Retailers And Politicians Are Still In Denial While They Focus On Window Dressing
Yet again retailers have blamed the weather for stagnant sales
, only this time it was a couple of weeks of unexpected sunshine in September rather than the three weeks of snow that were blamed for dire pre-Christmas sales last year.Both politicians and retailers are still in denial about the High Street. The majority of initiatives are aimed at stimulating consumer spending whether by discounting or sales, talking up the recovery and promoting spending or window dressing by Mary "Queen of Shops" Portas.
The fact is that we as consumers in the UK are undergoing a huge change in our approach to consumption and credit. The consequence is that we are spending less on unnecessary goods and this in turn is having an adverse impact on retailers.
Over the last thirty years the UK has become a consumer society funded largely by debt. We used borrowed money to buy what we wanted, when we wanted it, without regard to repaying our debts. When we got a pay raise, this meant we could service even greater levels of debt.
Our excessive consumption has driven the UK economy, creating the illusion of growth while all the time we become ever more dependent on the retail sector which in turn relies on imported goods. Our consumption based growth has been fuelled by ever more debt, not just personal debt but national debt, creating an ever increasing huge balance of payments deficit. This combined debt, consumer, corporate and national borrowings, represents 466% of UK GDP.
Sometime, the party had to stop!
For a while it has been convenient to blame lenders such as banks and credit card companies who provided easy credit on offer.
However the debt has to be repaid, and we have finally faced up to this harsh reality.
The BBA (British Bankers Association) revealed that a net 200 million was repaid in September. Consumers are finally putting their finances in order by repaying loans and reducing overdrafts.
Consumers have been asking themselves, do we really need a dozen coats, 20 pairs of shoes and ten handbags? Plainly not when companies like JJB Sports, Jane Norman, TJ Hughes, Walmsley and Alexon with its 990 shops all recently joined a growing list of struggling companies going bust.
Do we really need to replace the perfectly serviceable fridge or have the latest television or new kitchen units? The unenviable position that Argos and Homebase find themselves in suggests otherwise. Their owner, the Home Retail Group, has suffered a drop in pre-tax profits of 72%, with Homebase down 35% and Argos down by 93.8%. They are considering the closure of a substantial number of stores, which seems sensible given their lack of prospects in the foreseeable future. The real challenge will be how far to cut and whether they will be mindful of the fact that most cuts are too little, too late.
In spite of the gloom, one retailer, Debenhams, remains up beat. They recently announced plans for a share buy-back, the refurbishment of 20 stores, the opening of nine new stores over the next four years and international growth. However, analysts aren't convinced and remain sceptical suggesting that limited growth prospects would suggest that a share buy-back is premature.
We need to challenge the notion that all these high street retailers should survive. If we are going to consume less, can we sustain the number of retailers we currently have? Plainly those retailers who want to survive are going to have to be a good deal more imaginative and develop new strategies. Possibly Mary Portas should concentrate on those with export potential.
Certainly High Street stores like Wallis, Oasis and Warehouse are changing their strategy by abandoning some of their expensive outlets and taking concessions in department stores like Debenhams, which might justify Debenhams's own confidence in their business model.
In addition to adjusting their UK retail business models some are focusing on international expansion. Debenhams plans to double the number of its international franchise stores over the next five years. Argos has signed up to a joint venture with Haier, a Chinese white goods manufacturer, and proposes to launch a Chinese website and open a store in Shanghai next year. The High Street can learn much from some of our more nimble internet retailers who are expanding overseas. For example, Boden has pursued a strategy of international expansion for almost 10 years having set up its American operation in 2002, Germany in 2007, Austria in 2009 and France in 2011.
Politicians have yet to grasp the issue as they continue to encourage consumption while at the same time discouraging taking on credit. The real solution for the UK is to change from being a consumer economy to a producer economy. This needs real political leadership to stimulate the investment necessary to effect such a transformation. Turnaround specialists are arguing that we need more than financial window dressing, we need a vision, we need export oriented manufacturers and services to effect a transformation if we are to become a producer economy with a balance of payments surplus.
Copyright (c) 2011 Alison Withers
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