Poundland and the 99p Stores

Poundland wants to buy 99p Stores and I was invited, along with retail analyst, Kate Hardcastle, to discuss this with Naga Munchetty and Charlie Stayt on BBC Breakfast this morning.

Poundland has around 600 stores and plans to take-over all 251 99p Stores. This ambitious expansion strategy is typical of many UK retailers and, as a result, we have a very concentrated retail landscape. As a nation, a high percentage of retail sales are transacted through a relatively low number of multiple retailers.

Growth through acquisition is somewhat inevitable; Poundland now has to keep a very impatient set of shareholders happy. Since it was floated on the stock exchange last year, shares in Poundland dropped 3.7% as the company saw a slowdown in growth, mainly due to planned new stores not opening on time. With the city breathing down its neck, acquisition is the quickest way to grow. If the deal goes through, Poundland gets 50% bigger overnight, rather than having to wait to expand incrementally, where suitable premises have to be found on a town-by-town basis.

Poundland have been very successful, despite that small share price blip. They generate more sales per store than the 99p Stores, and have more outlets, so are the stronger operator. They have invested in store development, so their stores look modern and well organised. They have expanded their range to encourage more affluent customers, like their bakeware tie-in with Jane Asher. Finally, they work with big, well-known brands to offer consumers the products they are used to.

After so much doom and gloom about town centres, it is good to see that some high street retailers are doing so well. This supports our High Street 2020 findings – our analysis of Springboard’s national footfall data shows that many towns are doing fine. Especially those that are well on their way to adjusting to structural changes in the sector, by becoming ‘convenience centres’ – where people pop in regularly for everyday items, food, personal and household products, rather than more expensive things like clothing.

The fixed-price retailers are well placed to take advantage of these changes in shopping habits – and strengthen the offer of a convenient town centre – as they are reliable, in terms of range, price and opening hours. The fixed-price retailers have taken trade from lots of different retailers – including the local market. In fact, in terms of offer, a traditional market is probably a closer rival to Poundland than the discount supermarkets. Many traditional markets offer very similar merchandise – sometimes even cheaper. The problem with markets is they are often not so well organised and well branded and do not have such a clear fixed-price message.

The Competition and Markets Authority (CMA) will be investigating the deal as they will want to be assured that both consumers and suppliers will not be disadvantaged by the loss of a fixed-price retailer (i.e 99p Stores).

On the supply side – even with the additional stores, Poundland will not be powerful enough to exert undue pressure on suppliers. For example, their sales of FMCG brands are a drop in the ocean compared to the ‘Big Four’.

Likewise, it’s pretty hard to see how the price the consumer pays would be adversely affected as both companies effectively offer the same products at the same price (give or take a penny). Normally the CMA are concerned that a buyout of this nature could force prices up for consumers, but unless Poundland change their brand to TwoPoundland or even OnePoundTenLand after the acquisition I can’t see how prices can rise.

What the CMA may do is force Poundland to give up some of their stores so that other rivals can compete more fairly, with a more similarly sized portfolio. But retail competition is a very local issue, and unless specific stores are named by the CMA for divestment, then it’s unlikely to impact on Poundland’s position.


Improving high street performance by communication

As part of a town or city’s marketing communications, communication strategies need to highlight retail change and need to encourage customers to change their shopping habits in a way that will sustain such change (Kirkup & Rafiq, 1999; Warnaby, Bennison, & Davies, 2005).

A good example of this is communicating changes in opening hours. For example, late night opening initiatives can fail if shoppers are unaware of the extended opening times.

Whilst place promotion and communication strategies to shoppers are, on the whole, improving; communication between traders on the High Street is very poor. A study we undertook in 2005 showed that only 40% of
SME traders were in any sort of network to receive information about their sector or location.

There is more commentary about communication contained in our blogs on collaboration, engagement and networks.


Kirkup, M. H., & Rafiq, M. (1999). Marketing shopping centres: challenges in the UK context. Journal of Marketing Practice: Applied Marketing Science, 5(5), 119–133.


Warnaby, G., Bennison, D., & Davies, B. J. (2005). Marketing communications in planned shopping centres: evidence from the UK. International Journal of Retail & Distribution Management, 33(12), 893–904.


Morrison’s launches online grocery service

On Friday I did an interview with BBC 5 live about Morrisons’ decision to start offering an online grocery service in January 2014. Whilst I don’t normally talk about retail in my blog I think this does have some ramifications for the high street.

You can listen to it here

Morrisons is very late with this offer. Waitrose for example has been offering home delivery of its groceries since 2002.

The grocery retail sector in the UK is worth £163 billion. Even though only 5.5% of grocery retail sales are online as one of the Big 4 retailers, Morrisons may have been losing up to £1 billion a year in sales by not offering an online service to its customers.

This was especially apparent over Christmas when they lost out to other retailers that offer customers on-line ordering flexibility and the convenience of home delivery.

But let’s not confuse sales with profitability. It is estimated that it costs £15 to service the average online shopping basket. When you think that customers actually only pay around about £5 for the service then you can see that online delivery eats into retailers’ profitability.

But Morrisons’ market share is falling and basically, they need to restore confidence in their offer to their shareholders and investors.

Their choice of entry into the online grocery market with logistics partner Ocado is expensive but allows Morrisons to compete in their peer group, in other words by offering nationwide coverage by January next year.

If you order your food online from Morrisons, it will be delivered by Ocado, albeit in a Morrisons branded van. Basically Ocado are offering Morrisons the same service they have provided Waitrose for over 10 years. And Waitrose are not very happy about the Morrison deal.

So, is it worth Ocado upsetting such a long-term and important partner like Waitrose?

Well, Waitrose’s market share is growing but at 5% it’s less than half of Morrison’s.

Also Waitrose positions itself as a more upmarket retailer so it’s always going to have a smaller market share than a ‘big middle’ retailer like Morrisons.

Ocado’s business model relies on a percentage of sales income from its retail partners so potentially it can make a lot more money with Morrisons.

Also, Waitrose has been investing in its own delivery service, initially in London, when its exclusive arrangement with Ocado ended within the M25 area.

Waitrose sees itself as an omni-channel retailer in which case it is going to want to control all aspects of its channels to market, to ensure a standard level of customer service and control all ‘touch points’ with its brand.

Whilst it is still tied to Ocado to deliver its groceries outside of the M25 area until 2017, Waitrose has been pushing its click and collect service which means customers can order online and collect from 152 stores and also some John Lewis outlets. Sales through click and collect nearly doubled last year. This service is expected to be rolled out to all John Lewis stores and Waitrose convenience stores this year.

So what does this mean for the high street? Well as the last big grocery retailer enters the online delivery market I think we will start to see some impact on prices.

Serving the customer from a traditional store is cheaper at the moment. Customers make their own way to the store, they pick their own items, they pack them and deliver them back home themselves. The customer bares all the labour and transport costs.

High street stores may offer cheaper prices to consumers, thereby differentiating themselves by channel rather than brand. The discount retailers like Aldi and Lidl are certainly doing very well and many trade from in town or edge of town locations.

It seems only fair to reward customers with cheaper prices if they are prepared to offer their own home delivery service.


Multiple retailers to appoint High Street Champions

In an initiative recently announced major retailers have pledged their support to local towns by providing High Street Champions.

The Co-op, Boots, Marks & Spencer and Wilkinson are just some of the high street retailers that say they are going appoint a local store manager to work in the community, to advance the revitalisation of their local high street.

Town centre manager readers will probably be wondering what all the fuss is about. There have been multiple retailer representatives on town centre partnerships over the past 20 years in the UK. However, over time, the initial enthusiasm from retailers like Sainsburys has reduced as has their their financial support.

Of course it is important to have all high street stakeholders working together. However, UK retailing is very centralised and hierarchical in decision-making. After the initial fanfare, just how involved local store managers can get into the ins and outs of the problems facing local high streets remains to be seen. Nevertheless, it makes sense. Not just to the high street but to the retailers themselves. Whilst multiple retailers benefit from national economies of scale, they all serve local markets. Having a better understanding of their contribution to the overall high-street product that serves a specific target market sounds like good business sense.

You can read more about the initiative at www.retail-week.com/property/mary-portas-high-street-review-/retailers-offer-up-staff-to-support-portas-pilot-schemes/5048263.article

Cathy, Professor of Shops


Today saw the Queen of Shop’s review of Britain’s high streets.  Mary Portas’ brief from David Cameron was “to create vibrant and diverse town centres and bring back the bustle to our high streets”.  This call for Britain’s towns to be ‘vital and viable’ is nothing new, in fact this commitment has been incorporated into various strands of national policy for at least 15 years.   

So why is the future for towns looking so bleak?  And what can the Queen of Shops do, that three successive governments have said they’d do and haven’t?       

Mary says that her report is not about pointing the finger of blame but in order to solve problems, you have to fully understand them.  The factors that drive town centre decline are complicated, interlinked, interdisciplinary and paradoxical.  As Mary points out  “(w)hen I started my work on the review, I ploughed through a huge pile of previous reports about high streets and town centres and found so many good ideas which have simply sat on the shelf. Pretty soon I realised why. What I discovered is the complexity and diversity of the problems faced by high streets.   And I’ve learnt just how much of a complex web of interests and stakeholders are involved, many of whom have simply failed to collaborate or compromise”.  

Town centre decline is ‘a messy problem’, it doesn’t fit neatly into one government department, one of the reasons why the Prime Minister chose to ask a celebrity consultant to conduct a review rather than his own civil servants.  Mary says she doesn’t want to point the finger of blame in her report, but to solve a problem you need to fully understand it – and whilst she makes a lot of sensible recommendations, she doesn’t ask why the majority of her recommendations have already made and in some instances, put into practice, but have still not worked.

“It’s obvious, it’s all wrong and anyway they said it years ago”.   Most of the on-line comments about her recommendations fit this paraphrase coined by the respected economic geographer Paul Krugman, commenting on how his work on new economic geography and city development was received from peer reviewers.  Nevertheless, these comments raise interesting questions. If a solution is obvious and ‘old hat’, then what has stopped it being put into practice?  Likewise, if something is ‘all wrong’ then why is that? And is the proposal at one end of a ‘solution continuum’, with its opposite ‘all right’?

Although there are 28 recommendations, they fall into six main categories:  getting town centres running like businesses, getting the basics right to allow business to flourish, levelling the playing field, defining landlords roles and responsibilities, giving communities a greater say and re-imagining our high streets.

They are a mixture of top-down and bottom-up solutions that can be summed up in one recommendation.  Change needs to be locally-driven within a supportive policy framework.

But three successive governments have known this already – and backed a commitment to ‘vital and viable’ town centres.  We know many towns are failing, especially those that are near cities and coastal towns, where retail vacancy rates run at nearly 30%.  Even the ones that are ‘viable’ or, in other words, are economically successful, are not vital in the same way they were. Research by the New Economics Foundation has showed that 41% of towns and cities are ‘clone towns’ i.e. more than half their shops are chains.  Its hardly surprising people are not using their town centre if it is only offering them an inconvenient ‘copy’ of what’s available in other more accessible areas such as out-of-town superstores or larger cities, that have good public transport links.

One of Mary’s main recommendations is to create town teams to take a more direct role in the day-to-day running of a town and also create a vision and long-term plan for the place’s future.  There are already, I would estimate, 1,000 or so places that have such a partnership.  It might not be formal town centre management or a Business Improvement District, but the principle’s the same.  A partnership of local stakeholders, made up of businesses, the council and local residents.  Town centre management has been in place in the UK for nearly 25 years but it hasn’t been properly supported.  We know it’s a good idea but how do we actually encourage and facilitate it?

Mary also talks about communities having more say, again an issue highlighted in recent government reforms such as the Localism Bill.  Traditionally it has been elected council members and their officers responsible for places.  The very fact that so many places have lost their way, illustrates Mary’s comment that these areas have been mismanaged and ignored for too long.  But in my experience it is hard to challenge the status quo, unless the existing governance structures are open to such change.  People responsible for places need to have the right skills and knowledge – it is a really important job so they need to be competent.  If they need some training and support, this needs to be available and if they are not up to the job, they shouldn’t do it.  Again whilst Mary calls for professional and inclusive place management, she doesn’t say how this will happen.  

Her other main and very important recommendation is to level the playing field.  In particular recommendation 14 states “Make explicit a presumption in favour of town centre development in the wording of the National Planning Policy Framework”.  This will be interesting as this gets to the heart of the issue; will a government introducing planning reforms to simplify decision making by getting rid of such guidance and statements be prepared to introduce this intervention?  Local action is crucial, as high streets won’t fix themselves, but this effort has to be within a supportive planning policy framework.  So if the Government really wants to put ‘town centres first’ then by default, it means other types of development coming last.

Town centres are more than just shopping destinations.  They have been the heart of the community, in economic, social and political terms.  Of course, if a centre doesn’t have a town to serve anymore, then its declined should be managed.  But for those towns and cities that still have a catchment, then global trends, such as increasing transport costs, an ageing population and, ultimately, global warming, means that politicians should be doing what they can today to ‘future-proof’ our towns and cities.  They offer a concentration of services with transport links and a ready made ‘brand’ (their name).  In the long run, it is so much cheaper to not reinvent the wheel!


A cold wind blows….

Today, another icy chill creeps across many high streets as Baugur, the retailing group from Iceland looks set to go into administration. It currently owns/controls a number of familiar names including Coast, Principles, Hamleys and House of Fraser (link).

Wyedale Garden Centres is also one of their assets and it’s a good job I am moving into the city centre (oops secret is out) as, at the moment, the local Wyedale garden centre is the only retailer within a mile of my house.

I am not privy to any information relating to the future of this particular retail brand but, from a purely personal point of view, loosing the garden centre would be a great blow to me and the rest of the people of Chadkirk.

One of its most unusual features is the miniature steam railway, which runs around its grounds, delighting children and many middle-aged men alike. It is a modern-day by-product of globalisation, that such a quirky, seemingly ‘unique’ place in the North West of England can be affected by what goes on in Iceland.

Iceland was one country that the financially unenlightened (i.e. me, Gordon Brown etc.) would never have thought could have such an impact of local places.

Not only does the news about Baugur cast even more of a shadow over many high streets and centres, many local authorities (123) face the challenge of getting nearly £1bn of money back from failed Icelandic banks.

Obviously, the loss of this money will have an impact on the level of service local authorities can provide, if not now, then in the future.

Perhaps we should be thinking about a standard for the word ‘local’, just like ‘organic’ has been given a specific interpretation by the Soil Association (and, well, to be honest a different interpretation by the EU…..but you know what I mean)?

Maybe a ‘local’ authority should be just that, investing and operating in a more locally favourably manner, investing funds into, for example, local credit unions rather than international financial institutions?