?
Jonathan Flynn is Head of Retail at Interim Partners.
Having spent much of the last few months on the road visiting consumer businesses or people with a vested interest in retailers it struck me that there is an odd air of optimism surrounding the sector……but for different reasons.
The retailers themselves whether trading well or not have a dogged determination to trade hard in the ‘golden quarter’ and very few will be sad to see the back of 2010. What a year they’ve had with so many events having a detrimental effect on consumer confidence and trade; from volcanic ash to budgets all under the storm cloud of a recession and credit crisis. At the forefront of everyone’s mind now is Christmas trading and January sales. Projects have been shelved and it’s time to ‘sell, sell, sell’. Fortunately for the retailers, we love Christmas and the countdown has begun – every second advert on the TV is Christmas themed and it won’t be long before we hear Noddy Holder screaming ‘It’s Christmas!’ as the tills ring in the background. Oh joy!
The Private Equity players have begun to look over the trenches and ‘are shopping for retail deals’. There have been 11 private equity-backed deals in 2010 and in the peak of the buyout market in 2007 it was the largest sector for private equity interest. In the context of the uncertainty of this year, one might expect investors to shy away from sectors reliant on consumer spending but many in private equity believe this is the dawning of a new age for retail. Businesses that emerge from the recession relatively unscathed will have survived for good reason and it’s these that will be targeted in 2011.
At the other end of the market, the so-called ‘zombie’ or ‘walking dead’ businesses! I had to laugh when I heard the analogy but it makes perfect sense. It refers to the retailers out there who are so highly leveraged by debt that they are just managing to keep up on the interest payments. While interest rates are low they are surviving but their investors will not sell the debt for anything less than the full amount. The restructuring firms are getting ready as some of these businesses will inevitably fail and there will be deals to be done in buying whole businesses (or divisions) investing in the profitable bit and getting rid of the rest, providing finance / purchasing debt or looking at store closure / stock clearance programmes.
So, over the next few months I’m predicting more investment in retailers, whether it’s from the business itself or from outside parties which will mean budgets for projects and inevitable changes in management. This, finally has got to be good news for all of us in the consumer interim management community…………doesn’t it?
Jonathan Flynn is Head of Retail at Interim Partners.
Following on from the “is food too cheap” blog, I did speak to the farmer involved and let him know that his comment had received a great deal of interest online and the power of social media was responding to his thoughts, he did look a little confused by it all.
Moving on from that I’ve been talking to lots of people over the last few weeks following David Cameron’s visit to China about the opportunity for Great British food to make a greater presence in Asia and, in particular, in the Chinese market as there is a lot in the news right now regarding large retail businesses jostling for position. Were this to be the case and there are early signs that it will be, what would be the impact over here and more importantly for us, the position for the professional interim manager. Surely there must be a commercial angle to be explored on behalf of British and European food manufacturing that in the short term would offer real opportunity.
My own gut feel on this would be that Interims with experience of setting up JV’s, and those with international commercial due diligence experience need to dust off their passport and prepare to take flight. We haven’t got a mandate as yet for this experience but with the recent explosion of British brands across the board there and the westernisation of their eating and drinking culture this has to be an opportunity to explore beyond the brands with the established global presence? Clearly there’s a great deal to take into account to make this happen. It’s already happening in retail, food and non food, that much we already know.
I’d be keen to hear your thoughts as this is just a gut feel on what’s around the corner for us in food. If there is to be a move, what are the products to watch and what are the timescales. If you’ve not commented on a blog before, then jump in and get involved.
Simon Gough is a Director and Head of FMCG at Interim Partners.
There never seems to be a good time in Interim Management to go on holiday. I’ve heard from a number of interims this year ‘……I’ve had to cancel due to work commitments before, if I cancel this one my wife / husband / significant other will leave / kill me’. As an interim provider you’re always thinking, if I book this particular week will the big change programme I’ve been tracking since last year kick off while I’m baking in the sun, lathered in factor 50 looking for a deckchair without a towel while the kids nag for an ice cream.
The ‘Great British Summer Holiday’ has changed dramatically in recent years and the demise of several tour operators in recent months is testament to this. In the last couple of months we’ve seen Goldtrail, Sun4U, Kiss all collapse leaving many stranded abroad and bearing the cost of getting home. Why would you bother? Well it seems this year that many aren’t and are choosing to stay in the UK to go to one of our own seaside resorts or as I’ve seen more commonly this year go on a family camping holiday. There are more people I know who have families, relatives or friends with holiday homes in Europe so getting abroad via a budget airline and quick transfer at the other end is hassle free and cheaper.
With more people becoming internet savvy and the rise and rise of sites such as Expedia, Last Minute and Trip Advisor planning and booking a holiday and almost knowing what to expect before you get there is more bad news for the operators. Among my friends and peers, it’s almost become an integral part of the holiday experience; sitting down with your family and laptop to choose a destination, find a hotel, read the reviews and book cheap flights. Is this why we hear of all the ‘last minute deals’ with only 2 weeks of the summer holidays remaining?
While writing this blog I’ve notice a news article on the Wall Street Journal with the headline ‘More UK Tour Operators to Face Insolvency’. Large companies like TUI Travel and Thomas Cook will survive the downturn but smaller, lower-budget operators working on tight margins are under huge pressure. So what is your opinion on package holiday operators and their future? Is the demise reversible with people opting to book their own via budget airlines and discount websites or choosing to holiday in the UK? Holidays are close to all of our hearts so I would like to hear some interesting comments and debate on this subject.
Jonathan Flynn is Head of Retail at Interim Partners.
This weekend I was out and about with the family and we visited a farm up in rural North Yorkshire where they encourage the children to feed the animals and give you an overview of the farming industry. During the course of the visit I listened to the farmer who owned the business as he talked about the plight of British Farmers and what needs to be done. His explanation of why farming was on the decline was simple “you lot don’t want to pay what the food is worth!” He then listed his neighbours whose businesses had ceased to exist, not down to the recession but down to the fact that the country had traded out of British Foods and preferred the cheaper import with the artistically licensed labelling.
On the way home we debated this point quite extensively and then it spilt into the office in Interim Partners. Is Food too cheap? Has everything become purely price driven now and is there a way for the farming market to return to a profitable existence so our grand children can enjoy a range of foods that is grown and produced in the UK. The clients that I’ve visited in the past month have reported a constant theme, price rises are needed as a matter of urgency to assist the market getting back on track. We’ve had multiple first hand examples of cost cutting Interims we’ve put into businesses that have cut costs back to the bone and argue the way forward is more volume but at prices that mean something to the producer.
Does this mean that the commercial agenda is now jostling for pole position as we come out of recession?. Interims who can drive price rises as well as value add back into the retail trade. The other side to this argument is that the retailers can’t be seen to raise prices in the period of austerity and that inflation needs to be contained. So what’s going to happen first?
I’m going to visit the farm again in a fortnight as the kids loved it and I’d like to take some thoughts back to the chap who runs the place so please get involved, give me your opinions, is there more cost cutting to come, is there more fat in the land? Do the retailers need to give more back?? I look forward to hearing from you and contributing further to this debate.
Simon Gough is Director, FMCG of Interim Partners.
It’s been an unpredictable year so far regarding interim management opportunities in the Retail & Leisure sector. The year started in a more optimistic mood with people glad to see the back of 2009 and looking forward to a more buoyant year. It was widely claimed that despite small economic growth that the retail recovery was on track and all eyes were on which businesses would be investing in change. Then came a series of events that encouraged procrastination; the financial year end came and went, the snow crisis (!), volcanic ash and finally the General Election and the formation of a coalition Government.
The recent emergency budget and the VAT increase to 20% from 2011 hasn’t derailed the recovery. A rise in VAT was widely expected and retailers seem to have prepared accordingly. They now need to decide how much of the VAT rise they pass on to consumers – ASDA has vowed to absorb all of the 2.5% increase but other retailers will struggle to do so having taken as much cost out of their businesses as possible already. The increase is more bad news for the sector, especially as non-food retailers are also being hit by the weakness of the pound against the dollar and rising product costs.
I’ve spent a lot of time out meeting retailers in the past few months and the consensus will come as no surprise to you; trading is tough, cash is king and cost cutting is still top of the agenda. So where are the investment budgets? Well they seem to be there, vastly depleted from what they were even last year but they’re not being spent………..yet. I’m concentrating more on activity than predictions, but I’d like to open this up to our interim management community for discussion on your thoughts on the sector and views on the next few months – it’s time for change but who has the appetite and more importantly the budget or is it going to be a similar run in to Christmas as seen last year? As industry leaders and practitioners many of you will have seen similar conditions before, weathered the storm and come out the other end.
Is retail the football equivalent of the England Football Team – high expectations from the outset, struggles through with a series of disappointing results but ultimately fails to fulfil potential. Fortunately we haven’t been knocked out but as we’re running out for the second half what is our tactic – sit back and defend or take the game to them?
Jonathan Flynn is Head of Retail at Interim Partners
It’s been an interesting time of late within the consumer market, much has been anticipated with the new financial year upon us, Easter out of the way and the imminent change in government, but what has actually happened? Well not as much as expected seems to be the general theme in the consumer market. There has been a rapid move towards restocking the shelves with regards to permanent hires and change appears to be on its way with the agenda for Interims coming back into play.
Over the past few years the area within consumer that has really driven the market had been the amount of deals that had been done within this space, whilst almost completely drying up in 2009, they have shown some signs already this year of coming back to the table. There have been talks of clients being more aggressive and some strategic deals have already gone through with what we hope to be a significant amount on the horizon. The change agenda following these deals has been one of the biggest users of Interim Managers and will continue to be the way in my opinion. I anticipate that the back half of the year will see us very active in this area and until then we will see the demand in businesses looking to get their houses in order following the great cut backs. Commercial Interims may well lead the way on these changes as clients look to reposition themselves. The most senior part of the Interim market remains tight but it is starting to ease up as deals come back and the top table merry-go-round begins once again.
I’d be really keen to hear your thoughts on where the market is going and the timescales involved in getting there. As our practice progresses we want to be much more involved with the Interim managers that we’re currently working with as well as those that we want to get closer to. Please give me your thoughts and get involved.
Simon Gough is Head of the FMCG Practice at Interim Partners.
The votes are in, deals are currently being struck and we will shortly know what the make up of our new Government looks like. The party leaders talked a good game during the campaign when it came to recognising retail’s role as a generator of jobs and prosperity. David Cameron spoke of postponing the National Insurance rise (or “jobs tax”) and this is essential for the sector to continue to grow. The sector has had its fair share of incremental costs from minimum wage to business rates and it can not keep absorbing them forever.
Maintaining low interest rates and inflation will help the sector but it’s crucial that the new Government thinks long and hard about tax increases because of the knock-on impact on UK shoppers. The public deficit being what it is makes tax rises inevitable but needs to be administered carefully for consumers to keep their nerve at a time when the UK economy is more reliant on the sector than ever.
I would be interested to hear your views on how the new Government can help support growth in the retail sector.
On a personal note, I am undertaking a 174 mile Coast to Coast bike ride over 3 days and aim to raise £1,000 for our Company Charity, St. Michael’s Hospice. If you would like to support me and pledge a donation please do so by following this link www.justgiving.com/Interim-Partners-OnYourBike
Jonathan Flynn is Head of the Retail Practice at Interim Partners.
I would be interested to hear your views on how the new Government can help support growth in the retail sector.
On a personal note, I am undertaking a 174 mile Coast to Coast bike ride over 3 days and aim to raise £1,000 for our Company Charity, St. Michael’s Hospice. If you would like to support me and pledge a donation please do so by following this link www.justgiving.com/Interim-Partners-OnYourBike
Jonathan Flynn is Head of the Retail Practice at Interim Partners.
We’ve been through the toughest recession most people can remember, but UK retailing has proved its resilience and emerged in good shape. It’s not been easy, but by focussing relentlessly on the customer and continuing to innovate, the majority of the UK’s retailers have come out the other side stronger.
The winners at this weeks Retail Week Awards in London were businesses who have focussed on investing on improving the customer experience – often across multi-channels – and going further than ever before to meet the ever-increasing expectation of today’s shopper.
There is a feeling of quiet confidence in the network of retail interim managers I regularly update with and although we’re not out of the woods of uncertainty (a possible double dip recession or hung-parliament) it’s time for retail businesses to continue to innovate and invest in change. There is still going to be a demand for interim managers that can value engineer – those who can identify opportunity in a business and by returning a significant return on investment can show that a retailer can get a lot back from not a lot of financial commitment. So, lets look forward to a more buoyant few months as the recovery continues.
It’s been an interesting year to say the least and one I’m sure a fair few of us will enjoy saying goodbye to. Its not all been bad news as some areas have held up well, but what I really want to know is will we have projects in time for Christmas. The noise and general discussions within the FMCG market would suggest that we will. The last six months have created frustration for the talented Project and Programme managers out there who has seen work streams identified but haven’t made it past the Finance Directors cutting table.
The projects that we have been scoping have largely revolved around efficiency, some integration work and even a return of commercial work coming back on the agenda. So what do the timescales look like? Well from my perspectives we will see projects starting this side of Christmas but with the lion share coming in the new year. There has been a significant of clients getting burned this year by recruiting a low cost option to run a project to keep costs down, its these same clients that are now asking me the question “are these individuals committed interims with a track record”, yes they are.
I’d be interested to hear when you think different areas of the interim market will see a lift and your rational as to why. We have an interesting time ahead of us, let’s enjoy it.
Simon Gough is Head of the FMCG Practice at Interim Partners.
