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Lessons from the UK retail downturn

  • News
  • October 18, 2018
  • Jai Breitnauer
Lessons from the UK retail downturn

Earlier this year, Britain’s answer to Bunnings (also then owned by Wesfarmers), the national chain called Homebase, was urgently sold off – for just £1. Mothercare, established in 1961 and a stalwart of the British High Street announced the closure of 50 stores and M&S announced 100 stores would close and others would be downsized. All this begs the question, what on earth is going on in Britain, and what can we learn from it here in New Zealand?

Rising costs

In an article in British paper The Observer in May, it was postulated that the fall in value of the British pound (due to Brexit) had led to higher costs for manufacturers and importers who relied on products and parts from overseas. Coupled with this is a rise in business rates. “(The) stifling business rates are crippling everyone from small business owners through to major retailers” says UK-based retail reporter Susanne Bearne. “(Coupled with) the impact of online spend, there’s less need for expensive bricks and mortar stores.” The rise in the legal minimum wage has also had an impact. 

Here in NZ, we’ve seen a recent dramatic downturn in the value of the dollar after a year of watching it do the hokey cokey. We’ve also had a small increase in the minimum wage, plus other costs such as fuel have gone up, so this is an issue that could be a challenge for us over the coming year as well.

‘Peak Stuff’

As early as January 2016, The Guardian warned that UK consumers were reaching ‘Peak Stuff’ – the point where having more is no longer satisfying. “Around the developed world, consumers seem to be losing their appetite for more,” wrote Will Hutton. “Even goods for which there once seemed insatiable demand seem to be losing their lustre.” 

Steve Howard, head of Ikea’s sustainability unit, used the concept of Peak Stuff as inspiration for Ikea’s recycling project. Barclaycard UK stats from 2017 showed a 10 percent increase on spending on entertainment and 11.4 percent on telecoms, demonstrating that our hard working, lower paid, more-likely-to-be-renting Millennials crave experiences they can immortalise on social media, not ‘things’ they have to carry between short term lets. 

“Retailer need to invest more in their stores and create compelling reasons beyond just products for people to walk in,” says Bearne. “It’s all about the ‘experience’. For example, Burberry added a restaurant within one of its central London stores. Good tech is also important, making shopping seamless. Sephora in the US gives its staff hand held devices which they can serve customers on.”

A quick check of the headlines over the last 18 months reveals that here in NZ we may have reached ‘Peak Beer’, ‘Peak Awareness Day’ and, in southland at least, ‘Peak Cow’. According to Retail NZ, 42 percent of retailers reported a failure to meet their sales targets in the first half of 2018. Kiwis may not have quite reached Peak Stuff, but it could well be on its way. 

Bad management

Heavy foreign investment in failing UK stores has also introduced bad management in many cases. Not deliberately of course, but a misunderstanding of the market coupled with a bit of ‘cronyism’ has been disastrous for some.

The aforementioned Wesfarmers bought Homebase in 2016, a 40-year-old, profitable brand that just needed a facelift. Attempts to restyle it as a UK Bunnings, axeing the profitable home furnishings part of the business and dissolving the experienced senior management team the minute the contract was signed resulted in what commentators such as Richard Lim from analysis firm Retail Economics branded an ‘unbelievable disaster’.

Equally, the recently collapsed high street stalwart House of Fraser, bought by a Chinese conglomerate in 2014, have had a similar; ousting crucial senior managers early and replacing them with people with little retail experience, and a lack of investment in stores leaving them tired and unappealing. 

It was revealed in March that foreign investment in New Zealand has increased by 653 per cent in the last 28 years, with foreign ownership controlling 38 percent of the market in 2017*, so making sure business owners from overseas understand the market here before buying in should definitely be a priority for the Ministry of Foreign Affairs and Trade. 

*According to lobby group Campaign Against Foreign Control of Aotearoa

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