Retail Intelligence's annual survey of the UK retail scene, The UK Retail Rankings, published today, shows 1999 was a record year for retail acquisitions in the UK, with the £6.7bn ASDA/Wal?Mart deal easily the largest ever in the sector. This pushed the total value of deals within the sector up to £8.6bn, an increase of 43% on 1998.

Retail Mergers and Acquisitions Values: 1992-1999
Source: "The Retail Rankings - 2000 Edition", Retail Intelligence

…BUT DO THEY WORK?
However, the report also shows that, of the top 10 mergers and acquisitions by size since 1982, only one can be said to have been a real success (Argyll/Safeway). Three have yet to prove themselves (Wal-Mart/ASDA, GUS/Argos and Tesco in Ireland), while the rest have varied between failure and disaster: Isosceles/Gateway, Habitat/Bhs, Somerfield/Kwik Save, Boots/Ward White, ASDA (61 Gateway stores), Dee Corporation/Fine Fare. A full list of the top 10 deals is included in the Appendix.

There is no sign that retailers are learning from this dismal performance. Retail Intelligence argues that retailers should stick to what they know. Acquisitions just in search of market share (eg ASDA's and the Dee Corporation's in the top 10 mentioned above) or in totally different market sectors (Boots/Ward White and Habitat/Bhs) are, more often than not, a recipe for disaster. Just as bad is taking over a company with a totally different culture - as Somerfield did with Kwik Save.

Retail Intelligence believes that the Focus bid for Wickes comes into the last category and is likely to prove a mistake if it comes to fruition.

M&S SLIPS DOWN PROFIT RANKINGS
The latest edition of The UK Retail Rankings also highlights Marks and Spencer's recent fall from grace. M&S was the UK's most profitable retailer in 1997/98, but dropped to fourth place in 1998/99 and is expected to fall to fifth in 1999/2000.

Top 10 UK Retailers by Operating Profits, 1997/98 and 1998/99

Ranking
  Operating profits (£'000)  
1998/99 1997/98   1997/98 1998/99
1 2 Tesco (UK) Plc 875,000 919,000
2 3 J Sainsbury (Group) 820,600 808,900
3 4 The Boots Company 495,000 515,800
4 1 Marks & Spencer Plc 924,700 454,400
5 5 ASDA Group Plc 413,700 435,600
6 6 Safeway Stores Plc 409,900 421,800
7 7 Kingfisher Plc 341,621 381,822
8 14 Somerfield Stores 108,700 235,700
9 8 John Lewis Partnership 271,700 225,000
10 9 Great Universal Stores 256,336 223,500
Source: "The Retail Rankings - 2000 Edition", Retail Intelligence.

The report argues that M&S's problems are just a symptom of a fundamental change in the marketplace. There are many more products and services competing for consumer spending. In particular, the digital technology boom and accelerating rate of change in electronics technology has led to a large number of new products all competing in the same price bracket as fashion.

Clothing retailers must fight much harder for consumers' spending. During the 1990s, they became more and more risk averse and cost-conscious, but must now refocus their efforts on stimulating consumer interest in their products. It will be those retailers which are prepared to take risks and make more effort to present their merchandise well who will succeed in the 2000s.

This is particularly true for Marks & Spencer. M&S's merchandising has been poor for some time, but until the late 1990s, the traditional strengths of quality and value-for-money were enough to carry the company through.

On balance, Retail Intelligence believes that M&S will make a recovery. Already, the success of the Autograph range shows that it has learnt some of the lessons of the last few years and is willing and able to do something about them. It will continue to set the benchmarks for price and quality and it is also, in absolute terms, one of the strongest performers on the high street, generating sales densities most other retailers can only dream about. Even after all its troubles, M&S's sales per ft2 are more than 2½ times those of Bhs.

However, the market has changed fundamentally and it is much less likely that M&S will dominate the 2000s in the way that it did the 1990s

THE STRONG GET STRONGER
The report also shows that the process of concentration continues, with the top companies controlling an ever greater share of retail sales. The top 200 retailers now account for almost 78% of all retail sales and the top 10 alone have more than 42%. The equivalent figures in 1990 were 58% and 29% respectively.


Source: Retail Intelligence

 

APPENDIX

Top 20 Retailers In Uk, 1998/99

Ranking Company Name Sales Operating Operating profit Outlets margin Sales per outlet Sales area Sales per ft2
98/9 97/8     (£'000) (£'000) (%)   (£'000) ('000ft2)
1 1 Tesco (UK) Plc 15,835,000 919,000 5.8 639 25,195 15,975 1,015
2 2 J Sainsbury (Group) 13,184,500 808,900 6.1 706 18,728 23,395 566
3 3 ASDA Group Plc 8,198,300 435,600 5.3 233 36,356 9,800 867
4 4 Safeway Stores Plc 7,510,700 421,800 5.6 476 15,615 10,115 744
5 5 Marks & Spencer Plc 6,601,100 454,400 6.9 308 22,114 11,744 581
6 9 Somerfield Stores 5,897,900 235,700 4 1,422 4,135 12,481 472
7 6 Kingfisher Plc 5,412,729 381,822 7.1 2,100 2,595 27,820 199
8 7 The Boots Company 4,474,700 515,800 11.5 2,113 2,094 10,222 366
9 8 Great Universal Stores 3,639,600 223,500 6.1 na na na na
10 10 John Lewis Partnership 3,168,000 225,000 7.1 147 22,077 4,933 650
11 11 Dixons Group Plc 3,028,400 209,000 6.9 987 3,206 5,489 586
12 12 Wm Morrison 2,533,781 165,600 6.5 95 27,998 3,394 785
13 19 Arcadia Group Plc 1,875,100 93,900 5 1,872 1,019 na na
14 13 Littlewoods Org 1,853,000 105,000 5.7 na na na na
15 15 Iceland Group Plc 1,741,600 71,900 4.1 760 2,277 3,634 476
16 14 CWS 1,661,800 na na 737 2,210 na na
17 16 Spar UK Ltd 1,590,000 na na 2,676 595 3,420 461
18 17 CRS 1,473,600 -57,736 -3.9 525 2,754 na na
19 18 First Quench 1,383,670 na na 3,000 456 na na
20 20 Debenhams Plc 1,349,200 146,100 10.8 94 14,353 6,400 211

Top 20 Acquisitions and Mergers by UK Retailers, 1982-1999

  Purchaser Purchase Sector of purchase Year Value (£ mn)  
1 Wal-Mart [USA] ASDA Grocers 1999 6,700.00  
2 Isosceles Plc Gateway Grocers 1989 2,200.00  
3 Great Universal Stores Argos Mixed Goods 1998 1,900.00  
4 Habitat Mothercare Plc British Home Stores Clothing 1985 1,520.00  
5 Somerfield Plc Kwik Save Grocers 1998 1,000.00  
6 Boots Company Plc Ward White Multi-sector 1989 900  
7 ASDA 61 Gateway stores Grocers 1989 705  
8 Dee Corporation Plc Fine Fare Grocers 1986 686  
9 Argyll Group Plc Safeway Grocers 1987 681  
10 Tesco Plc ABF's grocery chains Grocers 1997 630 *
11 Management Magnet Furniture 1989 629  
11 Alfayed Investment Trust House of Fraser Department stores 1987 615  
13 Associated Dairies Group MFI Furniture 1985 615  
14 Burton Group Plc Debenhams Department stores 1985 566  
15 Kingfisher Plc Darty Electricals 1993 560 *
16 Philip Green Sears Clothing 1999 549  
17 Management MFI Furniture 1987 505  
18 Sears Plc Freemans Mail order 1988 477  
19 Lowndes Group Harris Queensway Furniture/carpets 1988 450  
20 Marks & Spencer Plc Brooks Brothers Clothing 1988 440 *
* Overseas acquisition.
Source: "The Retail Rankings - 2000 Edition", Retail Intelligence.


For details of this report click here