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 |
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…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.
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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
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By GlobalDataRanking | 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 |
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 | * |
Source: “The Retail Rankings – 2000 Edition”, Retail Intelligence.
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