It’s a fact that life is full of cycles both good and bad. More recently these have become more noticeable. Let’s explain.
In day to day life, we celebrate events such as birthdays, weddings, births and funerals consistent with our respective and individual stages of life. Property development and retail ownership and trading have similar event cycles.
In this period of economic uncertainty, we have been watching with a great deal of interest the evolving approach to the method of capturing consumer spend from a retail perspective and the retention of tenants from a property ownership perspective. We have taken this a step further and investigated some of the outputs – the results are interesting.
Lets look at Retailers first, and next week we will look at property. There is no doubt that consumers have been reluctant to spend and 2010 has been very severe on retailers. The traditional approach in such difficult times really is to keep on doing what you do best and ultimately the results will be achieved.
Therefore, if you market, display and promote, ultimately the consumer will respond. This year however, it is taking longer for consumers to react due to their own uncertainty as to their future due to potential unemployment etc. Consequently large and small retailers lie awake at night contemplating what their next move should be to attract consumer spend, which in turn attracts sales results and improves profit.
Recently some retailers’ trading results have demonstrated lower than last year levels of sales turnover but ironically greater levels of profit. It really is a horse and cart situation or a chicken and egg. So what’s new? Plenty it seems.
This year Kmart have reduced certain merchandise categories that are unprofitable. This approach may kill unprofitable lines but in our view has also killed a number of consumers. We believe this approach will ultimately “hurt”.
Briscoes and Rebel have still continued their discounting but not as frequently. Therefore the results should demonstrate an improvement in profit. But will the consumer react negatively over time with a “do I buy now or leave it till later” approach? Farmers Trading Company have entered the discount game.
Every other week they are adopting the formula of heavy discounting, therefore their consumers wait for the event. Does this work? We believe it ultimately lowers the consumer’s expectation.
FTC is New Zealand’s only true department store so why the constant discounting? Further, the brand is affected due to the complete lack of customer service in store. Therefore, whilst the stock is good, and the prices are right, the service has deteriorated markedly. Will this impact? We think so and probably sooner than later.
The Warehouse have certainly tidied up their stores, or is it simply they are not untidy because the number of consumers have declined? We think probably the latter judging by the published trading results and the fact that store sales per capita have plateaued over the past 4 – 6 years…
However, The Warehouse have maintained their policy of effective discounting on selected lines, so the only negative for them may be the effect of the competition, and generally no more stores added of sufficient size! Bunnings, Mitre 10 and Placemakers all have their own unique way of marketing and to be fair they have all maintained their own approach to capture spend.
Bunnings and Mitre 10 are certainly competitive as to price and product and there is no reason to suggest that approach will change, and we expect a further erosion of some Bunnings/Mitre 10 competitors sales due to an ever increasing range of merchandise consistent with the increase in female customers.
Incidentally we are not referring to DIY competitors but all general merchandise competitors. Foodstuffs and Progressive maintain their head to head battle for market share and lets face it they sell product we all need in any economic environment, but the change to one brand – “Countdown” for Progressive, no matter how good it currently is, will in our view count ( no pun intended) against their performance and competitiveness.
We all know the impact in the Books and Stationery business, as we have reported recently. RED Group are doing nothing to combat consumer reluctance to spend. When was the most recent Whitcoulls store that opened and how many new Borders stores have recently emerged?
This is not so bad for Paper Plus who are making inroads. All the independent department stores – Ballantynes ( Christchurch), Smith and Caughey ( Auckland) and Kirkcaldie and Stains ( Wellington) have maintained their twice a year sales approach and seem to be maintaining their status and trading satisfactorily.
Therefore you can see the various cycles that are influencing retail. Last week we attended the AGM in Wellington of the NZ Retailers Association. The first time in Wellington incidentally for 16 years.
The event was better than previously, in that it was held in the evening and they mitigated the pain by offering wine and cheese. But there was not one single retailer present who demonstrated that they were trading well and nobody offered a new “angle” to get more business, just generally miserable.
Further there were simply not enough major retailers represented. Why is this? Is this indicative of another “cycle” that is “who cares”. Where is the enthusiasm, or why not try “I am going to open 24 hours for a week” approach to see if my sales increase, you know, something novel!
So will this current cycle continue for Retailers? With 4 months and a bit to Christmas, and with GST increasing on the 1st October, and despite the improvement in personal tax, we believe the cycle of uncertainty is here for a while and well into 2011, and spend will be very flat.
This does not necessarily mean doom and despair but rather an adjustment to change and engaging in activities that are better than our competitors, or at least a little more vibrant, enthusiastic and novel. Next week the impact on Property and Landlords and the cycle of change for them.
Cash Converters is a company that specialises in stores that buy and sell second-hand goods and also offers loans. While the recession had left some stores in despair, Cash Converters were able to increase profit after tax by 26.8% to $10.1 million.
It is their market advantage- more people are selling goods for cash, and others are browsing around for bargains in hard times. Respectively, share prices have risen, against general plummeting trends. The company’s shares, which were valued at under 30 cents in the height of the economic boom, have climbed to a 70 cent peak in February this year.
The battle against the online second hand dealing counterparts, like trademe and ebay rages on. Differentiation in service, such as personal loans, cash advances and other financial services, as well as the convenience of being able to trade in your goods for cash on a one day transaction is advanced.
Another tactic seems to be taking advantage of the critital mass that these auction sites have gathered and set up an online interface through such mediums. Cash converters are an intriguing study for any retailer that is feeling threatened by an online counterpart.
NZ Retail News
Supermarket wars keep a lid on food prices
It’s music to the ears of shoppers pushing trolleys down grocery aisles.
There is little prospect of big grocery bill increases as competition forces the two big supermarket chains to keep a lid on prices.
(Source: NZ Herald)
Greenstone in $100m bond issue
Greenstone Energy, which took over the Shell retail and distribution business in April, has confirmed a $100 million bond issue to repay bank debt.
Greenstone, which also owns the former Shell stake in NZ Refining, is owned by the New Zealand Superannuation Fund and Infratil.
(Source: NZ Herald)
Three up, one down in Carlaw Park makeover
Three new buildings worth more than $125 million have risen on the old Carlaw Park sports site off Auckland’s Stanley Street.
But Vision Senior Living’s plans for a vast multi-level $120 million retirement village on the former home grounds of the Auckland Rugby League have now been ditched, the 200-unit project damaged by the housing downturn.
(Source: NZ Herald)
Analysis: Clothing discounts set for snip as costs rise
(Reuters) – Just as recession battered consumers are trickling back to malls, clothes makers in the United States face a tough choice.
Squeezed by ballooning raw material, labor and freight costs, manufacturers from Nike Inc (NKE.N) and VF Corp (VFC.N) to Hanesbrands Inc (HBI.N) and Levi Strauss & Co are fretting they might have to raise prices in fragile markets to maintain margins.
Price tags on everything from jeans to jumpsuits are likely to rise next year, ending about three years of serious discounting.
(Source: www.reuters.com)
NZ retail sales on the rise
Retail sales rose a seasonally and inflation adjusted 1.3 per cent in the June quarter – better than expected by economists.
But the largest increase was recorded in vehicle sales, a category not included in Australian government figures. Excluding motor vehicle categories, sales rose 0.9 per cent.
(Source:insideretailing.com.au)
Myer sales rise
Department store chain Myer has increased full-year sales by 0.7 per cent and expects earnings before interest and tax (EBIT) to be higher than previous guidance.
Sales rose to $3.23 billion for the 52 weeks to July 24, 2010, 2010, Melbourne-based Myer said in a statement on Thursday.
(Source:insideretailing.com.au)
Ed Hardy in adminstration
After bursting onto the fashion scene with everything from clothes and fragrances to pencil cases and energy drinks, the Ed Hardy fashion label has hit the skids in Australia.
The clothing retailer’s Australian operations have been placed into voluntary administration after suffering from a slowdown in sales.
(Source:insideretailing.com.au)
Witchery hits Singapore
Witchery has opened its first apparel and accessories concept store in Singapore at Changi International Airport.
The opening follows four months of successful in the Witchery flagship accessories store in ION Orchard.
(Source:insideretailing.com.au)
Zara chooses Westfield
Spanish fashion chain Zara will open its first Australian flagship store in Westfield’s Sydney CBD shopping centre currently under reconstruction.
Zara’s parent Inditex had been evaluating several prime CBD sites and is known to have been negotiating to take over the lease of a two storey corner site in the Gowings building, currently occupied by Supre and another tenant. But earlier this year the focus shifted to Westfield as an opportunity.
(Source:insideretailing.com.au)
