The Darwinian theory is alive in retail

Survival of the fittest – it’s a theory that is being proven again in the retail jungle. KEVIN MOORE

By Kevin Moore

Having spent the two weeks over Christmas and the new year walking stores in Britain, Europe and Australia, the separation of “weak” and “strong” is quite apparent.

The downturn in Britain is very harsh. MFI and Adams both closed their doors, but bigger still was the closure of Woolworths UK. Stores liquidating as they sank into receivership was a once-in-a-lifetime spectacle that could only be described as “orderly looting”. Experienced retail staff watching people walk out without paying is a reflection on their morale, not their morals.

High debt levels killed this 100-year-old High Street icon. Waterford Wedgwood’s similar debt and consistent losses will soon see its 250 years of history disappear too.

You can’t service debt if you’re not generating cash.

Against this backdrop of almost daily announcements of closures from the “weak” is the polar opposite; the “strong:, well-run, low-debt level retailers like Asda (part of Wal-Mart), Morrisons, Sainsburys and Tesco still performing well, and this year, as every year, Harrods’ marketing machine saw Boxing Day sale crowds packed in like sardines.

In continental Europe, at the top end of the fashion market, H&M is showing only minor drops in like-for-like store sales. The big public European retailers such as Karstadt, Carrefour and Ahold have all reported marginal sales drops, but their mid-year cost cutting initiatives have protected profit.

And so to Australia. Among the “weak” retailers and manufacturers – Herringbone, EzyDVD and GMC tools have already appointed receivers. Again debt, compounded by poor trading, killed EzyDVD.

The pre-Christmas and post-new year sales numbers will soon be announced by the Clive Peeters board, so we await news on how the last quarter of 2008 compares to the previous quarter’s loss.

As predicted, the “strong” retailers have begun to share good Christmas and new year sales results, with calmly implemented retail marketing plans focused on wooing customers into stores and entertaining them to get them to part with Rudd’s “pre-Christmas present”. It worked.

Harvey Norman was buoyant about figures posted, Wesfarmers Group posted growth in all key lines of business, and our Aussie Woolworths should follow with consistent sales results in the coming weeks. JB Hi-Fi, as well as Target, Big W and K-mart will benefit from the demise of EzyDVD.

The year 2009 in Australian retailing will be a little bumpy; but we are a long way away from Europe and North America, with a different business and social structure. We aren’t completely immune, but the majority of our retailers are strong and well run. Their market shares will improve as each weak player exits.

Comments

Rachael Milne from SimpleNet writes: Great article Kevin. I too did some high street shopping in the UK, Ireland and UAE over the festive period. While the Irish have been talking about downturn / recession / death of the Celtic tiger for at least eight months, it was Britain that was practically giving their stock away with HUGE PRE-Christmas sales that were appealing even when travelling on the Aussie dollar.

Even with the UAE sales (and hundreds of malls!) I was still better off shopping in the UK. What did surprise me was the choice, availability and high quality of the UK supermarkets (Tesco and Sainsbury’s) and their very attractive pre and post Christmas offers. I think we pay too much on food and groceries in Australia and have very little choice. Supermarkets are going to be doing very well out of us during the downturn as more people entertain in, so it’s about time they showed us some real value!