However, with consumer confidence improving, for surviving retailers spending has been resilient, and aided by weak comparatives many have seen good increases in the final quarter. However, any feel good factor may be short-lived with the CBI warning ‘in 2010 the high street will find that recovery is fragile and slow’ – a message similar to that put out by each of the major multiples in recent trading reviews.

With interest rates for savers at record lows, it is not surprising that in October consumer borrowing, excluding mortgages, recorded its biggest month-on-month fall since records began in 1993.  Whilst the number of mortgages approved for house purchases rose for the eleventh month in a row, those remortgaging reduced again, so that the source of extra funds for major purchases has dried up. 

Investing

Against this background, the major electrical retailers have struggled over the past year, with like-for-like sales almost universally lower and profits reduced.  However, all continue to invest heavily, indicating how much there is to go for in the electricals market.  Tesco and John Lewis in particular are clearly determined to take share off the specialist multiple groups, DSGi and Kesa. 

DSGi is in the midst of a renewal and transformation plan which is spearheaded by chief executive John Browett who believes shoppers have responded well to changes made, such as store reformatting, the launch of megastores and new service initiatives.  "We are not out of the recession.  It will be another 18 months until we are back to historical levels," said Browett, adding that though cautious about the outlook he is ‘not in the double-dip camp’.  He has brought together back office functions to simplify processes, reduce costs and deliver better services for customers.  These include the introduction of next day delivery in three hour timed delivery slots and reduced repair times, with for instance laptops now down to six days on average. 

The group’s major store refurbishing programme continues to deliver double-digit gross profit gains and the new combined 2-in-1 Currys and PC World stores have started well.   

Comet too is investing in store portfolio upgrades, converting more to a mezzanine format.  It has also recently opened two trial city centre stores in Leeds and Manchester with the emphasis on brown goods, computers and smaller items.  Staffing levels are higher than usual with a strong focus on customer service.  It has also launched a mobile-friendly version of its website, with customers able to reserve a product online by phone and collect from a local store within thirty minutes. 

At Argos, consumer electronics showed some growth during the year, with strong television and personal computer sales offsetting weakness in video games.  The internet now accounts for 28% of its business, and online Check & Reserve grew by nearly 50%.  Changes in the sales mix and the net impact of adverse currency movements hit margins.

Tesco delivered double-digit like-for-like growth in electricals where its own brand Technika is now the fifth best-selling TV brand in the UK.  Tesco Tech advice staff are now present in all Extra stores, helping boost sales by 10% and reduce returns by thirty.  The other major supermarkets, particularly Asda and Sainsbury’s, agree that non-food offers a huge opportunity and are investing accordingly.

At home

Half-year profits at John Lewis were down, but with the opening of a major new store in Cardiff and the first ‘at home’ at Poole it has since recorded good year-on-year sales increases, with only five stores still in negative territory for the 17 weeks to 28 November.  Including those new outlets, sales of ‘electricals and home technology’ are 8% up year-on-year (and by 30% in the final week of November). 

John Lewis Direct is becoming increasingly important to the group, with around half of all shopping visits starting with customers researching its website.   When launched in 2001, the aim was eventually to match a medium-sized store.  In 2008, sales outstripped its most successful store and accounted for about 13% of sales.  Online sales continue to grow at a fast rate – up by 35% at the end of November. 

Pre-tax profit declined by 8% in the year to May at Richer Sounds, despite turnover from its 48 stores rocketing by 38%.  Like-for-likes remain ‘significantly above’ last year, though margins have been under pressure.  It purchased the Empire Direct brand and website in February.

Rental moves

Market leader Boxclever maintains a low profile, generating cash by restricting new products to long-standing customers and keeping operating costs low.   Forbes continues to acquire accounts from independents, though in the past year, in a sign of the times, it has purchased more from liquidators and finance companies than from dealers.  An earlier decision to sell could have seen dealers get up to 50% more.  Many had not been investing sufficiently in new digital product, preferring to milk rental to support a failing retail operation. 

The digital switchover has been good for rental, though many customers leave upgrades until the last minute.  Set top boxes tend to be seen as a quick fix and Forbes finds that most change to integrated products within three months.  Its white goods rental base continues to grow.  Since Dial-a-TV’s collapse early in 2009, the finance companies have been running out the book.  The debt ratios from its sub-prime activity have been much higher than with a traditional rental base. 

Rent-to-own BrightHouse’s like-for-likes climbed 10% in the six months to 30 September, while earnings grew by 24%.  Domestic appliance and furniture were particularly strong.  It opened eleven new stores taking the total to 188, and expects twenty more during the current financial year. 

Looking forward

Remarkably, in such a difficult economic climate, most households have actually had more disposable income of late, up 6.5% on a year ago, according to the Asda income tracker, due to reduced mortgage payments and a low inflation rate.  But whilst consumer confidence continues to improve, it is still a long way from the levels seen prior to the economic meltdown and, despite the strength of seasonal spending, remains fragile and will doubtless become even more fickle with an election around the corner and the prospect of a penal Budget looming whatever the result. 

The VAT increase, continuing high levels of unemployment, and in many private sectors frozen or reduced wages will significantly hit spending in the early months of 2010.  However, that will not put off those determined to take an increased slice of the electrical cake.  Supermarkets sense a real opportunity, and according to grocery trade body IGD their non-food sales are expected to rise by 40% over the next five years.  That will pile further pressure on traditional high street chains.

So too will the arrival of US electricals giant Best Buy when it makes a high-profile UK debut in Hedge End in Southampton and Thurrock.  As a measure of intent, it hopes to create eight thousand jobs in the UK over the next five years. 

Of greater and more immediate concern to many independents will be John Lewis seeing the potential for around 50 ‘at home’ stores.  After the success at Poole, it looks likely that the concept will be rolled out ‘at some pace’, especially whilst cheap out-of-town property deals are available.  That would put a John Lewis outlet within a forty-minute drive of all UK shoppers.  A new department store normally takes more than five years from the detailed planning stage to welcoming shoppers; Poole opened within five months of the plan being made public.   

The new president or retra, Shaun Barrett, in his inaugural message to members sees the ongoing digital switchover programme, the launch of Freeview HD and the World Cup in South Africa offering traders real reasons to be upbeat: “If you have made it this far and beaten the recession we can all look forward together to better trading and exciting opportunities in 2010.”  Many retailers, struggling with post-seasonal blues and crossed fingers, will be hoping that such optimism is justified.

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