Multiples: Market Update
“The gap between the proactive and the weaker operators will continue to widen, and sadly more casualties can be expected across all retail sectors”
The emphasis on service quality, following the rebranding to KNOWHOW, continues apace with improving satisfaction ratings – customers ‘highly likely to recommend’ for instance rising steadily by 28 points over the past year to 71%.
In contrast, Comet, in the six months to the end of October, reported like-for-likes down by nearly 19%. The chain made a £23 million loss on sales of £600 million. Web-generated sales were impacted by the implementation of fully aligned store and web prices, with a consequent reduction in ‘click and collect’ transactions; it also scaled down two specialist websites. This led to a 12% fall in web- generated sales which accounted for 16% of total product sales. The only piece of good news was a very modest improvement in gross margins, partly due to more small domestic appliances and accessories in the mix.
John Lewis has continued to earn positive media coverage, often being able to quote weekly year-on-year gains, but it is rarely noted that the headline figures include both the benefit of the VAT increase and new openings over the past year or so – one department store and five ‘at home’ stores. Profits too have been under real pressure as it continues to meet the ‘never knowingly undersold’ pledge, especially in technology products.
In the eighteen weeks (3 December) total sales of ‘electricals and home technology’ rose by 3%, compared with 1% for home products and 2% fashion. Online sales increased by 21%. The ‘at home’ concept was launched in October 2009 so
cumulative year-on-year figures are now becoming available – the first store at Poole is down by 1.3% over these eighteen weeks. The Co-op recorded 0.5% growth on electricals in the past year (to November 25) and is expanding its multi-channel offer by launching click-and-collect for the first time, alongside a revitalised website, a mobile site and in-store kiosks. Argos saw half-year (to 27 August) like-for-likes decline by 9%, mainly due to the weak consumer electronics market, particularly televisions and video games systems.
Rental deals Two rental companies changed ownership in the year. In May, Weight Partners acquired Boxclever for an undisclosed sum from the US private equity firms Cerberus and Fortress Investment Group. Created in 2000 by the merger of Radio Rentals and Granada Rentals, and having closed all the shops, Boxclever now has around 300,000 units on rental, delivering sales of £40m. It only offers products to existing renters.
In June, Dial-A-TV was bought out of administration by its previous owner for £780,000. Prior to the deal Hitachi Capital took out other finance interests and the new company will repay it £5.25 million over time. Attempts to sell the business to a third party at an acceptable price proved unsuccessful and thus a ‘hive-down’ to a newly created subsidiary was arranged. Forbes Direct continues to promote
rental strongly through widespread leaflet distribution. White goods now contribute two-thirds of new accounts, its hotel business continues to grow, and eBay is proving an effective way of selling old domestic stock, in preference to trade sales. Acquisition activity has slowed in the past year, but Forbes remains interested in acquiring decent rental bases, as long as there is evidence of some product investment in the past three years. BrightHouse, the rent-to-own electricals
and furniture retailer, reported earnings before interest and tax up by 22% to £21 million in its first half (to September 30), on
42 The Independent Electrical Retailer January 2012
sales of £127 million, with like-for-likes nearly 7% higher. Fifteen new stores were opened, taking its portfolio to 243; a further ten are planned before the end of March. It has completed a debt refinancing exercise, with more than £100m available to repay existing financing and to increase working capital.
Looking forward
Continuing uncertainty over jobs and the impact of austerity measures will undoubtedly continue to affect retail spending adversely. However, as usual the desirability of consumer electronics, aided by the continuing digital roll-out programme, will help limit the downside, though the likes of Sky and Apple will continue to take an increasing slice of spend, as undoubtedly will Amazon and other internet operators.
The supermarkets’ patchy performance over the past year will make them doubly determined, seeing a real opportunity by picking up the slack from Best Buy’s departure and Comet’s changing ownership – as will John Lewis whose increasing geographical reach is a concern to many rivals. Newbury, Ashford and Chichester ‘at home’ and its first flexible format department store in Exeter are scheduled to open this year. As to independents, retra’s recent decision to move into custom installation will be welcomed by many of its members with product margins under continuing pressure. Despite the incessant financial pressures of running a business in such tough times, maintaining a consistently high quality service, both in store and in home, to a loyal customer base remains vital. For all bricks & mortar retailers improving the sales conversion rate (in spite of the increasing number of time- wasters undertaking research before buying online) and maximizing the value of each sale will again be key objectives. In such a climate, the gap between the proactive and the weaker operators will continue to widen, and sadly more casualties can be expected across all retail sectors. ■
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