Archive for November, 2008

How will you cope with the VAT changes?

Tuesday, November 25th, 2008

So, the much predicted 2.5% drop in VAT was unveiled yesterday. (Strange how the government claims no leaks and yet all the pundits seemed to have agreed a 15% VAT would be introduced!!). It may not seem much but as one well known supermarket chain is eager to claim – ‘every little helps’.

How will you deal with the cut? Will you go around and reduce your £29.99 dresses to £29.35? Will you put larger discounts on some items (slow moving stuff) and nothing on others? How will the public react to that? What about giving a general 2.1% discount on all items at the point of paying?

“Hey, wait a minute! What do you mean 2.1%? The VAT has been reduced by 2.5%” I can hear Joe Public shout.  Now you try an explain to our mathematically challenged customers that an item costing £100 + VAT means it is reducing from £117.50 to £115.00 which is actually a reduction of 2.12766% (to 6 significant figures) from the selling price.

Quite frankly if would have been simpler all round if personal income tax allowances would have increased with immediate effect meaning a  nice bonus in the November wage packet with 8 months extra tax allowances (Tax year April – Nov) and then a little extra each month thereafter. However, this would not have helped the unemployed unless you increased the pensions and tax credits (or whatever user friendly buzz words are used nowadays for the ‘dole’) and then, heaven forbid, the ungrateful consumer decides to save it instead of passing it on to the hard pressed retailers in exchange for stuff they probably didn’t need anyway.

I understand Philip Green is sitting down on Tuesday with his managers to discuss how best to pass on the reduction. Perhaps we can just make it easy and change the existing signs in the windows to 22.1% OFF EVERTHING……. or should that now be 21.7% OFF EVERYTHING (you do the maths!!!)

Tony Heywood – Gilcrest Services Ltd
Retail Troubleshooter
Rescue and Recovery Consultant
www.gilcrest.com

The Mother of All Sales

Wednesday, November 19th, 2008

It looks like the early sales I predicted in my post of 11th Nov Is the Base Rate Drop enough to save Christmas Sales is starting to happen already. Debenhams started a 3 day sale today, Marks & Spencer are having a 20% off day tomorrow and Philip Green’s The Arcadia Group are, according to analysts, about to start their sale this week.

With still 5 weeks until Christmas this is a sign of desperation not seen for many years. It also begs the question as to whether the sales will be kept going for several weeks or will (clothing and footwear) retailers bring in their Spring stock early – perhaps a bit of both?

What you should now be doing? Well, as the saying goes, ‘if you can’t beat them, join them’ so it will be a brave retailer who tries to go it alone. Prepare to get out the red marker pens as the ‘big boys’ marketing clout should bring those who still have money to spend out into the shopping centres and if you are not creating on offer in your window they are not going to come in. You may not need to slash the prices off everything. A targeted and well thought out mark-down strategy could strike a balance between cash flow and profitability with the hope that customers, once through the door, will still buy full price merchandise.

Here’s food for thought. I read an article yesterday advocating that instead of discounting, if retailers increased their prices by 10% they could take a 20% drop in sales and still make the same gross profit. Well the maths may be correct (obviously depending on your margin etc) but unless you have no competition the reality may be very different. Still it’s something you may want to consider on specific lines where you may have an retail advantage.

Late News – Woolworths are in talks to sell all of their stores. It is believed that Hilco the ‘turnaround specialists’ are looking to buy 815 stores for the grand sum of £1 – considering Woolies rejected an offer from Iceland of £50 million in August – this looks like the Mother of all Christmas Sales’!!!

Tony Heywood – Gilcrest Services Ltd
Retail Troubleshooter
Rescue and Recovery Consultant
www.gilcrest.com

Recession and the Retailer

Thursday, November 13th, 2008

So Mervyn King, The Governor of the Bank of England believes we are now in a recession. What a surprise! It’s something we’ve all believed for some time even if the official statistics don’t yet show it (technically 2 quarters of negative growth). He’s revised his forecast to show a contraction in the economy by about 2% sometime in March or April next year. This will cumulate in a fairly painful recession in 2009 with a decline of around 1.5%  for the year followed by the economy recovering in 2010 and strong growth in 2011! 

What does this mean for the retailer? As always in a declining market the weak will suffer and the strong will survive and prosper to take advantage of their weaker rivals. Even more so, having enticing products at the right price coupled with a strong balance sheet is the key to survival. There are signs that those retailers catering for the ‘value for money’ end of the market are gaining market share as consumers are trading down rather than stopping buying. The Business Advisory Group Delloite suggested that UK consumers plan to spend 7% less this Christmas than they did last year. The immediate thought is that there will be 7% less items sold but it could just as easily equate to the same items for 7% less than last years price (assuming a current inflation of 5% – that’s a whopping 12%!) As many of the retailers costs have increased this year (rent, business rates, electricity, minimum wages) the outlook for Christmas and next year is very depressing.

Action needs to be taken now!!! 

  • Keep stock levels tight – can any orders be cancelled – can stock be returned if late or poor quality for example.

  • Reduce selling prices – some discounting now can avoid deep cuts later.

  • Will your suppliers contribute to marketing costs – to fund your promotions? Can they supply stock on Sale of Return?

  • Take a look at the overheads (again!) do you need all those employees? Would part timers covering the busy periods be more cost effective than full time staff? Do you need the expensive Xmas party – taking them down the local pub/bar could help team building without breaking the bank.

  • Contact the Landlord now to see if monthly payment is acceptable BEFORE the December rent demand arrives.

Don’t procrastinate – survival is the key  

Next, I’ll tell you how to take advantage of the recession! 

Tony Heywood
Retail Troubleshooter
Rescue and Recovery Consultant
Gilcrest Services Ltd
www.gilcrest.com

Is the Base Rate Drop enough to save Christmas Sales

Tuesday, November 11th, 2008

Today the British Retail Consortium (BRC) announced that retail sales were down on 1 year ago – albeit only 0.1% (2.2% on a like for like basis) although this number is much worse if you take inflation into account. Last week The Bank of England caught everyone by surprise with a 1.5% drop in Base Rates. Was this a good thing? Is the economy in a much more serious state than we imagined? Yesterday, the 2 main opposite parties were advocating tax cuts and Gordon Brown strongly hinted at the possibility. So how is all this going to affect sales? 

For the sake of argument let’s simplify our consumer groups into the Younger Generation (YG), Middle Generation (MG) and the Older Generation (OG). How are these groups affected? To generalise, YG tend to live for the day and the interest rate has no effect, MG are likely to have mortgages and should have a welcome boost to their disposable income but not until December or January and then not at all if they are on a fixed rate mortgage. OG may be relying on savings and as the interest will significantly decrease so they may well have to tighten their belts.   The more important factor is whether the interest cut will instil a ‘feel good’ factor so that customers are more prepared to ‘splash the plastic’ feeing more confident of reduced outgoings and a lower risk of redundancy. Will it happen?

My feeling is that it is too late to have much impact on Christmas sales and there is likely to be a ‘bloodbath’ on the High Street with Winter Sales starting earlier incorporating savage cuts.  Cash is King, so to survive retailers must keep their overheads and stock levels as low as they possibly can and preserve cash flow. 

Tony Heywood
Retail Troubleshooter
Rescue and Recovery Consultant
Gilcrest Services Ltd
www.gilcrest.com