Be huge or be niche to enjoy success in this retail climate
TWO VERY different retailers reported a strong increase in profits this week.
As the UK’s biggest retailer, Tesco has enormous clout and is benefiting from the fact that whatever happens to the economy, people still need to eat. Tesco bucked a grim start to the year for the retail sector with a 28 per cent jump in operating profits.
The outcome was helped by a strong end to the year in the UK, with fourth quarter like-for-like sales up 2.3 per cent – a ninth straight quarter of growth.
On a bottom line basis, pre-tax profits leapt to £1.3bn from £145m after one-off costs weighed on the previous year’s result. Tesco’s full-year results showed general merchandise and non-food sales remained under pressure over the year, falling by 0.4 per cent amid a tough retail market, although shopper demand remained robust for food, with sales up 2.9 per cent.
Consumers may be cutting back on big ticket items, but food is an essential.
People are also opting to treat themselves at home with supermarket luxury ranges rather than going to a restaurant.
Tesco’s chief executive Dave Lewis has led Tesco’s fightback after sales and profits were hammered by changing shopping habits, the rise of German discounters Aldi and Lidl and a 2014 accounting scandal which plunged the retailer into the worst crisis in its near 100-year history.
Mr Lewis, who joined shortly before the accounting scandal was uncovered, first stabilised Tesco, then got it growing with a focus on more competitive prices, streamlined product ranges, better customer service and much improved supplier relationships.
The £3.7bn purchase of food wholesaler Booker is his boldest move yet, providing Tesco with access to the faster growing catering segment of Britain’s £200bn grocery market.
The group, which competes with Sainsbury’s, Asda and Morrisons, said it is firmly on track to deliver its mediumterm targets which include cost savings of £1.5bn.
At the other end of the scale, Asos operates in a narrow niche market – fashion conscious twenty-somethings who want to emulate their pop and film star heroes.
Asos has no stores – it is purely online – and this taps into the younger generation’s shopping habits.
Asos notched up its highest number of website visits – at over a billion over the half year.
The firm said work is currently underway at its Barnsley warehouse to increase the stock holding capacity. This will increase capacity by a further 10 per cent to 22 million units.
Asos has announced plans to invest a further £14.5m in its Barnsley warehouse over the next 12 months.
The money will be spent on restaurant upgrades, locker rooms, relaxation spaces and the creation of a well-being centre. Asos will also spend money on onsite automation, increased office space and a new car park.
Asos has increased its popularity with the launch of same-day deliveries in Leeds and London – a service that its fashion conscious customers love.
The group, whose high-profile fans include singer Rita Ora and former US First Lady Michelle Obama, has also been boosted by a new ‘try before you buy’ service, giving customers the option of ordering clothing from its Barnsley warehouse, trying it on at home and only paying for what they like rather than having to seek a refund.
Asos appeals to fashion loving twenty-somethings and this service allows them to use their own homes as a changing room.
The firm said its heavy investment is bearing fruit, with shopper visits to its site up by 25 per cent year-on-year, average orders up 8 per cent and a 2 per cent rise in the average basket size.
The group is positioning Asos to be the world’s number one destination for fashion-loving twenty-somethings.
In this bitter climate for retail, you have to be huge or niche to make a decent profit.