Retailers need to continually refresh their ideas to accommodate fickle shoppers. Here are three firms that haven't and that may be past their sell-by dates.
So MFI has sold its retailing operation to Merchant Equity Partners for a nominal sum of £1. But that only tells part of the story. MFI also said it will pay the private equity firm an additional £126m to take the loss-making business off its hands.
Truth is, the writing has been on the wall for MFI for some time. It has been struggling to overcome its downmarket image in the face of competition from the likes of Ikea. The company, famous for its flat-pack, self-assembly furniture, has also had to contend with a move towards ready made furniture.
However, MFI is not alone in contending with a tired retailing format. There are other high street retailers that are, in my view, approaching their sell-by dates, too.
Take Woolworths
(LSE: WLW)
, which recently reported a 4% fall in first-half revenues. The general retailer has been cutting prices to compete more effectively with supermarkets that are now offering similar products. Woolworths is also redesigning its stores, and selling more goods online to try to stem the fall in its sales. Additionally, Woolies said it will begin distributing catalogues next month. However, despite its many efforts to reverse falling sales, the company still lacks the one important ingredient that underpins any successful retailing format, namely a unique selling proposition.
Interestingly, Matalan
(LSE: MTN)
did once have a unique selling proposition. It was one of the first retailers to recognise a demand for discount clothing and home wares. Consequently, its edge-of-town stores were seen as a destination of choice for bargain hunters. But its competitive advantage in clothing has been gradually eroded by more conveniently located Primark outlets, owned by Associated British Foods
(LSE: ABF)
. Additional pressure has come from supermarkets that include Tesco
(LSE: TSCO)
and Asda Wal-Mart. Earlier this year, Matalan said it will continue to its focus on strengthening its gross margins. But significantly, it may need to cut prices to attract punters back into its stores.
Music and book retailer HMV
(LSE: HMV)
has also embarked on price cuts to draw in customers. Recently, the company announced some radical ideas to stem falling sales. These included simplified lower pricing, and ramping up its online channels -- neither of which bodes well for margins. But its online division still has a huge mountain to climb given the pace of change in web-based music. Recently, digital entertainment website SpiralFrog announced deals with EMI
(LSE: EMI)
and Universal Music that will allow customers to download music for free.
It has often been said that retailing is not rocket science. But the simplicity of retailing also means that barriers of entry are worryingly low, and competition can be ferocious. Consequently, to survive in the cut-throat retail environment shopkeepers need to continually refresh their ideas to accommodate us fickle shoppers. Investors need to be on the lookout too, as falling sales and narrowing margins can be early indicators that a retailer may be approaching its sell-by date.
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