1st July 2009
 
In this issue...
Welcome to the new look Retail Freeview. As always our analysts bring you a round up of all the major events, news and views in the retail sector. In this issue we take an in-depth look at DSGi; introduce our new Global Luxury Retailing 2009 report; and provide a selection of articles from our daily news service.

 
That was the week that was

Clothing, Fashion & Personal Care
Swedish fashion retailer H&M has reported better than expected profits. The net opening of 74 new shops during its second quarter helped profits rise 6% to £324m in the three months to the end of May. Total sales grew 8%, when measured in a local currency basis during the second quarter with demand hit by cooler weather and the global recession. The fashion retailer will continue with expansion plans despite shoppers spending less in the wake of the credit crunch.

Online fashion retailer ASOS has posted gross profits up 93% to £14.1mn in the year to March 31. Total sales were £165.4m for the period, up from £81m in the previous year. Current trading has continued to be strong, with sales during the 13 weeks to June 26 up 52%. Sales growth is forecast to slow to about 35% during the rest of the financial year, which ASOS claims is in line with sector trends. It is nonetheless well placed in the online fashion sector as it has diversified its online range appeal with Designer Brands, childrenswear brand Little ASOS, and ASOS Outlet.

Electricals & Home
Kesa Electricals, the European electricals retailer, has made a full year loss and cut its dividend in anticipation of tough conditions continuing for the rest of the year. Sales at Comet dropped 4.7% to £1.66bn, with like-for-like sales down 7.7%, and retail profit declined by 77.5% to £10.1m. The company cut 300 store and main office jobs and restructured its warehouse operation, measures resulting in an exceptional charge of £9.6m but expected to deliver annual savings of £14m. The retailer said there were no plans to close any of its 250 stores. Thierry Falque-Pierrotin, Kesa's chief executive, said like-for-like sales could fall as much as 6% this year amid expectations that demand for flat-screen TVs and laptops would remain weak

Carpetright saw its group pre-tax profits for the 52 weeks to May 2 fall by 72% to £17.2m. UK & Eire sales also declined by 12.9% with l-f-l’s dropping 13.5%. With a backdrop of falling consumer confidence and harsh market conditions, Carpetright engaged in cost cutting initiatives including 300 redundancies.

Food & Grocery
Wm Morrison has announced novel plans to open a 700 acre farm in East Ayrshire in conjunction with the Scottish Agricultural College. The grocer is already vertically integrated as it slaughters its own meat, has bakeries and produces cheese, bacon and sausages. Morrison said it hoped to open a second research farm in south-east England later this year.

General Retail
The Woolworths brand has been reintroduced by its new owner Shop Direct Group, which has announced that it will be run as a stand-alone web business. Mark Newton-Jones, Shop Direct's chief executive, said the online Woolworths would focus on children's toys and entertainment, while ditching household items. However, analysts expressed doubts that Woolworths will be able to gain significant market share from supermarkets and other entertainment outlets such as Amazon. In the Daily Telegraph, Neil Saunders, Director of Consulting at Verdict, said: "Online retail is definitely outperforming the high street, but the magnitude of that outperformance is getting less".

Clinton Cards re-acquired more than half of Birthdays, the chain it let fall into insolvency last month in a buy-back deal. The greetings cards chain put its loss-making Birthdays business, which it bought for £46.4m in December 2004, into administration last month - but the firm has since announced it had done a deal to buy back 196 of the best performing stores at a very low price. While this will save 1,450 jobs, the remaining 136 shops in less primary locations are set to close. Clinton Cards is able to make this move to increase market share and re-purchase at a low price because Birthdays owed its parent firm £3.25m when it collapsed

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Story of the week
DSGi: in need of more decisive action

DSGi's woes have continued, with its full-year results giving little cause for hope. Group sales fell 1% in the 52 weeks to May 2, 2009, with underlying pre-tax profit plummeting by 78% and net debt spiraling. Verdict believes that while the fundamentals of DSGi's approach are sound, the group lacks a consistent, integrated approach in its implementation across its various divisions.

DSGi's UK results were particularly disappointing, with UK & Ireland computing and UK & Ireland electricals falling by 14% and 9%, respectively. The group's response to such dire sales is to focus on its longer-term viability by offering better service, overhauling its store portfolio, growing online sales and reducing costs. However, in spite of these actions, Verdict believes that the group's future looks bleak.

At PC World, the group has instigated a much broader approach, whereby it puts more emphasis on service, connectivity, delivery, installation and repair, as well as on educating its customers about converging technology. The 'Get Connected' program aims to bring the fascia more up to date through offering a wide range of mobile broadband packages with free or subsidized laptops.

Alongside this, the group is offering more technical and after sales services, such as its TechGuy proposition, and placing more emphasis on sales of the subscription products, warranties and guarantees which accompany the products. However, in Verdict's view, the attempt to shift PC World towards a more service-focused proposition comes too late. Although these improvements are astute, Verdict believes that there has been too much of a change in consumer habits to support a major nationwide computer specialist.

Shoppers are no longer making purchases of large grey goods as frequently, partly as a result of the recession but also because of the maturity of the market. Moreover, computers in particular are widely available online and through the grocers, while laptops are available for free with broadband subscriptions. Verdict expects that the PC World fascia will struggle to drive necessary footfall in a high proportion of its locations, a fact supported by the disappointing uplifts achieved at recently refurbished PC World outlets.

Verdict believes that the main hope for the brand lies in amalgamating it into Currys stores and that the new dual format currently being tried will be PC World's future. In many areas, combining the two fascias will mean that the group will have to dispose of stores, but Verdict considers this necessary for the longer-term health of the group.

The Currys brand is also receiving store overhauls and re-formats, many of which are yielding positive results. However, Verdict still believes that the retailer is not doing enough to capitalize on its strength as a specialist. Its newly announced sponsorship deal with 'The Simpsons' on Sky 1 appears to be an ideal opportunity to highlight its specialist credentials. It should be aiming to communicate the advantages that it can offer in terms of helping customers to choose the right product and educating them on how to get the most out of it. Instead, however, it has reserved this approach for PC World and, with Currys, is leading with a much more price-led proposition, which Verdict expects will see it losing more and more ground to the grocers at one end of the market and John Lewis (and eventually Best Buy) at the other.

Online remains the group's strongest area, with growth of 24% in its e-commerce division. However, Verdict believes that the offer remains too fragmented, with DSGi operating a number of transactional websites. The PIXmania fascia has a sufficiently different proposition to stand alongside the current brands, but the Dixons and Currys websites have very similar products and, in essence, appear to be competing against each other. Moreover, it can be unclear where currys.digital fits into the online offering. It is Verdict's opinion that Currys should be promoted as the main website both in stores and through Dixons.co.uk, which could continue as a consumer-electricals focused offshoot of the main Currys site.

Although DSGi has all of the right ideas, Verdict concludes that it is crucial that the group streamlines its offer. With the electricals market sluggish and set to remain so, and the grocers, John Lewis, the pureplay online players and Best Buy all presenting a serious threat to sales, the retailer needs to raise its game. This means focusing on the Currys brand name, both online and in stores, with the PC World and Dixons names being amalgamated as sub-brands. A clear message, regarding the retailer's credentials as a specialist, must be communicated alongside this. If the retailer does not take more decisive, aggressive and appropriate action now, it risks slipping into terminal decline, with a confused, irrelevant offer, a forever shrinking store portfolio, and customers flocking to its rivals.

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Industry News

Below are a selection of articles taken from our daily news service, 'Retail News'. Retail News is sent to your inbox every morning, bringing you the very latest, breaking news in the retail sector, as it happens.

If you are interested in purchasing a subscription to this service, click here.

Arcandor chief aims to retain control of Thomas Cook
The Financial Times reports that Arcandor, the insolvent German retailer, hopes poor asset prices will give it a chance of holding on to its majority stake (53 per cent) in Thomas Cook, the UK travel company, in spite of most of the shares being pledged as collateral to its banks. The paper also carries an interview with Karl-Gerhard Eick, chief executive of Arcandor, on his restructuring plans for the group.
Financial Times Companies and Markets, Date: 29/06/2009, Page: 20 Financial Times Companies and Markets, Page: 20(4092994)

Beales announces first-half profits
Department store operator Beales has revealed its pre-tax profits fell from £570,000 to £543,000 in the 26 weeks to May 2. Like-for-like sales for the most recent 15 weeks declined 1.6 per cent, compared with a 7.8 per cent fall at the full-year stage. Total sales were £26.7mn.
The Independent, Date: 30/06/2009, Page: 42 Daily Express, Page: 45(4113276) Metro London, Page: 33(4116766)

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New Reports

Global Luxury Retailing 2009
Global Luxury Retailing 2009 is a new report published by Verdict Research that provides unique data on the value of consumer expenditure on luxury products globally 2003-08 by region and by four product sectors.

UK Retail Futures 2013: Electricals
This new report published by Verdict Research provides an accurate and detailed five year forecast for the UK electricals sector, by analysing a host of economic, social, political and technological factors that determine demand.

UK Retail Futures 2013: DIY & Gardening
This report published by Verdict Research provides detailed and extensive forecasts for the DIY & Gardening market over the next five years.

 

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