UK Retail Briefing - UK - September 2008

ANALYST COMMENT
It’s an ill wind…
The problem of undervalued assets
Pros and cons
Time to take defensive action
THE MONTH IN UK RETAILING
 BAKERS (RETAIL)
Thorntons reports FY profit rise
 CO-OPS (RETAIL)
Co-op
… announces plans to sell off 107 Somerfield stores
… installs mini-banks in 250 stores
 GROCERS
Aldi
…joins BRC
…enters mainstream
Asda
…in milk price war with Tesco
…frets over Christmas despite rise in LFLs
…kick-starts mobile phone price war
…to open 5 new Living stores before end 2008
Lidl to launch Express format
Morrisons sees H1 profits jump 12.8%
Sainsbury’s
…pushes own-brand goods to entice beleaguered customers
…subject of takeover rumours
…to open first in-store dentist
Tesco
…unveils plans for cash&carry business in India
…announces 2bn carrier bags saved since 2006
…looks to raise £500m from sale of stores
…in £605m sale and leaseback deal
…profits from local produce
…to open pensioner-friendly store
…"must go green," says CEO
 CLOTHING RETAILING
Arcadia
…adapts sites for US launch of Topshop
…owner predicts "double dip" in 2009's high street sales
Fat Face owner buys chunk of debt
Matalan accused of squeezing suppliers
Moss Bros puts Cecil Gee up for sale
Next reports 12% fall in H1 profit
Primark predicts good H2, FY results
SRG unveils first new-look Suits You store
Urban Outfitters to bring Anthropologie to Regent Street
 FOOTWEAR RETAILING
Faith shoes bought by Kinnaird
 MIXED GOODS RETAILING
Argos' and Homebase' Q2 LFLs disappoint, Homebase value lowered
Woolworths
…rejects Iceland offer
…chairman remains open to discussions
…shareholder says no to takeover offer
…attracts Iceland's CEO
 MULTI-SECTOR RETAILING
Boots launches drive-through pharmacy
HMV
…to open new-format store in Liverpool
…reports rise in 18-week sales
John Lewis
…chairman vows not to axe jobs
…curtails expansion plans amid tightening market conditions
…posts fall in H1 profit
M&S
…to cut redundancy benefits, triggers fear over jobs
…to bring forward Q2 trading statement
…suspends redundancy whistle-blower
…waters down controversial changes to redundancy terms
…fires staff member who leaked redundancy change details
…responds to criticism over sacking of 'whistle-blower' employee
 DEPARTMENT STORES
Beales reports 6% decline in 43-week sales
General Trading Company to re-launch in spring
House of Fraser sees sales rise
Liberty losses widen in H1
 ELECTRICAL RETAILING
DSGi
…reports flagging Q1 sales
…says that consumer demand has "switched off”
…has acquisition proposal refused
Kesa reports plunging Q1 sales at flagship chains
 CARPET RETAILING
Floors-2-Go administrators sell 80 stores
 FURNITURE RETAILING
MFI
…considers merger in midst of ongoing troubles
…acquisition row settled for £8m
Strategic Retail reveals FY loss
 HOME SHOPPING
Asos chief bucks downturn, netting £352,000 in pay & bonuses
Findel's sales edge ahead
Shop Direct
…faces strike prospect
…quells staff concerns with revised pay deal
 JEWELLERS
Signet posts H1 profits
 MISCELLANEOUS SPECIALIST RETAILING
Halfords chairman steps down
EXECUTIVE APPOINTMENTS
Mothercare appoints Nield as group marketing director
Woolworths appoints new chief executive
Wyevale appoints COO
PRODUCT DEVELOPMENT – HOUSEHOLD GOODS
 LIDL
 MARKS & SPENCER
 SAINSBURY’S
 SOMERFIELD
 TESCO
 WAITROSE
ADVERTISING NEWS
 NEW CAMPAIGNS
Aldi signs £10m advertising deal with TV chef
Asda stops using celebrity advertisers
Body Shop returns to ethical heritage
Comet overhauls website
Co-operative
…signs Bryan Robson as sponsor
…plots £50m drive to promote ethical approach
Harrods signs up West End musical
M&S promotes restaurant quality for nights in
Morrisons
…launches schools initiative
…'Crunch Bunch'
Sainsbury's
…hires former Coronation Street actress
…pushes own-brand goods to entice beleaguered  customers
Specsavers
…in in-store promotion
…pushes its charity work
Zavvi partners with Youth Music charity
 ACCOUNT GAINS/LOSSES
Debenhams hands customer mag to Frost Publishing
Gap shifts its integrated marketing account into Kitcatt Nohr Alexander Shaw
Karen Millen appoints Syzygy
Mothercare links help agencies to win NK Space business
Tesco reviews £80m media account
Waterstone's hands digital ad account to LBi
Zavvi hires The7Stars
RETAIL ADVERTISING REVIEW
 ADVERTISING EXPENDITURE
Figure 1: Total advertising expenditure by all advertisers (£m), Jun 2004-Jun 2008
Figure 2: Total advertising expenditure by all retail advertisers (£m), Jun 2004-Jun 2008
Figure 3: Use of media by retail and all advertisers (£m), Jun 2007-Jun 2008
Figure 4: Use of media by retail and all advertisers (%), Jun 2007-Jun 2008
 TOP 25 RETAIL ADVERTISERS
Figure 5: Top 25 retailers by adspend (£), May 2008-Jun 2008
Food
Furniture
Health and beauty
Optical retailers
Department stores
Other
Nielsen Media Research/Definitions
RETAIL SALES AND INFLATION
 RETAIL SALES
Office for National Statistics
Figure 6: Retail sales trends, July 2007-July 2008
Figure 7: Non-seasonally adjusted % value change on previous year, July 2007-July 2008
Figure 8: Seasonally adjusted % volume change on previous year, July 2007-July 2008
Significant features of July’s ONS statistics
Confederation of British Industry
British Retail Consortium
 RETAIL PRICE INFLATION TRENDS
Figure 9: Annual percentage change in retail price index for selected product groups, July 2007-July 2008
Figure 10: Annual percentage change in retail price index for selected product groups, July 2007-July 2008
Retail Prices Index
Consumer Prices Index
British Retail Consortium: Shop Price Index
SECTOR ANALYSIS – HOUSEHOLD GOODS
 SALES TRENDS
Figure 11: Household goods retailers: Sales trends, 1999-2008
Figure 12: Mixed goods retailers as % all retail sales, 1999-2008
 RETAIL PRICE INFLATION
Figure 13: Indices of retail prices for product categories (household goods), Jan 2001-Jun 2008
 SALES BY SUB-SECTOR
Figure 14: Household goods retailers: Breakdown of sales by sub-sector, 1999-2008
 CONSUMER EXPENDITURE
Figure 15: Consumer expenditure on selected product categories (£m), 2000-08 (Q1)
 HOUSEHOLD GOODS RETAILERS: LATEST TRENDS
DIY retailers
Figure 16: UK’s leading DIY retailers (unadjusted) share of all DIY retailers sales, 2006/07
B&Q
Homebase
Wickes
Focus
Topps Tiles
Furniture retailers
Figure 17: UK’s leading furniture retailers, 2007
Homestyle
Carpetright
ScS
Land of Leather
Laura Ashley
Habitat
Ikea
MFI
Dreams
SECTOR NEWS REVIEW: HOUSEHOLD GOODS RETAILING
 APRIL
 DIY RETAILING
Kingfisher FY profits fall, restructures China arm
Superdrug boss to run B&Q
Topps Tiles H1 LFLs to drop
 FURNITURE RETAILING
Kesa predicts tough trading after FY results
Jysk confident of UK launch
Land of Leather suffers in H1, as chief retires
Sleep Depot collapses into administration
ScS LFLs plummet in H1
 MAY
 FURNITURE RETAILING
Land of Leather
…reports Q3 LFLs plunge
…fined by FSA
ScS issues new profit warning
 JUNE
 DIY RETAILING
Kingfisher reports LFL drop but profit rise in Q1
Focus to downsize 40 outlets in turnaround plan
Topps Tiles sees H1 profits decline 16%
 CARPET RETAILING
Bill Gates invests in Carpetright
 FURNITURE RETAILING
Land of Leather asks KPMG to renegotiate banking facilities
ScS Upholstery's credit insurer withdraws supplier coverage
 JULY
 CARPET RETAILING
Carpetright publishes FY results, predicts difficult year ahead
 FURNITURE RETAILING
Land of Leather
…to finalise underwritten equity sale
…seeks £15m from share issue
ScS Upholstery
…credit insurer withdraws supplier coverage
…appoints Ernst & Young in move to restructure
…receives takeover approach, shareholders likely to get little
…to be taken over by Sun Capital
…goes into administration
 AUGUST
 DIY RETAILING
Homebase gets the go-ahead for purchase of 27 Focus stores
Kingfisher
… reports Q2 results
… to sell off Castorama Italy
Topps Tiles sees 17-week sales decline
Travis Perkins sees H1 profits fall
 CARPET RETAILING
Carpetright posts fall in Q1 LFLs
Floors-2-Go
… looks for new investors
… enters into administration
 FURNITURE RETAILING
Ilva furniture stores close
Ikea
… replaces poached UK CEO
… launches mobile phone service to shoppers
Land of Leather investors give £15m refinancing the go-ahead
MFI brings in KTH for restructuring
 SEPTEMBER
 CARPET RETAILING
Floors-2-Go administrators sell 80 stores
 FURNITURE RETAILING
MFI
…considers merger in midst of ongoing troubles
Strategic Retail reveals FY loss
SECTOR ADVERTISING REVIEW – HOUSEHOLD GOODS
 ADVERTISING EXPENDITURE
Figure 18: Total advertising expenditure by household goods retailers, Jun 2004-Jun 2008
 USE OF MEDIA
Figure 19: Use of media by household goods retailers and all retailers (£), Jun 2007 and Jun 2008
Figure 20: Use of media by household goods retailers and all retailers (%), Jun 2007 and Jun 2008
 TOP 10 HOUSEHOLD GOODS RETAILERS
Figure 21: Top 10 household goods retailers by adspend, Jun 2007 and Jun 2008
 RETAILER FOCUS
DFS
Figure 22: DFS, media use by adspend and as share of total, Jun 2007-Jun 2008
Figure 23: DFS, top five brands by adspend, Jun 2008
Dreams
Figure 24: Dreams, media use by adspend and as share of total, Jun 2007-Jun 2008
Figure 25: Dreams, top brands by adspend, Jun 2008
B&Q
Figure 26: B&Q, media use by adspend and as share of total, Jun 2007-Jun 2008
Figure 27: B&Q, top five brands by adspend, Jun 2008
Homebase
Figure 28: Homebase, media use by adspend and as share of total, Jun 2007-Jun 2008
Figure 29: Homebase, top five brands by adspend, Jun 2008
Nielsen Media Research/Definitions
REPORT FOCUS: GARDEN PRODUCTS RETAILING
Challenging performance
Weather and seasonality
Mixed picture
Changing hands
Garden centres’ appeal endures
Green revolution
More gardens should be an opportunity
 CONSUMERS: WHERE, WHAT AND WHY
Visits to garden centres
Figure 30: Consumers visiting and buying from garden centres in the last 12 months, 2003-07
Gardens still central
Figure 31: Products purchased from a specialist garden centre or nursery in the last 12 months, 2004-08
Changes over time
Women like the finer things
Pots make purchases with the young
Not all things for all men and women
Plants plus practical purchases
Figure 32: Garden products purchased from a DIY store in the last 12 months, 2006 and 2008
Changes over time
Starters but not finishers
Branded price appeal
It’s a family affair
All outlets used for buying garden products
DIY stands out
Figure 33: Outlets used for garden products in the last 12 months, 2006 and 2008
Supermarket creep
Is Wyevale missing out on the ladies?
Dobbies dominates in Scotland, but can this be replicated?
Quality and range is key
Figure 34: Attitudes towards garden centres and buying garden products, June 2008
Paying for quality counts
Women are savvy shoppers
Will loyalty last?
Figure 35: Attitudes towards garden centres and buying garden products, by age, June 2008
Have money will pay
Ranges don’t meet all needs
Have children can’t pay
Aspiring mid-market tabloid readers
Acting on impulse
Valuable silver surfers
What matters affects where consumers shop
 PROFILE OF LEADING RETAILERS
Wyevale plc
Strategic evaluation
Background
Financial performance
Figure 36: Wyevale financial performance, 2002-06
Store portfolio
Retail offering
Marketing and operational issues
E-commerce and home shopping
Dobbies Garden Centres plc (Tesco)
Strategic evaluation
Background
Financial performance
Figure 37: Dobbies Garden Centres plc, financial performance, 2003-07
Store portfolio
Retail offering
Marketing and operational issues
E-commerce and home shopping
Klondyke Group Ltd
Strategic evaluation
Background
Financial performance
Figure 38: Klondyke Group Ltd, financial performance, 2003-07
Store portfolio
Retail offering
Marketing and operational issues
E-commerce and home shopping
 INSIGHTS FROM THE INDUSTRY
Bloom or doom?
Growing importance of a supporting cast of extras
Grow your own on the up or over-inflated?
The future’s bright, the future’s green
Future growth