Wednesday, 26 August 2015

Retailing - it's all about location, location, location.

From City AM:

... [Morrisons supermarkets] is paying the price for its scatter gun approach to buying convenience stores. Last week, it emerged Morrisons is considering a sell-off of its 150-strong M Local estate to a consortium of investors just months after closing 23 shops...

Had it moved into the market earlier and picked stores in better locations at competitive prices, then it could have been better placed today, Jonathan de Mello, head of retail consultancy at Harper Dennis Hobbs, told City A.M.

“The main challenge facing the sector is the fact that it is becoming increasingly crowded, and Tesco, Sainsburys and M&S Simply Food – given first mover advantage – were able to cherry pick the best sites.

"[Morrisons’] desperation to build a critical mass of convenience stores to catch up with the competition led it to over-bid for sites in order to secure them – often with Tesco and Sainsburys only bidding to push up the price as much as possible.

“Average turnover of an M-Local store for example is circa [sic] half the average turnover of Tesco Metro – a function of poor site selection. This issue was compounded by the high rent being paid in order to secure the site – leading to very low or negative margins. Morrisons are right to dispose of their stores at this stage given this, and need to start afresh once they have stabilised their core supermarket business,” de Mello said.

This was also part of the reason for Tesco doing so badly recently. Their success in the 1990s and 2000s was not so much down to their skill as retailers, but the fact that their crack squad of land specialists had snapped up a load of good sites cheaply in the 1990s and stifled the opposition with various planning ruses.

Tesco executives thought "We are opening new stores and profits are going up. Which means we are better at retailing than the others, and that if we keep opening new stores, profits will continue to go up". This was all hubris. Truth of the matter is, they are no better or worse at the actual 'retailing' bit than the rest of the competition and all they were doing was tapping into the hidden profits which they had already secured back in the 1990s when the best locations were cheap.


Lola said...

I actually think that Morrisons is better at 'retailing' than Tescos. There stores round here are definitely nicer.

Shiney said...

@L @M

I beg to differ... from a supplier perspective, M are pretty disorganised compared to the others and seem much less efficient.

Bayard said...

"and stifled the opposition with various planning ruses. "

Such as paying for the County Council to replace a roundabout with traffic lights outside Taunton, to add half a mile to everyone's journey who wanted to go to Asda, never mind all those subsequently killed or seriously injured at those same lights.

Mark Wadsworth said...

L, i ought to be loyal to M because they are from Bradford but I don't really like them. Ceilings are always too low for some reason, lighting too dim, veg aisle is a bit sparse by Tesco-Sainsb-Waitrose standards. But I go there to stock up on tobacco and crisps on special offer.

Sh, is that perhaps to do with the Morrisons-Safeway merger, which apparently they messed up badly?

B, tell me about it.

In Leytonstone, Tesco insisted on turning a perfectly good two-way high street into a criss cross of one-way streets which are always snarled up, simply to ensure that the south bound traffic went straight past their front entrance. But to be fair, they have a nice big car park which is good if you want to go somewhere else on Leystonstone High Rd (charity shops and so on, mainly).

Lola said...

Shiney. MW. I did say 'around here'.

Shiney said...

I wasn't disputing store 'niceness'... retailing is about more than that. Well, it is if you want to make a profit.

We used to deal with them both (Wm M and SW) before the merger. They were both pretty crap then, although Wm M weren't the shysters SW were.

Lets get this straight... from my POV back in the day T were by far the best (if best means efficient) organisationally and out built their rivals. They therefore made 'super' profits. Then they started to believe the hype and 'lost their way'. The others caught up.

Then Aldi and Lidl came along and changed the rules of the game.... or maybe the 'rules' changed, or the game. Not sure. Kinda chicken and egg.

At some point the rules, or game, will change again and somebody will usurp A&L.

That is capitalism, baby!