In mid-September 2018 and after two years in development, Tesco opened two new stores under the brand name of “Jack’s”.  Called after the original founder of Tesco, Jack Cohen and precisely one hundred years after he launched the Tesco concept, this new brand hit the high street.

What is the essence of the brand and who is designed to compete against?

Many commentators see it as an attempt to challenge the continued growth of Aldi and Lidl, the two German discounters. They have more than doubled their combined market share of the UK grocery market to 13.1 per cent.

Around 2,600 products will feature in the typical Jack’s store. This compares to around 1,500 or so items in an Aldi and Lidl store.

A key element of this new retail concept is the focus on “Britishness”. Around eight per cent of the products are sourced within the UK. The British flag appears prominently on the packaging. Of the 2,600 items, 1,800 will be branded as Jack’s. The remainder will contain “big name” brands such as Kellogg’s, Coca Cola and Lea and Perkins Worcestershire sauces.

The décor and layout of the Jack’s stores are broadly similar to Aldi and Lidl: wide spaces between the aisles, products which are stacked on pallets and aisles devoted to promotions on big name brands as well as an aisle which features promotions on homeware items called “When it’s gone; it’s gone”. To underline the minimalist nature of the stores, polished cement floor will be employed: in contrast to terracotta tiles which are prominent in traditional Tesco stores. Other initiatives include the concept of “Fresh Five”: a fruit and vegetable offer which changes fortnightly. This is suspiciously similar to Aldi’s “Super Six” promotions. Is this a form of imitation as opposed to innovation?

Workers will not wear a Tesco uniform. They will earn more than their Tesco counterparts on basic pay: £9 as compared to £8.42 and £8.85 at Aldi. Crucially they will not earn the normal staff discount or annual bonus.

Interestingly it adopts a “local pricing” strategy build around the strapline of being “the cheapest in town”. This implies that it will be the lowest on price, compared to Aldi and Lidl in any given town. This is a sharp departure from the strategies employed by Aldi and Lidl. Their respective models are based on the principle of standardisation. Pricing decisions are taken centrally at their Head Offices. The Jack’s model, in the context of pricing, effectively gives autonomy to store and regional managers.

It intends to use three hundred and fifty of its regular Tesco suppliers to stock the stores. This allows it to leverage its existing power and influence and derive some cost savings.

Two stores were opened in mid-September, essentially old Tesco stores that had been “mothballed”. The plan is to have around ten to fifteen stores in operation by early 2019.

This has become a bone of contention among retail analysts. Some argue that it is a very slow roll-out and will fail to make a sufficient footprint to seriously threaten Aldi or Lidl. The essence of this argument is that you are better off making a big bang – with numerous store opening as opposed to “dipping your toe in the water. To be fair Tesco has committed over £20 million on the development of the brand over the past two years.

The counter-argument to their approach is that other supermarket groups have tried similar brand launches and failed. For instance Sainsbury’s opened a number of Netto stores (Danish food retailer) in 2014 but closed them down two years later because they made little impact.

In terms of positioning and identifying a point of differentiation it is focusing heavily on its “Britishness”. This is reflected in items such as Cornish camembert and Derbyshire craft beer. Also all milk-based items are to be sourced from within the UK.

Commentators (some cynics perhaps) see this launch as an opportunistic attempt to leap onto the “Britishness” dimension, roughly six months shy of Brexit. Some argue that the nationalistic (jingoistic) dimensions that are likely to gain in strength as the March 2019 deadline approaches, will allow Jack’s to make a significant impression on the high street. That might be going a bit too far perhaps. Is it a template based around the notion of Jack’s being “a bargain shop for Brexit? It will stock a couple of categories of product that are not demonstrably British: bananas (which are climate dependent), and Italian pasta products.

Some fear that cannibalisation will occur: any sales generated in Jack’s may come from existing Tesco customers simply switching over. Overall net sales increases may be minimal. The CEO of Tesco feels that this is not an issue to be unduly concerned with. He argues that “I’d always rather cannibalise myself than have someone cannibalise me”. This suggests that he expects some cannibalisation but as long as it is only regular Tesco customers shifting to Jack’s rather than Aldi or Lidl customers then everything is all right. This is a contentious perception in my view. What do you think?

Interestingly existing Club Card holders cannot use their privileges in Jack’s stores. This is probably a good move as it explicitly recognises that Jack’s is a separate brand. Again, what do you think?

As Tesco roll out new stores (10-15) over the next few months, a key feature of the strategy is that they will use stores that have been closed in the past couple of years.

The intention is not to set up a web-based channel for Jack’s shoppers. Instead Tesco has developed a payment app which shoppers can use when they make a shopping visit to a store. This is similar to the strategies employed by Aldi and Lidl.

Senior management in Tesco have been quoted as expressing the view that Jack’s is designed to “appeal to the economically challenged that need a bargain and the affluent shopper that seeks a bargain”.

It is too early obviously to make any pronouncements about the likely success or otherwise of this venture. I would make a number of observations however.

The slow roll-out of Jack’s stores either smacks of undue caution on the part of Tesco or an opportunity to “test” out the concept and make adjustments accordingly. If it “fails” over the next year to eighteen months, then Tesco will likely “pull the plug”. However it will not represent a major blow. Relatively speaking the company has not spent much on the launch; with the use of existing stores or ones that have been closed.

If it fails, it will give them “a bloody nose”.

There is an obvious danger that is could be making the classic mistake of aping the competition and failing to provide any real point of differentiation between Jack’s and the Aldi / Lidl’s of this world. “Me too” products very rarely if ever make any impact. We have to ask the following question. Is there sufficient differentiation to attract customers to this concept? I am not fully convinced.

There is a tendency for shoppers to make more use of “top-up” shopping. Aldi and Lidl have benefited from the convenience they provide to shoppers in the form of small product ranges, small stores and ease of access. Jack’s falls into this category but may not make any inroads on these established discounters.

The emphasis on Britishness might appeal to people who support Brexit and, in the event of a disorderly and messy exit from the EU, might be seen as tangible evidence of a “siege mentality”. This might generate some sales but is it likely to create long-term benefits?

Let’s review the case in a future blog.



The John Lewis Partnership has been one of the enduring retail success stories of the past twenty years or so. Until recently it was right up there as one of the most profitable retailers. Recently, mainly due to the shift from bricks and mortar, the increases in business rates and the general struggles of Department stores, it has encountered a rocky patch. This is likely to be reflected in a profit warning in his interim results to be presented in mid-September 2018.

Coincidently it has also undergone it first major brand-refresh in seventeen years. This attracted my attention as it can provide some interesting learning points for us as we study retailing in general and branding in particular.

What does “re-brand” entail? How is it likely to potential impact on the future direction of the business? Let’s examine these issues in greater detail.

The John Lewis Partnership involves two “strings to its bow. The John Lewis Department stores and the Waitrose chain of supermarkets. The main points of differentiation across the two operations have focused on its “partnership” model and an emphasis on customer service and quality products.

In the case of the partnership model the emphasis is placed squarely on the role played by its employees – referred to in all cases as partners. It is also reflected in the way in which they are remunerated: each year a proportion of the profits are shared out by way of bonuses across the partners. This approach has often been highlighted by business consultants in general and Human Resource specialists as an innovative mechanism for motivating and rewarding loyal staff. Problems may arise however when the level of profitability slows and there is no mechanism for paying bonuses.

The John Lewis Partnership is re-branding itself by inserting the “& partners” alongside its logos – resulting in John Lewis & partners and Waitrose & partners.

Cynics might suggest that this is a cynical attempt to seize upon its traditional emphasis on its partners, at a time when its ability to pay bonuses is restricted due to a decrease in profitability. An even more cynical view would be that management is using this approach to demand more from its partners in an environment where the National Living Wage has been increased and where it has cut its staff to allow for the wage increases that are necessary to meet the new demands placed on them by the government.

Critics of “branding gurus” also might argue that simply adding a couple of “vacuous words” to the logo and fascia is unlikely to have any real impact on revolutionising its retail strategy.

The counter-argument revolves around the need for retailer brands such as John Lewis and Waitrose to focus on its key points of differentiation, particularly in a sector which has and continues to undergo major changes in customer behaviour and technology.

An acid test for adjudicating on the appropriateness of a re-brand is the amount of money the company is allocating to the proposed changes.

The John Lewis Partnership plans to spend upwards of £500 million over the next three years on product and service innovations. In particular it will address the need to come up with unique products, more personalised service to its customers and expanding its range of own-labels from thirty to fifty per cent of overall revenue across the two businesses. It also plans to sign agreements (in the case of John Lewis & partners) with a range of relevant international brands to further reinforce its reputation for selling quality products.

In order to address the re-focused pre-eminence of its partners, it envisages a major overall in terms of how to enhance the quality of the shopper experience. For instance all partners will be equipped with iPads and an app which will allow them to send suggestions via email and SMS to customers. They will also engage more proactively via social media platforms with comments and suggestions that reflect the personal preferences and perceptions of shoppers.

In the case of John Lewis & partners their roles will also change. In the case of relatively complex items such as beds, computers and nursery products, partners will in effect become product coaches and advisors. This focus on expert advice is seen as a critical dimension in terms of enhancing the quality of the customer experience.

If we move to Waitrose & partners we will see greater focus on enhancing the roles of partners. They will present themselves as wine and cheese experts, fruit & vegetable facilitators, healthy eating specialists and coffee baristas. This, management argues, will not be just a genuflection to the concept of retail as theatre: partners will be provided with the necessary training to allow them to perform as proper experts, as opposed to playing at being gurus!

The essence of brand equity in my view revolves around the basic principles of trust and confidence on the part of customers and the extent to which this is reflected in their ongoing loyalty and commitment.

We must remember that in both cases (John Lewis and Waitrose) it has long held a strong reputation for service and product quality. This has allowed it to de develop a strong level of brand equity. By achieving this status it also means that loyal customers are willing to pay a premium for items purchased in both dimensions of the overall business This means in theory that they are less resistant to the vagaries of recessionary periods.

In many ways the new strategy proposed is a reinforcement of its existing brand essence.

The partnership also plans to work more closely with its suppliers in general and its farmers in particular. They are seeking improvements in quality while at the same time being conscious of the necessary changes they need to make in order to address more general environmental concerns.

For instance by the end of 2018 they plan to stop using black packaging for meat, fruit & veg and fish products. By 2019 they have set a target of eliminating such packaging totally.

It explains away the impending profit warnings by arguing that major investments in logistics and IT have placed some strain on its resources and that there will be long-term benefits accruing from such initiatives.

It remains to be seen if they can achieve its improvements by focusing on the “people” factor. We are not privy to internal marketing research which they may have conducted. The re-brand” appears to be predicated on the belief that its core shoppers will respond in a very positive fashion to the enhancements in the customer shopping experience that are expected to flow from the initiatives.

Likewise the two businesses will also be expected to drive such enhancements across its online channels.

Is this a minor tweaking of existing core differentiators? Or is it the precursor to a major rejuvenation of the two brands? It is too early to make a coherent observation at this stage. Brands, like humans, need an occasional “freshening up”. Given that it is seventeen years since the last “re-brand” it may be the right time to make such changes. Let’s see what happens over the next year or two.


Burberry, that iconic UK fashion retailer – made famous by its hallmark trench coats, was in the international retail news in July 2018.

It captured the attention of the mainstream UK newspapers when they discovered that it had destroyed over £29 million worth of last season’s inventory. It did so because it wanted to essentially protect its brand equity and heritage and because it was fearful of such inventory falling into the hands of grey channels. The latter are unauthorised channels, not sanctioned by a retailer to sell stock. They provide a threat because they sell stock at seriously discounted prices. It can be argued that this ultimately damages the credibility of a brand – particularly one that is positioned at the premium end of the market. In the case of Burberry around £10 million of the inventory came from its cosmetic supplier – Cody. This supplier was introducing a new range of stock and Burberry clearly had no need for the excess stock from the previous season.

We should note that Burberry experienced brand damage back in the early noughties when it became the “butt” of jokes because all sorts of unsavoury characters – referred to as “chavs”, were to be seen strutting around in the hallmark check scarves. Its loyal customers and opinion formers were not impressed with the apparent thrashing of the brand.

The popular newspapers expressed outrage that a company such as Burberry could adopt such as wasteful approach to dealing with inventory. Surely, they argued, this is symptomatic of greedy companies who refuse to allow merchandise to be sold to people willing to pay for it?

Environmentalists also levelled accusations against Burberry, arguing that the incineration process was a sure-fire way of damaging the environment. A spokesperson for Burberry was quick to assure sceptics that they implemented an environmentally approach by working closely with incineration specialists in order to harness the energy from the process of destroying the merchandise.

Further investigation by the newspapers revealed that this is not an isolated practice. Many fashion label retailers such as H&M also adopt similar practices. In the latter case over 15 tons of H&M inventory was burned in 2017.

Richemont; the luxury branding conglomerate destroyed over £421 million worth of watches from brands such as Cartier, Jaeger and LeCoultre, across its European and Asian markets.

Nike deliberately slashed thousands of its trainers in order to ensure that they could not be re-sold on the grey markets.

Operators such as Kering (which owns Gucci and Bielenciaga), along with H&M arguably adopted more proactive strategies in the context of sustainability. They entered into a scheme called “Worn Again”, where raw material can be converted into yarn to make fabrics and garments. Other retailers also sell off unwanted stock to internal staff.

These examples are good illustrations of what commentators refer to as the “circular economy” – where there is a proactive attempt on the part of companies to re-use stocks.

The journalistic view is that by burning last year’s unsold inventory, Burberry can stop their iconic brand falling into the hands of the “wrong people” via unauthorised channels. These grey channels arguably cannot be eliminated – much like scalpers who re-sell tickets for sports events and concerts.

With better technology, such as RFID it is possible to trace the movement of inventory across the supply chain and beyond. Arguably retailers should be in a stronger position to identify unauthorised channels and their sources – thereby reducing the threat to some extent.

At first glance, burning items would appear to be a drastic way of dealing with a particular problem. Wearing our “marketing hats” however we perhaps need to take a more rounded view of such an approach.

From our analysis of building brands indicates that companies invest large amounts of money in terms of building brand awareness, attracting customers and retaining them. Put simply, strong brands do not emerge as if by magic. They are carefully crafted and marketing to defined market segment. It takes time and money to develop brand equity, to the point where customers are willing to pay a premium for the right to use or wear the particular item. This is particularly the case with luxury, “high end” brands. Anything that potentially threatens this status is likely to damage the brand; in some cases irrevocably.

Building on this line of argument, marketers have a responsibility to protect the brand and have to make decisions that potentially have side-effects, such as deliberately destroying inventory in the process. What are the alternatives? Any suggested initiatives are likely to still damage the brand at best or run the risk of excess items being sold at heavily discounted prices. This destroys the essence of what luxury brands are all about: aspiration, exclusivity and being a member of an elite community. These are potential benefits that some shoppers are willing to pay a high premium in order to bask in the reflected glory of such products.

If luxury brands are consistently available at “knock-down” prices is it not unreasonable to expect a decline in their benefits? It has to be said that the preponderance of online channels does not help. It is more than likely that individuals can track down luxury items far more readily than a decade or so ago.

The onus of course is on the branders to police such activities and take appropriate legal action against offenders.

My concern about the issue of burning inventory is more about managing the manufacturing process and the supply chain than it is about branding issues per se.

To my mind, excessive inventory is a strong indicator that forecasting processes are inefficient, leading to a build-up that inevitably leads to wastage. Many retailers respond to this by using “mark-downs”. This involves selling items at discounted prices in order to shift inventory and generate cash for the business. At the “high end” of fashion retailing however, this is difficult to justify as a strategy. As noted earlier, brand equity erosion is likely to result. It also conditions shoppers to refrain from purchasing immediately and to wait until the expected time when the retailer lowers price.

Luxury brands are all about creating exclusivity and scarcity: not about widespread access or availability.

The real criticism of Burberry lies in their apparent inefficiencies with respect to supply chain management in my view.

Retailers such as Zara have perfected the art of managing the supply and demand equation. They do not release large piles of inventory into the supply chain – instead focusing on small amounts of individual items. Their systems and procedures revolve around quick response. If some items are moving quickly off the shelves, then individual store managers can generate more inventory very quickly. Nothing is produced until firm orders or demand patterns are identified. This does not eliminate the need to carry stock. However it dramatically reduces the need to build up buffer stock.

To me, burning excess stock is a firm indication that the supply chain procedures are too lax and loose. More focus in needed on managing the forecasting process and aligning demand with supply.

What do you think?


In this blog I revisit the case of Marks and Spencer. I hasten to add that I do not have a phobia about this retailer; as I have featured it in previous blogs of mine. I do so because in many ways M&S represents a barometer of how many previously large and successful retailers have been performing in recent years.

When I started to teach retailing in the early 1980’s M&S was held up as one of the shining stars of the retail firmament. It was very successful, appealed to the middle income groups in the UK and seemed to define what quality in clothing was all about, at affordable prices for this segment of the population. It was admired for its approach to managing its supply chain. In the 1980’s it ventured into international retailing with decidedly mixed results. This seemed to be a manifestation of wider problems. As we moved into the “noughties”, M&S struggled to compete with newer entrants such as Zara: the fast retail operator. Zara shattered the conventional approach to fashion retailing.

Traditionally retailers in this sector plotted out their designs for the various seasons a year in advance; did the deals with suppliers and so on. This approach of course left them open to the vagaries of the shopper. What if the pre-designated colours and design failed to be as popular as anticipated? What if the summer “never arrived” in the UK and winter and spring lingered well into August? This resulted inevitably in losses as inventory failed to move off the shelves.

Zara introduced fast-fashion, where designs and merchandise were altered every three to four weeks.

M&S attempted a number of strategies to overcome these challenges. They introduced sub-brands such as Per Una to position it as the doyen of the middle classes. In doing so it lost focus and in my view has drifted firmly into committing the sin of irrelevance. This I believe is the greatest sin that any organisation can make. It raises serious issues about who it actually appeals to.

M&S has punted the view that it is a fashion retailer that appeals to every woman, from seventeen to seventy. How ludicrous is this approach in an era that has been driven by wider choice, more affordable fashion and the importance of individuality. This has been in place for well over a decade or so. As a fashion pundit recently said, “middle-aged women do not sink into cardigans”. They have wider choice and demand more fashion-oriented clothing.

M&S has signally and consistently failed to understand the basic mantra of successful marketing: that you have to bring a focused, targeted and relevant value proposition to the chosen segment(s) of the market.

It does not take rocket science to realise that trendy and professional young women for instance will be comfortable shopping in a retail outlet that is also trying to attract their mothers and grandmothers to the same venue.

Such a blurring of appeal inevitably leads to confusion and mixed signals.

The problems continue unabated for M&S. Results in May 2018 suggest that its share of the UK clothing market will drop from 9.7 per cent to 7.6 per cent in 2018. Primark is likely to overtake it as the UK’s leading clothing retailer.

Meanwhile M&S plans to close over one hundred of its full-line stores (clothing and food halls combined). Its profits have dropped to just under £7 million. Over the next four years around one-third of its clothing stores will close.

It spent over £150 million in 2014 on revamping its website, with mixed success.

More worryingly its food sales have dropped by -.6 per cent during the first three months of 2018. This was an area that in recent years had performed well and counteracted against the poor trading performance of its clothing division.

In an earlier blog I advocated that it should pull out of clothing and focus instead on food – an area where it had built up a reputation for good quality and innovative food selections. It would appear that this area has also stalled in the face of serious competition from a diverse range of operators such as Subway and coffee shops.

As is the case with many formerly successful retailers it would appear as though M&S has been slow to respond to the changes taking place in the retail sector. This is evidenced in its recent series of sales and profits reports.

For the past decade or so, commentators have constantly raised questions about the value proposition put forward by M&S and the lack of a coherent direction. To some extent the food element of its business has propped up the clothing sector.

I have queried the relevance of M&S remaining in the clothing sector. Is it time to question its future existence as a retailer? Has it lost its relevance in the market? Is it irredeemable?

Let us pour over some of the causes of its failure.

Clearly it has too many retail outlets. Closing one-third of its three hundred full-line stores is a step in the direction. But is it too late? Many of the stores have been criticised for looking outdated, in terms of the merchandise that it stocks and the overall appearance. Bringing in coffee shops is only a partial attempt to improve the stores. You could argue that there are too many coffee shops in the high street and in shopping malls anyway! Many of its stores have been in the same locations for years: adding to a perception of staleness and a lack of innovation.

The food halls account for around forty-six per cent of overall profits. This sector also generated much higher margins than the clothing sector. M&S food is perceived as being high in price relative to its competitors. It has over seven hundred Simply Food store on top if its food halls in its mainline stores. Some rationalisation is needed in addition to a review of its offerings and price points.

The way forward would appear to be through its online channel. However until recently it too nearly five seconds for its website to load. This is way behind its competitors. Much more needs to be done to even catch up!

If it belatedly has come to the conclusion that you cannot appeal to everyone in terms of age, size and gender, who should it appeal to? This is arguably at the heart of the problem. Will young people be attracted to some new (yet another remake) approach to fashion design? Will older women be attracted back? Should it specialise in selling knickers? After all one – third of the UK buys its undies from M&S.

It is debatable if it retains much by way of a strong brand equity. I would agree that there is still a residual effect but it is fast running out.

The corporate ethos of M&S has always been built around a strong degree of corporatism and bureaucracy. Male dominated boards in my view do little for helping the organisation to resonate with the changes in the retail space that require them to more flexible and leaner than was the case in the heydays of the 1970’s and 1980’s.

It will require more than a major overhaul to save M&S in my view. Let’s monitor their progress.


Doctors differ; patients die. This cliché might aptly sum up the perceptions that people hold about the latest craze in retailing – Company Voluntary Arrangements (CVA’s)

I touched on this phenomenon in blog sixty-three. Just to recap, a CVA occurs where a company seeks to avoid going into administration. It is a form of insolvency, where the company is allowed to continue operations while taking the opportunity to take stock of its business strategy and off-load debt. It requires the support of seventy-five per cent of its creditors for this to happen.

In the retail context it has become a very popular tool. Retailers are arguably undergoing the most hazardous period for a long time. Consumer spending and confidence has dropped significantly. The on-going onslaught from online retailers continues unabated. Wages are rising. Rental costs have also been rising and business rates in the UK have also increased dramatically in the past couple of years. Net result? Trouble for all retailers, including the “biggies”.

Over the past year in the UK around fifteen major retailers or restaurant chains have pursued the CVA route as a mechanism for survival. “Biggies” such as Maplin and Toys R Us have entered into administration. In addition we have the spectre of business rates. To highlight the costs associated with such rates, toys R Us faced an annual bill for £22 million.

For many years it could be argued that power lay in the hands of landlords and retail developers. Rental agreements were based on twenty-five year, upwards only arrangements. In the good times large retailers in particular were relatively complicit in this approach: based on their optimism that consumer spending would continue to rise. For the most part this was an accurate view. Sure, there were dips and troughs – short-term decline in sales. However it was exacerbated by the major global recession which “kicked in” around 2009. Since then costs have continued to rise. Online retailers not bound the costs of business rates and rental agreements, have continued on their growth trajectory, eating into the sales revenue of the traditional bricks and mortar retailers.

The UK government, despite platitudes and genuflection to small retailers in particular, has continued to see business rates as an easy option when it comes to raising revenue. In 2017 this income source for the government raised a total of £27.3 billion: a quarter of which came from the retail sector.

In the face of spiralling costs, high profile retailers such as Next and House of Fraser have screamed “enough”. Faced with these increasing costs, they have spotted an opportunity (through a CVA) to reduce their store portfolios, re-group, refuse to continue with existing rental agreements and generally streamline their operations. The rationale for this is based on the need to cut costs and compete on a more level playing field with their online oppressors.

It sets us up for a classic case of “who blinks first”. Landlords are firmly in the eye of the storm here. Previously they have enjoyed an unfettered advantage by being able to enforce long-term, upward only agreements. Now retailers are fighting back and demanding a better deal.

Next recently renewed agreements with landlords with nineteen outlets. They achieved a net rent reduction of around twenty-eight per cent. Other retailers are also arguing that landlords have to be more flexible – given the fact that many of them are prepared to negotiate and reduce existing agreements.

Landlords are up in arms over CVAs. They see themselves as being the victims. Other creditors have a vested interest in keeping retailers alive and well. They argue that reductions and cancellations of existing lease arrangements allow retailers to shed a major cost and restructure, while they take the hit. Retailers as a consequence are seen to be rewarded for poor strategy. They can regroup and move on. Landlords, if they agree to such an arrangement may receive as little as ten pence in the pound in the settlement figure.

The evidence as to the success of such as strategy points to the fact that many CVAs do not work. If retailers see it as a short-term fix then they are mistaken. A Deloitte report indicates that four key success factors need to be in play before there can be any confidence that such a strategy may work.

  1. Creating the correct and balanced property portfolio. Closing stores to reduce costs is myopic unless they are closed as part of an overall strategy review.
  2. CVA’s only work as part of a wider restructuring of the business.
  3. It requires the full support of key financial and other stakeholders.
  4. It must be based around a comprehensive communications plan.

As of mid-May 2018 retailers such as New Look, Carpet Right, Mothercare, House of Fraser and Select are pursuing rent reductions through CVA’s.

Are the landlords correct in their views about CVA’s?

Clearly they have been complacent and casual in their approach – given the inbuilt advantage to upward-only agreements. It can be argued that they deserve a thrashing.

Equally it can be argued that retailers are taking advantage of the situation. For instance in the case of Carpet Right, landlords argued that it has over £60 million of freehold property on its financial statements. This is estimated to be more than double its market capitalisation. This has been signed over to its banks. This has led to accusations that generally retailers following the CVA route are dodging their responsibilities to a key stakeholder in the process: the landlord.

The answer to this question probably rests somewhere in the middle in my view. Landlords arguably have set themselves up for such exploitation. They have ignored the realities of the market-place; where the need for so many outlets has declined, forcing retailers to rationalise their portfolio.

Retailers arguably are exploiting the opportunity. Landlords and owners of shopping malls, retail centres and on the high street clearly are not going to benefit from closures and “for rent” signs. A study by Colliers, the real estate advisory company indicates that across fifteen town centres in the UK, there is a vacancy rate of almost thirteen percent (2017) – an increase from twelve per cent in 2015.

Negotiation is inevitable and certainly for the foreseeable future it will be “downward” only. We might even see as shift to what tends to happen in the USA: namely rental agreements that are based on annual turnover.

The other “elephant in the room” is that of increasing business rates. This is an indictment of lazy government in my view. It is all too easy to slap on increases without paying proper attention to the changing landscape that faces retailers who have large tracts of physical outlets and stores.

Adjustments need to be made to reflect these changes. Currently we are not witnessing any meaningful changes in approach to the application of business rates from policy-makers. This is apparently a “non-negotiable” cost: it is imposed on retailers. While platitudinous discussions take place with them, I would argue that their views are largely ignored when it comes to fixing the business rates increases.

CVA’s will not cure the ills of a particular retailer. It can lead to short-term benefits. If a properly created overall strategy review takes place then it is possible it will work. It is not a cure however. Whether it will kill the retailer is open to debate.



Another venerable British retailer: House of Fraser has run into difficulties. In early January 2018 it reported very poor sales. It also announced that it would have to rethink its overall strategy, particularly with respect to its physical stores portfolio.

This should send warning signs to us in terms of the on-going challenge for traditional “bricks and mortar” retailers grappling with online channels and the ever-growing threat from that quarter.

House of Fraser is rapidly looking like the House of Cards. It has around sixty stores in the UK, most notably iconic locations in Glasgow and Edinburgh. Around one-third of these Department Stores are reported as being unprofitable. Hence the need to rapidly rethink the extent of their continued presence on the high street.

Without meaning to sound like a long-playing record, it once again the highlights challenges of remaining relevant and competitive for Department Stores such as House of Fraser in light of the changing way in which shoppers now engage with retailers.

In 2014 it was acquired by the Chinese conglomerate, Sanpower.

The ongoing problems in the early months of 2018 were exacerbated by the rumours of closures of stores such as the one in Belfast.

C Barrier, the owner of Hamleys toy stores is about to become a new majority shareholder.

In March, Sanpower agreed to inject around £15million into revitalising the stores and the online channels.

Another bellwether of the retail scene in the UK appears to be going the way of others, such as BHS. A familiar story with a potential familiar ending perhaps.

It is also seeking Company Voluntary Arrangement (CA) with its creditors in order to extricate itself from the crippling debts that it has developed in the last couple of years.

This is an interesting and well-worn route for many companies in a similar position the House of Fraser. Essentially it involves a binding agreement with creditors to allow a proportion of its debts to be repaid over an agreed time period. It needs seventy-five per cent of the creditors to agree to this before it becomes a legal agreement. Conveniently in the case of the House of Fraser it provides a mechanism for renegotiating rent agreements with landlords.

We should pick up on this because sky high rents are proving to be the bane of “bricks and mortar” retailers in the face of competition from online retailers, who are not hidebound by such crippling costs. In the case of the House of Fraser, the ability to get a CVA from its creditors, particularly its landlords is problematic. They are becoming increasingly cynical about the ease with which retailers can escape legally acquired debts: thus leaving the landlords with little option but to accept the revised repayments. In the UK, the rental problem has been heightened by the practice of long leases being employed by landlords and upward renegotiations of such leases in terms of price increases.

The other “elephant in the room” relates to the increases in business rates announced more than two years ago. While this has had significant repercussions for small independent retailers, hefty increases are now beginning to bite into the cost structures for much larger retailers with multi-sites across the country. Another nail you might say in the “coffin” for such operators.

House of Fraser has set a goal of removing around thirty per cent of its physical space. We can expect to see a major rationalisation of its stores. Because of the scale of its operations – it currently employs around 6,000 people, the implications for them and retailing in general look to be pessimistic over the coming months. At present its annual build for leases and rents comes to around £140 million. This is a serious millstone to have hanging around its neck. It makes it less agile than its online competitors for starters.

One feels that any future investment by the new majority shareholder, C Banner is dependent on the CVA going through. As noted earlier this is far from being a certainty at present.

Lest we lapse into nostalgia for the Department Stores, it is not all down to an uphill struggle against the spiralling costs of business rates and rental agreements. Sluggishness in the market in terms of people not spending as much as before is also endemic to the overall retail sector. We have witnessed a fifteen per cent fall in the pound since the vote on Brexit in 2016. Inflation has risen to over three per cent – one per cent higher than the target as laid out by the UK government.

Put simply there are too many outlets on the high street. With over twenty per cent (and rising) of market share held by online players in the UK, this over-capacity will have to be addressed by all of the “bricks and mortar” stores sooner rather than later.

While I do not believe that we will see the elimination of the need for a physical presence, there is a chronic need for readjustment of the portfolio of stores.

I also believe that that is not enough. Retailers such as House of Fraser still have a role to play. I believe that it was close at least one-third of its current portfolio of physical stores.

The real question is should be addressing now is what do we do inside the remaining stores?

We have preached the importance of fully embracing the importance of experiential marketing and the need to redefine the purpose of physical stores and what they offer to the shopper. In the Department stores such as the House of Fraser is it enough to attract a range of well-known brands into concession areas and hope that this will pull people into the stores? I think not. Shoppers can now access brands such as Jo Malone across many different retail channels. They might “pop in” to the House of Fraser to see the new lines and categories but will (in many cases) make their purchases from other retail channels offering a better price.

To be fair to House of Fraser it has shown some degree of innovation since being acquired by Sanpower in 2014 with respect to its digital marketing strategy.

It has introduced digital mannequins and I-Beacon technology into many of its stores. It has updated its app and it has set itself a target of generating fifty per cent of its sales from digital channels.

Back to the physical stores! Space is space. Does it matter who uses this space? It does not have to be exclusively used (in this case) by House of Fraser. Why not use such space for gyms? Personal trainer facilities? As long as there are companies out there prepared to pay for the use of such space then it generates revenue and (if handled properly) can turn a cost into a revenue generating stream for the retailer.

Will House of Fraser survive? I believe a slimmed down version (in terms of physical outlets) allied to imaginative use of space and a revamped omni-channel strategy will lead to a rejuvenation in fortunes. However they have to move quickly and make hard decisions. Some iconic stores may have to go such as the location in Edinburgh. It has to avoid becoming nostalgic and maudlin (hard-nosed new shareholders will not allow this to happen). It will have to fully embrace the wider notion of entertaining shoppers and re-defining what goes on within the store.

Let’s see what happens in the coming months.



Well it had to happen. The surprise is that very few commentators picked up on it over the past decade or so. What am I talking about? The recent Facebook scandal of course.

Picture if you will the lawless “wild west”. For many of us older people, we grew up on the cowboy stories of the wild west of North America. Lawlessness was the dominant theme as settlers tried to establish themselves by building houses and communities. Towns developed as a result. Because of the general lack of proper legislation and regulation murder, crime and skulduggery were the predominant themes. We have seen it in other parts of the world more recently. The rule of law was at best, sporadic and at worst pathetic. Gun-wielding gangs roamed the region and pillaged accordingly.

I have been reminded of these images over the past few years when I reflect on the emergence of powerful players such as Facebook, Amazon, and Twitter and so on. The sheer scale, power and influence of these players has amazed me. Their ability to capture data and more importantly harvest it has been a recurrent theme throughout the past decade or so. I was beginning to feel as though I was paranoid about the potential dangers of such developments. Where was the legislation to protect consumers in particular and the wider society in general from being exploited by opportunistic companies and organisations in their question to more effectively influence and manipulate them?

A few commentators, largely from outside the business domain, have expressed concerns about the potential malign influence that people such as Mark Zuckerberg (Facebook founder) have and can wield over politicians, policy-makers and governments.

The recent Facebook / Cambridge Analytica scandal has sharply brought such concerns into focus with the wider business community. I now feel that my paranoia was vindicated.

Let us briefly recap the scandal.

Cambridge Analytica was established in 2013 and portrayed its value proposition as being one of using sophisticated data analysis techniques and algorithms to micro target selected segments with specific messages. Essentially was at the upper end of the scale of data mining companies.

Bear in mind that over the past number of years the era of “big data” had arrived and was being fully embraced by a number of large companies – the retail sector being at the forefront of these developments.

Through a third part app, Cambridge Analytica set up a personality quiz. Over 270,000 Facebook members responded. Little did they know that by filling out this questionnaire they were inadvertently allowing Cambridge Analytica to suck up all their data and more importantly all of their friend’s data as well? It was estimated that over 77 million Facebook members were affected by this “data-grab”. In subsequent investigations it was established that Facebook was aware of this occurrence in 2015 but failed to acknowledge that it happened until March 2018, when the scandal broke.

Cambridge sold this information to interested parties, some of which were rumoured to be political parties- those most invidious of creatures! These organisations could quickly see the value of having such concentrated and personalised information in the specific context of targeting them with personalised and relevant messages – all grist to the mill in terms of capturing their votes. Some commentators have suggested that such data was used in the Brexit referendum and in the US presidential election in the last couple of years.

Should we be surprised? Not at all. In my view it was too easy and straightforward for organisations to exploit conditions in order to capture and more importantly “make sense” of the data. So far so good – there is nothing wrong in showing entrepreneurship and innovation in using data to improve competitive positions. However it is wrong in my view to take advantage of poorly regulated legislation on data protection in general and the protection of consumers in particular. It is akin to putting an alcoholic in charge of a brewery with no supervision. Of course you are going to find companies who will seize the initiative in an opportunistic way in order to make more money. Without legislation this was an inevitable consequence and we should not be surprised at the direction in which data capture and dissemination happened.

Facebook of course are culpable. Mark Zuckerberg may exhibit many personality traits. However he is not stupid. He and his company have worked on the principle that it was legally the responsibility of companies such as Cambridge Analytica to decide on how to use the data and more importantly self-certify that it had deleted such data. This is arguably naïve at best. In my view it is worse than that: it is deliberate naivety on the part of Zuckerman and his team. It passes the baton on to companies and more importantly is an attempt to absolve Facebook of any responsibility for wrongdoing or dubious practice.

His performance in meeting with American congress members was poor at best and evasive at worse.

Does the customer care? The evidence is patchy and in fact probably supports the view that I have long held. Most consumers are lazy, stupid and lethargic. I include myself in that assertion by the way. They are far too prone to part with private information in order to benefit from services provided by companies such as Facebook, Twitter, eBay and Amazon. Most of the indignation and uproar over the antics of Cambridge Analytica has come from the business community and politicians. This further reinforces my view about consumers.

However the EU is about to introduce legislation in May 2018 which may partially address some of the issues that have emerged in recent months. The General Data Protection Regulation (GDPR) will nominally provide social media users with the right to be taken off data lists. It also provides protection in allowing them to prevent the data which they provide, to be disseminated for use by third party operators willing to purchase such data sets from organisations. It also requires users to be notified of any data breach within 72 hours of being notified about it. Such offenders would be fined up to a maximum of one per cent of annual revenue.

It remains to be seen how effective this legislation will prove to be.

I would argue that the lethargy of many individuals will mean that they are unlikely to pursue such protections and companies will still find loopholes to exploit.

We are still a long way from applying global and agreed standards for legislating in this area. Players such as Facebook and Amazon are global in scale but are not nationally regulated. In a separate issue this has led to them exploiting all sorts of tax loop-holes. Inevitably this means that in most cases they are likely to pay the bare minimum amount of tax to national governments. We have seen the ludicrous situation in Ireland where Apple has been instructed by then EU to pay that government around £13 billion in back taxes. The government is unwilling to chase it up because they fear that Amazon might pull out and damage the long-term prospects for that economy. They have agreed to collect the mony but are not prepared to spend it.

It has the utmost importance for retailers. They have been at the forefront of the “big data” era and I am sure if we delve into some of their practices we would find many nefarious practices on-going.

At the moment we are witnessing a febrile attempt in certain regions of the world (mainly in Europe through the auspices of the EU) to address such poor practices. For the moment the “wild west” rules!