SBHD: The closure of Rumbelows’ high-street shops signals an industry-wide slump. As the other retailers battle it out for the share of the decreased market, what is the outlook for electrical stores?
Interest-free credit for 18 months, free gifts, price-match promises and travel offers have decorated the windows of high street electrical stores over recent years. “A permanent sale for most of this decade, under different guises,” as one marketing director puts it.
Such promotions did little to help Thorn EMI’s Rumbelows chain, which last week announced the closure of its 285 high-street stores with 3,000 job losses.
The demise of Rumbelows offers some short-term relief to its competitors, freeing up to Ãº250m annual sales. Thorn EMI blamed a tough market with over-capacity for the failure.
But just taking capacity out of the market may not be enough to ensure the future of other players.
Figures revealed exclusively to Marketing Week and collected by the British Retail Consortium in conjunction with Touche Ross show like-for-like sales this January for the electrical retailing sector to be down six per cent against the previous year in a market estimated to be worth about Ãº10bn. “That is the extent of the overcapacity,” says one observer.
The industry is now casting round to see which will be the next chain to tumble.
City analysts talk openly about the imminent demise of other smaller players in this troubled market, namely the retail divisions of some of the privatised regional electricity companies.
Speculation points to the imminent closure of Homepower, the joint venture between Yorkshire and East Midlands Electricity. The two privatised regional electricity companies (RECs) merged their retail arms under the Homepower name in 1993.
The company’s parents have said they will close, rationalise or sell off the chain by March, if things do not improve. Recent rumours suggest that PowerStore Trading, a management buyout from London Electricity, is negotiating to take over Homepower’s 19 superstores, but the high-street stores will close down.
Yorkshire and East Midlands say: “The situation is clear. The parent companies are considering options for development of the business.”
The privatised electricity companies have all dabbled with electrical retailing, but some have taken a more aggressive approach than others.
Norweb is seen as the “one to watch”. It is already advancing plans to become a strong national player. Norweb’s marketing director John Herzberg says: “We are committed to expanding it in a controlled and cost-effective way – it is not about size for the sake of it.”
Some observers see the industry shake-out leading to the establishment of three national chains: Dixons and its subsidiary Currys, Comet, in one form or another, and a third player from the RECs.
The battle is on between Scottish Power and Norweb for eventual third place. Graham Brown, managing director of the south-western SWEB Retail, says: “I don’t see four national players, but three. There will also be some strong regional chains surviving.”
Dixons’ chairman Sir Stanley Kalms has harried the RECs through the Nineties, accusing them of subsidising their retail arms with profits from electricity generation. The combined market share of the RECs puts them in second place to Dixons, so Kalms is understandably worried.
Kalms’ complaint got some backing from the electricity regulator, which at the end of 1993 said that the RECs’ retail arms had lost more than Ãº100m in three years.
These sustained losses have led to some of the regional firms merging their retail divisions, as in the case of Homepower. London Electricity has pulled out altogether, selling off some of its stores to management to form the PowerStores chain.
Like other retail markets, electricals has moved from high growth in the Eighties to stagnation in the Nineties.
Derek Ralston, managing director of ad agency Barker & Ralston, worked on Rumbelows in its mid-Eighties’ heyday. “Electrical retailing is a sector with high interest but low confidence,” he says. “The retailers have failed to compensate for this low level of consumer confidence and this has curtailed demand.”
Homepower marketing director Barbara Miers says some retailers are taking these ideas on board and making a greater commitment to service. “The RECs have traditionally had good sales staff – middle-aged ladies selling white goods.” She breaks down the market as Curry’s competing on price, Comet on range and the RECs on service.
Out-of-town parks are increasingly favoured by retailers as locations for large stores. Customers at these destinations are likely to be better off and ready to buy more expensive items than the high-street shopper.
Growing competition on retail parks is seen as no bad thing. Scottish Power’s marketing manager Brian Middleton says the chain’s out-of-town stores often trade better where there is a Comet and a Currys in the same location.
But there is still a hard core of high-street electricals shoppers which must not be forgotten. Dixons’ strategy of moving Currys out of town and maintaining Dixons high street stores is considered neat. The new trial Link stores offer lighter and smaller goods on the high street.
Kingfisher chief executive Sir Geoff Mulcahy may regret the acquisition of the French Darty chain two years ago. It seemed such a good idea at the time, and Kingfisher’s shares raced ahead. Not only was Darty a top-class retailer, it also offered “synergies” with Kingfisher’s UK electricals chain Comet.
However, with the poor performance at Comet revealed in the last trading statement, and news of a review of the chain’s strategy, where does Mulcahy go from here? Selling off Comet would leave Kingfisher in the strange position of having a French electricals chain, but not an English one.
Mulcahy’s everyday low-price strategy has been widely criticised in the case of Comet which is dubbed by critics as “everyday low profits.” Comet has come up with a modern superstore concept featuring stores on retail parks of around 20,000 sq ft and a lowest-price guarantee.
The appointment of Comet’s former managing director Eddie Styring as chairman raises questions about the future direction of the chain.
He will be charged with repositioning the chain, and trying to recoup some of its brand image which has been dissipated over the past decade. One observer says: “Comet’s stores look increasingly shabby, and there has not been enough investment in them. It had clear brand positioning, but that has become confused. The chain requires investment. There will undoubtedly be store closures.”