View from City Road: Recovery sorting wheat from chaff
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Your support makes all the difference.Successful retailing is easy according to Lord Wolfson, chairman of Next. All you have to do is increase your sales without adding space and profits will surge ahead. Mmmm.
Fatuous though this statement might seem, the formula certainly seems to be working at Next, where a 17.7 per cent rise in turnover, through just four more stores, was translated into a 64 per cent rise in operating profits. Companies like Sears, Burton and Kingfisher have read the same textbooks. They know they have to push far more sales through the existing overhead structure: the trouble is, they still haven't worked out how to do it.
Next was lucky in the sense that it hit the rocks ahead of its rivals, giving it time to offload surplus space - to the likes of Burton or Sears - before the market collapsed. While it had to tinker with its merchandise - offering jeans to men and more than just party-wear to children - its formula of well-made fashion for twentysomethings has remained potent. Burton still has far too many Top Shop, Principles and Dorothy Perkins stores, and an undifferentiated product range.
Paradoxically, it is recovery, not recession, that is sorting the wheat from the chaff. In the early 1990s, it was easy to blame stay-at-home shoppers for poor results. It is now clear from the retail sales figures that consumers are spending again, but grudgingly and selectively.
Interest rate rises will make the present squeeze on margins worse still but the best store groups should still be able to cope. Next now offers the same range in its mail order catalogue as its stores, increasing buying efficiency; Marks & Spencer is constantly working with suppliers on cutting lead-times and reducing mark-downs; Boots' computer systems make it one of the most efficient retailers around. This week's disappointing results from Kingfisher show how difficult it is to emulate that success.
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