This Week In Retail – Testing times for shops

Hello and welcome to This Week in Retail, where we’ll be focusing on different ways retailers are looking to update their store estates in order to stay relevant.

‘Store of the future’ is an old favourite amongst retailers who are looking to indicate a new or refurbished store that is the embodiment of a new strategy. There are two separate routes retailers go down when launching these, which often ends up with a mix of the two: the evolution of the current store environment and experience, and the revolution – an entirely new business model manifested in physical space.

This week, we’ve seen the reaction to the unveiling of Kingfishers’ Good Home express format in Wallington, South London. For B&Q, this is revolution – a digitally-led, small-format DIY store, where stock is behind the counter and ordered via touchscreens on the shop floor. For Kingfisher more broadly, this is evolution (if that) – as the owners of Screwfix, they already have the most successful small format DIY brand in Europe, if not wider. With updated technology, a bright and airy environment, and a much wider offering (compared to the electrical, plumbing, heating and cooling focus of Screwfix) sets B&Q apart from Screwfix, albeit by a shade. The logic is that this allows Kingfisher to get far closer to urban populations, who are often not well served by the large out-of-town stores B&Q occupy. The article notes scepticism from analysts, who suggest the trial needs kinks such as limited parking ironed out. Perhaps a real revolution of their large-format stores (which are the troubled mainstay of their estate) will change opinions – we watch with interest for such a trial.

Alongside this, and again more on the ‘evolution’ side of store development, we also heard from M&S, who announced accelerating both their store closing and opening programme. Closing underperforming non-food and clothing space has been a priority for M&S for a number of years and so pushing ahead with that ambition is not new news. However, there was a surprise when Steve Rowe announced that M&S would open larger food stores. Currently, only around a dozen M&S stores offer the full range of food lines that M&S sell (around 7,000), so M&S are betting that customers will buy in to a wider assortment if on offer. This could prove shrewd as M&S ties up with Ocado, providing shoppers with much greater online and physical access to M&S food. However, whilst food currently has a much lower online penetration and therefore has some protection from Amazon, the ‘full shop’ food market in the UK is brutally competitive – could M&S be caught between the worst of two worlds, exposed to both Amazon in non-food, and the discounters and a resurgent Tesco in food?

All of this reinvention is a good sign of retailers looking to breathe life into their store estates. As if we needed reminding of the importance of this, we’ll finish today with an example of the wider effects the challenges are having on the economy. The Whitgift centre in Croydon may not be well known, but it was due to undergo a £1.4bn overhaul in partnership with Westfield. This has been put on hold, as retail landlords are seeing their rental incomes take a hit and expect more to come. We’ve seen many distressed retailers in recent years saying a rent reduction is the only way to avoid a CVA (company voluntary agreement – where a business reaches an agreement with its creditors) – a lose-lose to the landlord. Caught between a rock and a hard place, they have seen this hit their balance sheets and along with the failed Intu-Hammerson merger (which has cost the CEO and CFO their roles in recent weeks) the effects of retail disruption are being felt by landlords, at a time when investment in destination shopping centres is critical to keeping them relevant. Hopefully they can learn quickly from the lessons of their tenants about the benefits of experimenting with both evolution and revolution.

Author

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Nick Hoenig

Managing Consultant, Operations Transformation

Retail, with a focus on Store Transformation and Store Evolution, Proposition Development, and Landing Change in Retail