Friday, 15 February 2013

Co-op Weathers the Retail Storm

The economic crisis that is being made worse by George Osborne is causing tremendous turbulence in the retail sector. Consumer spending which was the driving force of the economy before the banking crash is under massive pressure and this is exaggerating other cultural shifts in the way we shop.

The disappearance of many familiar names from the high street is a symptom of deep underlying structural changes in the sector. Osborne’s, “Honey I shrunk the economy” is ensuring that we have too much retail capacity. It is also hard to understand why David Cameron moans about people not paying their taxes when Osborne allows firms, like Amazon who sold £3.3billion worth of goods in the UK last year, to pay next to no corporation tax and exploit VAT loopholes.

Other factors include high fuel costs squeezing disposable incomes and reducing consumers’ appetite to travel plus the massive social impact of the internet both for shopping and for price comparison.

For the Co-operative retailers the ongoing migration into convenience stores has been accelerated by these forces. Concentrating food retail forces in this area made sense as the margins where better and it was a good fit with the existing co-operative retail estate.

This may have been a pragmatic response to the huge shopping “sheds” of the big four food retailers but no one realised how quickly these huge assets could become liabilities. Deloittes are predicting a 40% “downsizing” of retail space in the next five years. We will see retailers having fewer stores and the beginning of the end of the huge out of town shopping “hangers”.

Many people loved these huge stores, a whole retail village under one roof always dry and warm (a real boon given our climate) that buzz has however long gone. Now we can do our browsing online and often get stuff delivered to our homes cheaper than they can sell it in the shops.

Stores complain of shoppers coming in to take a look at goods then buying on the internet, a practice known in the trade as “show-rooming”.  Not a service you can offer for very long.

If the Co-op move to convenience made sense it has not gone unnoticed by the competition with all the major retailers developing small store formats. For the Co-op having a store in every UK postcode means that the business rises and falls with those communities and outside the South East they are being seriously squeezed.

The long retreat from non-food retailing continued this month when Midlands Society announced the closure of its nine Fashion and Home department stores after producing significant losses. This will be the end of an era in places like Derby, Chesterfield and Ilkeston where these stores have long been part of the fabric.

It maybe ironic but some of the competition has come from the fast growing Co-operative Electrical, the Co-op Group’s online business. Over Christmas it enjoyed a 15 per cent increase in sales compared with the previous year. Best sellers included, tablet PCs, printers and laptops, products that did not exist when those department stores first opened.

The co-op food retail sector had a good Christmas with many independent co-op retailers especially the East of England, Midcounties, Southern and Lincoln doing particularly well and the Co-operative Group had respectable results.

The real winners given the state of the economy where the discounters Aldi, Lidl and Iceland as well as at the other end of the spectrum Waitrose - showing that austerity is only for the poor. For the big retailers at best it was a stand still position with big discounts and high food inflation damaging margins.

This tough environment is the challenge for the new CEO of the Co-operative Group, Euan Sutherland. He will replace Peter Marks who most of us expected to be Sir Peter in the New Year’s honours list however he had to settle for a CBE.

I found this a bit insulting given his record. Maybe I’m an old cynic but this just adds to my scepticism about the whole honours system and those dreadful imperial labels.

Euan comes from Kingfisher where he was Chief Operating Officer, so for those of us in retail at least he is a shop keeper and not the banker that we thought the FSA might foist upon us.

Keeping the Co-operative retail sector competitive with smaller shops and lower volumes than our rivals is a tough ask. Back in 1993, the movement finally - not before time - got its buying act together. The formation of the Co-operative Retail Trade Group brought together all the buying for the movement into one body.

Many co-operators are now saying it is time to form or join a European version, joining with colleagues in Spain, Italy, Scandinavia, and elsewhere so we can really compete with the giant retailers.

Then there is the internet and the question of what should be the Co-ops online offer?  The new CEO is going to find that as well as the integration of a huge banking acquisition there is no let up in the retail competition and that is without going into funerals, pharmacy or farming!


Heres to a more Cydweithredol Cymru

If 2012 was the International Year of Co-operatives, then will 2013 be the Welsh Year of

Why so? Well the Co-operative economy in Wales is not insignificant there are around 400 co-operatives with a turnover of £1.3bn. For the fourth year running they outperformed the UK economy with a growth rate of 1.5%.  Very encouraging but when you consider that there are about 58,000 businesses in Wales there is considerable room for improvement.
Those of us in the co-op sector where delighted when last july Edwina Hart, Minister for Business, Enterprise, Technology and Science in the Welsh Assembly launched the Welsh Co-operative and Mutual’s Commission. Under the Chairmanship of Professor Andrew Davies, the Commission is charged with making, “recommendations on growing and developing the co-operative and mutual economy in Wales in order to create jobs and wealth in support of the Welsh Government’s aims and ambitions”.
The Commission is due to report in the autumn and has the potential to be a springboard to take co-operative development to a new level. Wales has always had a ‘co-operative culture’ and has a distinct enough economy for measures to encourage co-op development to have a significant impact.

There is no reason why Wales cannot become one of the World’s great co-operative regions like Emilia Romagna or Quebec. Wales already has some significant co-operative development assets like the Wales Co-operative Centre. For 30 years they have been providing reliable support to co-op start-ups, mainly funded by the European Regional Development Fund and the Welsh Government. Unusually for this type of economic development body they owe their existence to the Wales TUC who established them in 1981.

There is huge scope for better advice, support and financing for new co-operative start-up’s but there is also huge scope to return of previous state owned assets to community co-operative ownership.

The platform of a good solid supportive relationship between the trade union movement and the co-operative movement has the potential to be the basis for making this a reality in a growing Welsh co-operative economy.

There are signs of a Welsh difference. The recent rows about water charges had little impact in Wales because of the ownership structure of Welsh Water. Owned by Glas Cymru, a single purpose company, with no shareholders run solely for the benefit of its customers it has a business model that aims to reduce the industry's single biggest cost, capital.

Welsh Water's assets and investment are financed by bonds and retained financial surpluses. Financing efficiency savings to date have largely been used to build up reserves to insulate Welsh Water and its customers from unexpected costs and to improve its credit worthiness so that the cost of finance can be kept as low as possible in future the years.

Compare this with £1.5 billion that shareholders have siphoned out of Thames Water over the last four years. I think Glas Cymru’s structure would be even better if it was owned co-operatively by the people of Wales creating real democratic accountability.

Another sector crying out for co-operative ownership is the railways. There is a vision for Rail Cymru a new co-operative railway company serving the people of Wales and the Borders which would put their needs before those of private shareholders and foreign owners -ironically the current Wales and Borders franchise is operated by Arriva which is owned by the Deutsche Bundesbahn the German State Railways – so it is OK  for public ownership as long as its someone else’s public!.

The vision for ‘Rail Cymru’ involving rail employees, passengers, the wider community and the elected government of Wales, is supported by amongst others Aslef and Co-operatives and Mutual’s Wales. The idea is outlined in a report written by Professor Paul Salveson who argues it would deliver better value for money to the taxpayer and provide a more responsive service.

The franchise comes up for renewal in 2018 allowing time for the Welsh Government to develop its plans in detail, ensuring employees, passengers and the community are fully engaged with the vision for a people’s railway set in an integrated network of connecting bus services, with improved access for walkers and cyclists to stations and with those stations being transformed into hubs of community activity.

There are also plans for the development of co-operative social care in Wales. If one sector should be denied to the profit hungry private sector it has to be social care. There is huge scope for co-operative solutions in this sector empowering service user’s and social care workers. The scope for co-operative schools is also tremendous.

Encouraging more fan owned co-operative sports clubs like Wrexham and Merthyr Town also has to be on the agenda. These issues and more will be discussed when the caravan of the Co-operative Congress rolls into Cardiff in the summer. The venue is the home of another another co-operative business Glamorgan County Cricket Clubs Swalec stadium.

I am sure co-operators from across the UK will be throwing their ideas into how to make Wales a co-operative champion in 2013.