Is there a future for non-food retailing for co-ops?: Co-operative News

Posted on May 30, 2009 · Posted in Co-operative News

 

The co-operative movement is “moving away from non-food retailing”, according to the Plymouth and South West Co-operative Society. It is a conclusion difficult to shy away from.

 

Plymouth is one of the most recent to exit the department store market, having sold its non-food stores earlier this year. The buyer is Vergo, which specialises in running department stores and introducing “fresh ideas to revitalise their trading fortunes”.

 

The Plymouth society did not respond to the News’ request for a comment on its decision. But its chief executive, Douglas Fletcher, was quoted in the Plymouth Herald as saying: “The society is well known for its non-food stores, especially Derrys department store in Plymouth, so it has been a very difficult decision for us to seek a purchaser.

 

From a business point of view, however, the loss-making non-food side of the business was unsustainable. This has been compounded by the co-operative movement as a whole moving away from the non-food market with a resultant loss of group-wide buying power.”

 

Plymouth’s decision was revealed in February. The following month it announced its intention to become part of the Co-operative Group. The Group itself completely pulled out of the department store sector three years ago.

 

A central part of its retained interest in non-food retailing now is in electrical goods, which are retailed in some of the larger Group food stores. It also has a successful online electrical retail outlet – www.coopelectricalshop.co.uk – which was run by United Co-operatives with the support of the Group before they merged. The group also wholesales for a number of societies, including Heart of England, East of England, Channel Islands, Mid Counties and ScotMid.

 

Sales of electrical goods are doing well, says James Holland, managing director of The Co-operative’s electrical buying group. “Annual sales by The Co-operative’s electrical buying group now top £100m, and the buying group has had a phenominal start to 2009, with first quarter sales up sales up 81%,” he says. “These figures are well above the industry average.

 

We find that, in times of recession, consumers like the security of a retailer they know they can trust, and The Co-operative website, and other societies, are benefiting from that. We have also benefited from improved market share, following the demise of some major online retailers, and by the addition of more societies to our buying group. The future for electrical retailing by co-operative societies is looking very bright.”

 

Despite the move away from department stores by the Group and some other societies, there is nothing inherent to the department store sector that makes the outlets unprofitable. A quick look at the John Lewis chain makes that clear. What is obvious is that those department stores with the right, modern, image do well. Those that have not benefited from investment and look dowdy as a result have suffered badly: that applies both to stores owned by societies and by other retailers.

 

This perspective is backed by John Chillcott, chief executive of the Anglia Regional Co-operative Society. While Anglia has a reputation for being one of the best non-food retailers within the movement, Chillcott is not satisfied. “We need to do it better,” he says. “Non-food has been a problem for the movement for a long time, in department stores in particular. We [at Anglia] are making a fist of it. We do see a place still for it.

 

A lot of societies have just let it drift for many years. Anglia has been equally guilty of not investing sufficiently in stores and their ambiance. That is something we are beginning to put right. Anglia has probably made a decent job of it compared to some societies. But I would not say we have done great either. I would not say as of today that Anglia is a shining light. We are addressing it.

“We have just finished a £2m refit of our main Peterborough store and it will match anybody – John Lewis or anybody else. We are getting good results and fantastic customer comments. We did proper research into the offering and we are using that to drive our buying decisions to improve the offer in terms of range and value.”

 

As far as Anglia is concerned, being in control of the buying and selling chain is important. It has rejected the route taken by Debenhams and many other operators of department stores, in which they let out concessions within the store. And it also believes that selecting and buying fashion items that fit with their store’s market position is important.

 

Anglia’s research confirmed the management’s concerns about the image of the society and its main store. Existing customers liked the stores, but this was an ageing population. As a client base, it was not being renewed. Consumers that had never even visited Anglia stores had negative perceptions.

 

That image is being strongly challenged now by a deliberate concentration on creating a modern style. “When you a see a store, the real draw is the facia and window,” says Chillcott. “It’s the immediate impact of the window and basics – like having automatic doors and open and inviting foyer areas.”

 

Chillcott says that while Anglia’s non food performance has suffered due to the impact of the recession, it is clear from the trading trends previously that the refit is working, with improved trading performance.

Anglia buys for itself and provides a buying service for other societies, which is also shared with some other stores outside the movement. But this is seen as a service that supports Anglia’s retailing operation, rather than an attempt at creating a profitable trading division. Instead, other societies with non-food activities contribute towards its overheads. On electrical goods, Anglia opts into the Co-op Group’s wholesaling arrangements, because its electrical goods turnover is not high enough to interest suppliers in the Far East and elsewhere.

 

Penrith Co-operative Society is another that remains committed to non-food retailing and running a department store. But unlike Anglia, it sources products from outside the movement – from Associated Independent Stores (AIS) – which is also used by some other smaller societies. Penrith is very pleased with the service, support and prices it gets from AIS.

 

We are doing well,” says John Mills, chief executive for retail at Penrith Co-op. But he adds: “We are doing well outside the movement. We are not getting the support of the movement, so we went with AIS.”

 

For Penrith, it was essential to re-evaluate the lines it offered. It went back into clothing and also sells furniture, carpets, luggage and cooking equipment. “We streamlined our offering,” explains Mills. “We tried to be all things to all people. You can’t do that. Especially when you don’t have the space.”

 

A £3m refit of the 19th Century Penrith store was an opportunity to re-evaluate its operations. Recognising the importance of space utilisation, Penrith also pulled its electrical goods into the food hall. This increased turnover, made sure that items for sale were properly supervised and enabled the society to reduce overstaffing where sales did not justify it. The changes have been highly effective: sales in some departments have risen by 40%.

 

You have got to invest,” says Mills. “There were a lot of problems with this society over the years, so it took a lot of time to invest.” It is a description that could apply to much of the movement’s recent experience with department stores.