Welcome to my fourth blog. In the wake of Christmas and a few days after Comet shut its’ doors for the last time and disappeared from our High Streets forever, I challenge an industry which is adding more and more space almost irresponsibly.
We have witnessed further retail casualties during 2012. Clinton Cards, JJB Sports and lately Comet. Yet the industry is adding more capacity which is out stripping demand growth. All the while more and more retail space is being added the virtual capacity is growing at a very fast pace. One food retail analyst looks at this virtual growth in space terms and has calculated that on-line food shopping is the equivalent to 1m sq ft of space and rising. The growth in retail space from the 90s and the naughties has already created an over supply and yet all the major food retailers have plans to add more and more capacity into the market.
Retailers love new shops and thrive on new formats designed to fuel the top line growth in what are predominately fixed cost businesses. Without top line growth ahead of cost inflation retailers will suffer profit decline. The current economic conditions where real disposable household income is falling below the rate of inflation, will result in profits falling and more retailers running into difficulties.
So far retail casualties have been caused by one of two things: firstly those retailers which failed to adjust their proposition to the changes in consumer demand and secondly those retailers ladened with debt that they could not service, generally as a result of private equity ownership. However 2013 will see the first signs of a disturbing third category which will be derived from an over supply in the market. Simple and basic economic theory says that where supply is greater than demand prices will fall and with them profits will tumble.
The economic outlook for 2013 is no better than that we experienced in 2012. HMV will be lucky to survive. This is a retailer which falls into the first category. Ocado and possibly New Look will also find 2013 difficult . These are retailers saddled with too much debt and fall into the second category. Who will be a victim of the new third category described above. Could this be the year of the Titanic? Tesco, Sainsbury or Morrison, all in the squeezed middle ground and Tesco with the legacy of exiting the costly USA. Who knows?
What do you think?
Recent Comments