15^th March 2012

Womenswear retailers must rethink sourcing and discounting to recover margins

• 2.6% inflation forecast in 2012 as cotton and freight costs drive up cost prices
• Low volume growth of just 0.4% in 2012 leads to unsustainable discounting
• Fast fashion players explore UK manufacturing opportunities

 Verdict Research, the independent retail analysts, forecasts in its latest report* that womenswear players will continue to be under intense margin pressure as inflation remains, the volume of items purchased is negatively impacted, and retailers are forced to discount to clear stocks.  The average operating margin of the top womenswear players** fell from 9.8% in 2010 to 9.0% in 2011, highlighting the margin pressures retailers are facing.

Inflation in womenswear (forecast at +2.6%), caused primarily by the increased cost of cotton and high fuel prices increasing shipping costs, will drive expenditure growth of 3.0% in 2012 to £21.4bn as most retailers have had to increase retail prices to limit the hit on margin. However, higher prices and restricted disposable income have made consumers far more considered with their clothing expenditure leading them to think twice about the number of items they are buying in 2012 – limiting volume growth to just 0.4%. This weak demand has meant most retailers have resorted to discounting to drive footfall and spend. “High levels of markdown and discounting in 2012 will lead to increased margin pressure, impacting overall profitability and forcing retailers to rethink cost saving strategies” saysHonor Westnedge, Analyst at Verdict. 

Verdict predicted in the report that British manufacturing would make a comeback as a cost effective solution to rising international sourcing costs. The higher cost of labour inChinaandIndia, along with high freight charges and import duties have put increased pressure on retailers to raise retail prices or take a hit on margins. “While labour and production costs may still be more expensive in the UK, freight and import charges are eliminated and it allows for shorter lead times and provides retailers with greater flexibility in repeat runs and short orders – especially retail brands that need to translate styles from the catwalk to the shopfloor quickly” adds Westnedge.

Margin pressure will force retailers to rethink their discounting and sourcing strategies in 2012, or risk diminishing profitability. “The level of discounting currently seen at retailers is not sustainable in the long term. Margins cannot continue to be eroded and consumers will be ever more reluctant to pay full price for garments” explains Westnedge. Verdict advises retailers to find new methods of driving footfall and traffic online without falling into the trap of discounting and risking profitability. How retailers cope with this challenge of high inflation and increased markdown, and whether they are able to encourage customers to pay higher average prices will be a crucial determinant of their profit performance over the next couple of years.

- Ends -

Notes for editors

* WOMENSWEAR RETAILING IN THEUK| VERDICT MARKET REPORT

** Average operating margin year-on-year change is calculated based on 2009/10 and 2010/11 margins from Arcadia, Debenhams, M&S, Matalan, New Look, Next, Primark, Tesco & TK Maxx

Note: forecast 2012 womenswear market shares

Report authorsHonor WestnedgeandSarah Petersare available for comment.

To arrange an interview or for further details regarding this release please contact Kirstin Stocker the Verdict/Informa press contact on  +44 (0) 1483 825664 MOB: 07716 756453 , or email kirstin.stocker@informa.com

About Verdict:

Verdict Research is the leading authority on retailing. The firm has privileged access, at the highest level, to key executives working within the top 200 retailers. Its research and publications provide executives working in a wide range of business sectors – retailing, manufacturing, advertising, marketing, professional services, property, finance and the media – with unrivalled independent analysis of the retail sectors, key trends driving each, insight into the major players and forecasts. Verdict Research (www.verdict.co.uk), is a wholly owned subsidiary of Datamonitor.

About Datamonitor:

Datamonitor is a premium business information company specialising in industry analysis. It helps over 5,000 of the worlds leading companies, to address complex strategic issues. Through proprietary databases and wealth of expertise, it provides clients with unbiased expert analysis and in-depth forecasts for seven industry sectors: Automotive, Consumer Markets, Energy, Financial Services, Pharmaceuticals and Healthcare, Technology, Transport and Logistics. Datamonitor maintains its headquarters inLondonand has regional offices globally.

However, the major element behind the survival of the high street is how the consumer behaves and what consumers want. With retail growth halving every decade since the 1970s there was bound to be a fallout as the sector reached maturity.  This, combined with the impact of online shopping has led to an oversupply of space. Though these factors are behind high street decline, the main reason is consumers shop differently now to the way we shopped even 10 years ago.

We want the convenience of large out-of-town supermarkets with plentiful, free parking and a full range of products. We also want premium shopping centres with a complete range of stores and leisure activities. These locations would not survive if we did not shop at them and taxing them more heavily will be a further tax on shoppers rather than retailers and landlords.

To produce a relevant and vibrant town centre, a planner needs to assess the wants and needs of the local community, their shopping habits now and what impact demographic and economic factors will have on their future attitudes. As the report suggests, the future town centre will not have to be just about retail but the needs of the local community.

Already we are witnessing a return to local shopping. The expansion of click & collect, (in particular Collect + whereby we can collect parcels from local stores rather than wait in for a delivery or go to the Post Office), plus the high costs of driving, are encouraging shoppers to stay local. Furthermore the ageing population, with falling pensions and less mobility, will want local services and stores.

Just as a retailer looks for demand opportunities from consumers, so should local high streets.

 Shoppers will pay more but buy less this Christmas, says new report by Verdict and SAS.  But, do retailers know WHO is doing the Christmas shopping?

London, UK – 11th November 2011 – Men will buy more than half of the nation’s Christmas turkeys this year says a new report from Verdict Research and business analytics company SAS.  According to the report – How Britain will Shop for Christmas 2011 – retailers who want to make the most of the coming season’s opportunities are advised to look carefully at who is doing the shopping.

More than 10.5 million turkeys will be bought by UK consumers this Christmas. Turkey purchases start in earnest from mid-November while more than 5 million will be bought in the last week with 56.5 per cent purchased by men. The research suggests that women send their partners out with lists to save time as they ready the home, wrap presents, prepare party food and organise decorations, leaving men responsible for the tree, drink, Christmas food and present shopping.

“One of the most interesting things to come out of this report is who is doing the Christmas shopping,” said Maureen Hinton of Verdict.  “The data clearly shows that retailers ought to be actively targeting men, for whom Christmas is one of the big shopping windows. After a tough 2011 many retailers will be relying on Christmas to make a profit before being hit hard by a tough Q1 in 2012. Consumers will cut back as they recover from Christmas spending and face increased utility bills and high unemployment. Therefore retailers must build up enough cash and margin to support them through difficult trading until the next likely boost in spending, Easter.”

The report shows that UK households will spend £86.5bn in the run up to Christmas, £1.2bn more than in Q4 last year, but the volume of purchases will be down by 0.7 per cent.  Although shoppers will be counting their pennies, spend on food, clothing, footwear, health and beauty will all increase as consumers purchase their Christmas gifts.

Spend on food will increase by almost four per cent (3.8 per cent) in 2011 to £33.4bn, outperforming overall retail growth but only because of inflation rather than sales. Clothing, footwear, health and beauty will also outperform as they are major gift categories due to their relationship to personal well-being. However, non-food sales will be hit the hardest, shrinking by 0.1 per cent as consumers avoid big ticket items with home related categories expected to shrink by £490 million. (See appendix for a detailed sector-by-sector breakdown.)

Online sales will fare particularly well this year due to the convenience, ease of access and ability to compare prices across different websites. Spending online will grow to £9bn which represents nearly 10 per cent of total spend over the holiday period and this increase can, in part, be attributed to the increase in mobile commerce for price comparisons, ordering and checking stock availability. However, this does not account for the influence online has on overall spending with 63 per cent of online shoppers researching online and then buying instore. The increase in online purchases this year is up against a weaker comparative due to the bad weather of 2010 halting the delivery of online purchases.

“UK retailers face one of the most challenging Christmases ever as a combination of low consumer confidence and inflation is making shoppers question every purchase they make, even at a time when they want to celebrate.

All the growth in the market is inflation led and a repeat of last year’s bad weather would be disastrous for retailers who are already on very tight margins.” continued Hinton.

Cindy Etsell, retail specialist at SAS UK said, “The pressure on retailers this Christmas is unlike anything they will have experienced before. The key for maximising sales is about understanding when consumers are looking to purchase items and ensuring that sales prices are optimised accordingly. Monitoring customer behaviour is critical for this and the information that retailers have about their customers from till receipts, credit and loyalty cards, and even wider unstructured data from sources like social networks can steer their understanding of purchasing patterns and ability to mark down prices at the optimum time to shift stock without losing significant margins.”

-ENDS-

Notes to editors

For a PDF of the full report and/or interviews with Cindy Etsell of SAS or Maureen Hinton of Verdict, please contact:  Kirstin Stocker at Verdict: kirstin.stocker@informa.com OR Pippa Melamet at Hotwire: sas@hotwirepr.com.

ABOUT SAS

SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions delivered within an integrated framework, SAS helps customers at more than 50,000 sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world THE POWER TO KNOW.

ABOUT VERDICT:

Verdict Research is the leading authority on retailing. The firm has privileged access, at the highest level, to key executives working within the top 200 retailers. Its research and publications provide executives working in a wide range of business sectors – retailing, manufacturing, advertising, marketing, professional services, property, finance and the media – with unrivalled independent analysis of the retail sectors, key trends driving each, insight into the major players and forecasts. Verdict Research (www.verdict.co.uk) is a wholly owned subsidiary of Datamonitor.

Appendix

Christmas 2011 UK retail trends by sector

Food & grocery

• Online sales will be a key channel for seasonal sales growth and innovation will be crucial in gaining market share (20.9% total sales). However, UK shoppers are wary of another year of heavy snowfall, with many consumers going online to browse before heading to stores to purchase items.
• Grocers are embroiled in heavily publicised price-focused marketing campaigns and private label ranges have gained greater credibility with shoppers wanting to trade down.

Health & beauty

• This will be one of the more robust sectors in 2011 due to relatively low selling prices and a strong focus on offering a wide range of products for gifting. In particular, perfumes are always a strong festive gift with late November/early December being the peak purchasing period.

Clothing & footwear

• Clothing & footwear is expected to fare slightly better than other sectors this Christmas as they make affordable gifts compared to other larger big ticket items. Lifestyle and premium brands are expected to perform well with the in-store experience, brand perception and quality credentials helping customers to justify higher spend.

Electricals

• Small consumer electronics will give the sector a welcome boost but an increase of 3.5% in volume will not be enough to drive positive growth in 2011 because this is one sector that is still deflationary. Online specialists should perform well with their competitive prices and varied delivery options providing shoppers with a far more convenient mode of shopping.
• Post Christmas, market volumes will rise as consumers take advantage of sales but like-for-like comparisons are likely to be poor as many consumers bought big ticket items last year in anticipation of the VAT increase in January this year.

Books, music & video

• These products will struggle this Christmas as demand for physical music and video products continue to drop off and more consumers take to tablets, e-readers and downloading. Price competition from online suppliers and grocers will continue to squeezes margins. Digital content does not fare well as a Christmas gift, while video games will not perform well because no new hardware and consoles have been launched in have been released in the second half of 2011.

Furniture & floor coverings

• This sector will decline by 5% in Q4 2011 as most shoppers made big ticket purchases last year in anticipation of the VAT increase in January and are wary of spending in the current climate.

Homewares

• Gifting will be the key driver of growth over the Christmas period but big ticket categories will continue to suffer. Retailers will need to be aware of consumer demand for decorations peaking in mid-November (12^th – 21^st November) and optimise prices to reflect this demand.

DIY & Gardening

• This is the worst hit sector with a 6.3% drop in expenditure on Q4 last year. The link to the housing market is the key factor behind its difficulties as consumers are reluctant to spend on big projects due to concerns with employment, household expenses and debt. Unless visiting for specific DIY purposes such as Christmas trees, consumers are unlikely to frequent these shops with the aim of purchasing Christmas gifts. As a result, it is more crucial for this sector than any other to closely monitor customer spending patterns and maximise sales opportunities during peak periods.

A new report** from the independent retail analyst has revealed that the share of plus size clothing in the overall womenswear market is increasing, rising from 18.7% in 2006 to 23.2% in 2011. Sales will continue to grow over the next five years to reach nearly £6.0bn by 2015.

Carly Syme, analyst at Verdict, said: “Retailers are looking to expand their niche collections such as petites, maternity, and plus size to ensure growth and increase revenue. Our research has revealed that it is the plus size market that offers the biggest opportunities for growth. This year alone we expect the market to grow by 6.0% to £4.9bn.”

The research predicts that while growth in the plus size market will begin to slow, reflecting trends in obesity levels, it will remain strong, rising by 28.6% between 2010 and 2015. While the weakened economy will have an impact on the market, particularly as the Office for National Statistics reports larger women tend to be less affluent, drivers such as obesity levels, and an ageing population in a society where women tend to get bigger as they get older, will more than offset this.

Ms Syme continued: “Many retailers already have strong plus size ranges, but there are still significant opportunities. While there is a large proportion of the plus size market that is made up of older shoppers demanding more classic designs, there is also an increasing need for more fashionable plus size items for younger shoppers, who are currently underserved.”

Geographic borders are being broken down in clothing retail by an increase in the number of brands launching into new countries through online offerings. Whilst this is a great opportunity for under pressure retailers, competition will become tougher, finds Verdict. 

Research* by the independent retail analyst has revealed that although moving into new countries offers an increased customer base, retailers should think carefully about their strategy to ensure they have the basics in place, if they are to stand a chance of competing with local retailers.

Natalia Grabov, analyst at Verdict, said: “Retailers are employing different strategies to enter a new market.  One of which is to launch their existing ecommerce website in new markets.  This is a cost effective way of exploring the market and understand demand before promoting heavily.  This can then be followed by a physical store or a localized website.

“However, unless they invest in some essential basics, there is a risk of developing a poor reputation before the retailer has a chance to formally launch.  Ultimately a bad experience on a site can stay with a shopper for a long time, even if a retailer later makes up for it.”

Verdict believes that one of these basics is ensuring that the information that is vital to customers is easy for shoppers to find.  For example if the retailer only has one global site, they need to ensure sizing details, and delivery information is displayed clearly. Also promoting delivery destinations is vital to ensure sales from multiple countries.  For example the Topshop site has a banner on its homepage with a clear link to a table listing every delivery destination.

However, retailers can benefit further from launching localized online stores.  Although this is a more costly strategy for retailers, it has its advantages.  If the site isn’t local it makes keeping shoppers happy harder due to a number of reasons, including logistical issues. For example UK based retailer Next, doesn’t have any physical stand alone stores in the US so shoppers have to return items by post and as they have a very limited time frame to do this, as well as the cost involved, the retailer has to work harder to ensure shoppers aren’t put off.

One retailer which has ensured it launches into new markets using localized stores is Japanese company Fast Retailing.  The retailer owns a number of brands including Uniqlo and there is a physical store in each of the countries where the brand has an online store. Importantly, each market has its own web domain and only delivers within that country. Although we expect Uniqlo to extend its shipping service from the UK site to mainland Europe, this will correspond with its plans to open physical stores there. 

Ms Grabov added: “Uniqlo’s strategy is undoubtedly more costly than launching online only stores first in a new country.  However, it has its rewards as it is able to tailor its online store to that specific market  and, more importantly, it will allow Uniqlo to complement its online store operations with its physical stores.

“Over the next year we will see more retailers pushing into new markets and the different strategies they use will be vital in ensuring they are able to compete with the retailers in the local markets.  Essentially in the online space it is all about speed, so those who can get into new markets without compromising their service will reap the rewards.”

In a survey of ranges across the high street, Verdict found that prices in womenswear this autumn are, on average, 5.4% higher than autumn last year. And some categories, such as casual tops, saw increases as high as 7.5% compared to last year.

Consulting Director of Verdict, Neil Saunders, comments: “Across the board, prices have been eased up. In some categories a few pence has been added to the ticket price but in others we’re seeing increases of a pound or more.”

Verdict analysed several areas within the supply chain and retail cost mix and estimated the contribution each has had to inflation.

Although the price of raw materials such as cotton and wool has helped push up prices, Verdict has found that not all of this can account for the current rate of inflation; this is especially so since many retailers committed to and paid for stock before the recent spikes in price.

Notably, the second highest contributor to price increases is an early pass through of VAT which Verdict estimates is currently contributing 1.1% to womenswear inflation. Neil Saunders comments: “Retailers don’t want to wait until the busy January sales to start changing prices so loading some of it in now is an efficient thing to do and is also a way of enhancing margins for the rest of this year. Unfortunately, it does mean consumers are now having to pay more for their clothing.”

Overall this year, Verdict is forecasting clothing inflation of 4.4% with 3.6% inflation following in 2011.

The £694m a year school uniform and equipment market has been subject to rapid price deflation over the past 6 or so years as retailers have vied with each other to offer lower and lower prices. Indeed, the average price of a standard uniform has fallen by almost 21% since 2004.

“It’s an important market financially so retailers have reduced prices to get a share of the action; but it’s also important psychologically – those that offer low prices on uniforms are seen as giving a helping hand to hard pressed parents” comments Neil Saunders, Consulting Director at Verdict.

Verdict’s research shows that the grocery chains have been at the forefront of reducing prices and, as a consequence, have rapidly expanded their share of the market. In 2004 grocers and supermarkets had just under 13% of the market; today over 26% of sales go through their tills. “The grocers provide great prices combined with real convenience, it’s a winning offer all round” says Saunders.

Deflation has taken its toll on the market, however, and the total value of uniform and equipment sales has fallen from £861m in 2004 to £694m today – a decline in excess of 19%. “Reducing prices in school wear does not result in a commensurate increase to volume sales – mainly because it’s a need to have rather than a want to have product and most families will not buy more than they require” comments Saunders .

Many independent retailers have also struggled to compete on price and have lost sales and market share as a result.

Data

The table below shows the cheapest price for kitting a child out with school uniform; please note that these prices do not take account of special promotions (i.e. a whole uniform for £10) but rather are for individual items.

This is a marked change from the past 10 years when clothing prices fell every year driven, in large part, by the growth of value players like Primark and the expansion of the grocery multiples’ clothing offers. According to Verdict’s numbers, clothing prices fell by 32% over the 1998 to 2008 period.

Inflation returned to the market in 2009, but prices, held down by reluctance on the part of retailers to pass on increases during the midst of a recession, only rose by a very modest 0.3%. A combination of higher supply chain costs, increases in VAT and raw material price increases have finally put pay to the days of low inflation and many retailers, in an effort to rebuild and protect margins, are starting to pass across much fuller increases.

This table shows the long term rate of inflation/deflation for the clothing market from 1998 to 2014. Red figures are forecasts

Source: Verdict Consulting

© 2010, all rights reserved

“The consumer has had it good for the past ten years” says Neil Saunders, Consulting Director, “but the good times have now come to an end. Prices can’t defy gravity forever and many retailers now have very little choice but to ease up prices.”

According to Verdict, increasing prices at a time when consumers are still uncertain and constrained will have a negative impact on the amount of clothing people buy and over the next two years there will be virtually no volume growth in clothing retail.

“The consumer response to increased prices will simply be to buy less but to think more about each piece they are buying” says Saunders. “That’s a game changer in clothing retail which has been dominated by the low price, high volume model for years. The new model is much more about adding value and providing clothing that is aspirational or different”.

The sector view

At a sector level, womenswear will bear the brunt of the inflation, with average prices increasing by 15.1% over the next five years. However, all sectors, including kids and mens will be inflationary.

This table shows total inflation or deflation (price increases or decreases) in various clothing sectors across a five year time period.

Source: Verdict Consulting

© 2010, all rights reserved

“Children’s clothing is marginally less affected by inflation as most of the product is not VATable” says Saunders. “Nevertheless, it is still subject to many of the same cost pressures as all other categories so we expect prices to rise over the next five years”.

Cost drivers

Verdict has identified a number of cost pressures which are leading to an increase in prices:

The reversion of VAT to 17.5% at the start of this year increased prices on at many retailers. A further increase to 20% is scheduled for January 2011, but Verdict believes retailers will start to pass this increase across before the New Year. “Many retailers have already anticipated the VAT increase and have built it into their autumn and winter prices” says Saunders. “That will help them make some good margin gains before January and will also give them less adjustment work to do when VAT goes up in the midst of their busiest trading period.”

Having already secured many of the financial benefits of international sourcing, it will be very difficult for retailers to extract significant extra savings from moving production to ever cheaper locations. Indeed, over the medium term wage inflation in China will push up clothing production costs.

The third factor is the cost of raw materials, especially cotton, which in the near term have risen sharply and continue to show signs of price stickiness. Retailers are no longer to absorb these costs and are building them into their current and future pricing.

London, 13 January 2009 – A poll of over 6,000 consumers, carried out by Verdict Research, reveals that department store chain John Lewis remains the nation’s favourite retailer.  After winning this award for the third successive year, John Lewis has now won the title before the recession in 2008, during the recession in 2009 and now in 2010 as we begin to see the beginning of recovery – demonstrating the enduring nature of the store’s appeal.

The survey – the Consumer Satisfaction Index 2010 – found that John Lewis was more highly regarded than any of its competitors. Despite a more price focused retail market with more demanding consumers, John Lewis managed to attain the same satisfaction score as last year.  However, many other retailers have improved their satisfaction scores this year and John Lewis scored only seven points above the second placed retailer, compared to a winning margin of 25 points last year.

For the survey Verdict quizzed customers about where they shopped most frequently, and then asked them to rate those stores in terms of range, price, convenience, quality, service, ambience, facilities and layout. The data were collated to give retailers a score for each of these criteria, as well as an overall consumer satisfaction rating.

Table shows the top five overall retailers in the Consumer Satisfaction Index 2010 and their change in rank since last year.

Source: Verdict Research

John Lewis is a perennial achiever in the Consumer Satisfaction Index, not finishing outside the top two for the eleven years that the survey has taken place  (7 times first place, 4 times second place).  In 2010 the retailer’s customers again ranked its service levels far and away above every other retailer, but it was its consistently strong performance across a whole range of measures that enabled it to defend its title.  Verdict’s Consulting Director, Neil Saunders, comments: “The recession has made consumers think more carefully about where they spend their money and part of that has been questioning the value they get from retailers. John Lewis has not been found wanting. It simply delivers on every level: an excellent choice of products, fair pricing, served in an attractive environment with staff who truly believe in the concept of good service. It’s John Lewis’s adherence to traditional retail values that make it a true leader in the modern retail scene”.

Online specialist Amazon has moved up from third to second position this year with service and convenience the two factors that its customers liked most about the retailer ‘’The secret to Amazon’s success is simple’’ said Neil Saunders ‘’it offers customers a fast, reliable service at competitive prices’’.  Amazon has also seen a large improvement in its satisfaction index since last year, and we expect it to challenge John Lewis closely next year for the top spot.

Another internet retailer, Play, completes the podium positions. Play’s exemplarily service levels, convenient website and low price ethos all helped it achieve an extremely high satisfaction score in 2010. Verdict’s Senior Consultant, James Flower, comments: “Play focuses on making things as easy for its customers as possible. Great search functionality, rapid purchasing processes and free delivery, as well as competitive pricing, combine to give customers a great level of service”.

Homewares specialist Dunelm Mill is a big climber, its rank rising 13 places since last year to fourth position. ‘’Dunelm’s proposition is based on offering customers a wide choice at value for money prices’’ says James Flower ‘’and unsurprisingly these are the two areas where Dunelm satisfies its customers the most.’’

Marks & Spencer takes the fifth slot in the overall index, up from ninth position last year. The retailer has seen improvements across the vast majority of measures with range, quality and service all driving higher overall satisfaction levels in 2010.  ‘’M&S continues to work hard at improving all aspects of its customer proposition, and this higher ranking shows the retailer’s efforts have not gone unnoticed by its customers‘’ says James Flower. Marks & Spencer’s strong performance in this year’s index has been underlined by it becoming the nation’s favourite clothing retailer in 2010.  A title the retailer has never won in the 11 years the survey has taken place. This performance is backed up by top three positions in two other product categories – footwear and food. 

Overall winner John Lewis also performs well on a sector basis, coming top in two sectors (homewares and electricals), while its sister company Waitrose has taken the award as the top food retailer for the fifth successive year. In the remaining sectors, Asda tops personal care and footwear, B&Q heads DIY and Amazon music and video.

 The top three retailers in each retail sector 2010.

Source: Verdict Research

Verdict, which forecasts that overall retail spending will increase by just 1.1% this year, maintains that satisfying and holding on to customers will be a key driver of success. “Overall there will be only limited growth in the market this year” says Neil Saunders “so holding on to every customer and every pound they spend is critical. Retailers that don’t understand, or don’t care for, their customers will quite simply lose out”.

£6.5 billion of retail sales, 9,500 stores, and 24 million square feet of space affected by casualties

Verdict Research has kept track of the medium to large sized retail casualties between January 2008, when the banking crisis began to have a significant impact, and March 15, 2009. There were 100 casualties during this period, and adding up the sales, space and store numbers of these retailers highlights the substantial impact on the retail sector. Casualties’ sales totaled £6.5 billion, equivalent to 2.3% of all estimated retail sales in 2009, plus 9,500 stores and 24 million square feet of space. Many of these retailers have continued to trade or been bought out, maintaining a lot of this retail spend, but with some disruption. 

Furniture & floorcoverings offers significant share gain potential

Verdict Research estimates that 6.5% of the furniture & floorcoverings market will be available to competitors from casualties’ lost spend, which is almost equivalent to Argos’ sales in the sector. Although the market is still suffering due to the perilous state of the housing market, judging by previous recessions, it will be one of the first to make a major comeback. Retailers that are likely to benefit most will be those regarded by consumers as the most stable in the sector-market leaders such as IKEA and non-specialists such as John Lewis and M&S-because consumers will be cautious about which companies they trust with big ticket orders. This bodes well for John Lewis’ trial Home format, which is set to open later this year.

Clothing & footwear sector most affected by casualties 

Clothing & footwear is the sector with the highest number of casualties, at 42, and is the highest by value and space as well, at £2.7 billion and 8.8 million square feet, respectively. We estimate that over £1 billion of expenditure (2.6% of clothing & footwear spend in 2009) will be available from clothing & footwear casualties in 2009. However, as this sector is both large and fragmented, there are few individual retailers that are likely to make significant market share gains from this available spend. The main opportunities are in kidswear (Woolworths had over 5% of the market) and footwear, where there were some major casualties.  

Table 1:           Retail casualty sales available to survivors, 2009-10
Retail sector	Available sales		Available market share
	£m		%
Books/music/video	500		3.4
Clothing & footwear	1,043		2.6
DIY & gardening	172		1.2
Electricals	358		1.5
Food & grocery	171		0.1
Furniture & floorcoverings	855		6.5
Health & beauty	32		0.2
Homewares	319		2.9
Others	484		1.4
Total retail	3,935		1.4
Source: Verdict Research		V E R D I C T

  Online retail, food & grocery and health & beauty affected least by the credit crunch 

Of the 100 retailers covered in the report, only four casualties were pure online players and only one was a substantial business-Empire Direct-indicating the strength of this channel. Maureen Hinton adds: “Both health & beauty and food & grocery had few casualties; indeed, it was Woolworths’ pick and mix that made up the majority of the latter.”

London – Valentines Day provides a much needed boost to underwear retailers’ sales, as they face one of the most challenging periods of the past 20 years.  Growth in the £4.1 billion underwear market is forecast to fall into negative territory in 2009 as cash strapped consumers are forced to cut back on spending, says Verdict Research in its latest report UK Lingerie and Underwear Retailing 2009.  Retailers will therefore be hoping to entice customers into buying underwear gifts for their partners, raising the temperature in an increasingly frosty winter and proving that romance can conquer the recession.

Valentines Day provides a welcome distraction from the recession

“Retailers will be working harder than ever to seduce customers into making expensive lingerie purchases.  With so much focus on the economic situation, Valentines Day provides the perfect opportunity for couples to take some time out and treat a partner to some glamorous new underwear” commented Sarah Peters, analyst at Verdict.

Consumers searching for the perfect Valentines Day gift are now presented with a much wider choice of underwear as non specialists have improved their offers dramatically over the last five years.  Department stores offering a broad range of brands, such as Debenhams, are proving increasingly popular for special underwear purchases.  As well as this lingerie specialist, La Senza has also been successful at appealing to customers buying underwear as a gift, through offering a strong selection of occasionwear to complement its more day to day ranges.

However at the value end of the underwear market, retailers have also been growing their market shares with low price points appealing to an increasingly price sensitive customer.  Primark’s opening of larger stores has enabled it dedicate more space to underwear and has resulted in its estimated underwear market share increasing from 4.7% in 2003 to 7.7% in 2008.  The value retailer is growing its authority in underwear by offering a well segmented range and catering for a broad variety of customer needs, all at very affordable prices.

With non specialists all vying for a share of underwear expenditure, the traditional shape of the market is changing.  While M&S still remains the market leader by far, with a share over three times the size of it nearest competitor, Primark, this share is gradually being eroded.

New entrants to the market offering a wider variety of choice, a growing trend for shapewear and shape enhancing underwear and underwear becoming more influenced by fashion trends have driven growth in underwear expenditure by an estimated 40% between 1999-2009, or just over £1.2bn.

Notes:  e=Estimate – Market shares are for calendar year, Underwear consists of men’s and women’s underwear only – excludes children’s.

2009 will be the most challenging period for over 20 years

With value retailers adding downward pressure on retail prices and the weak pound impacting on retailers’ margins and a backdrop of consumer uncertainty, 2009 will prove particularly challenging for underwear retailers. Margins can be protected through driving additional volumes of each line.  For many retailers this is likely to mean slightly edited ranges to ensure higher volumes of fewer lines.  Managing margins also requires tight stock management to ensure minimal markdowns.  Non-specialists such as clothing retailers and department stores have the ability to flex their space according to faster and slower growing categories and are therefore in a better position to manage margins than specialists.

Online offers opportunities

For men too embarrassed to make the often daunting trip to an underwear retailer, many may prefer to buy valentines gifts for their partners online.  Carol Ratcliffe, Senior Analyst at Verdict commented “Retailers with transactional websites are also proving popular during the Valentines Day period.  Men shopping for gifts can purchase for their partners online, and avoid the often uncomfortable process of visiting crowded stores.  It also has the added advantage of allowing them to double check sizes before purchasing.”

Indeed, the online channel is an area that offers further growth potential for underwear retailers.  With online clothing expenditure forecast to grow 37.7% in 2009, underwear retailers need to be investing in their transactional websites.  Not only is online popular for gifts, but it also adds convenience for customers that do not want to spend time searching for their size in store and provides access to a wider range of sizes.  It is particularly useful for customers loyal to a brand or retailer that may simply want to make a replacement purchase.

London  – The credit crunch may well be changing people’s shopping habits but a poll of over 6,000 consumers carried out by Verdict Research reveals that department store chain John Lewis remains the nation’s favourite retailer.

The survey – the Consumer Satisfaction Index 2009 – found that John Lewis was more highly regarded than any of its competitors, winning by a significant margin ahead of second placed IKEA. Despite a more price-focused retail market with more demanding consumers, John Lewis managed to attain the same satisfaction score as last year.

For the survey Verdict quizzed customers about where they shopped most frequently, and then asked them to rate those stores in terms of range, price, convenience, quality, service, ambience, facilities and layout. The data were collated to give retailers a score for each of these criteria, as well as an overall consumer satisfaction rating.

John Lewis retained the top spot in 2009 after having taken the crown in last year’s survey. The result is the latest in a long line of success: the department store has come either come first or second in the survey ever since it began back in 2000 (six times first place, four times second place). John Lewis performs well across a range of measures, but it is in service that it really outperforms. Verdict’s Consulting Director, Neil Saunders, comments: “Today service standards on the high street are better than they were ten years ago – but John Lewis still stands out as being exceptional. Its partners really do care about customers and that makes all the difference. Unfortunately for other retailers, it is not something that is easily imitated – it is an inherent part of John Lewis’s culture and philosophy.”

IKEA the Swedish furniture giant comes in at second place, up from fifth last year. It scores well on both range and price, with an above average score for quality. “Shoppers are more focused on price than they used to be, especially when buying furniture and home products” says Neil Saunders. “IKEA is one of those stores that provides good quality products at a very reasonable price – and gives the customer lots of choice.”

The internet retailer Amazon moves up one place to third position. Convenience is a key driver of satisfaction, although Amazon also performs well on service where it has improved since last year. Verdict’s Senior Consultant, James Flower, comments: “Amazon is the top placed internet player, mainly because it makes life easier for its customers – the site is simple to use, has a wide range to pick from and there’s good service backup if things go wrong.”

Value player TK Maxx takes the fourth spot this year, up by 20 places since last year. “Price is the driving force behind TK Maxx’s entry to the top ten” says James Flower. “Shoppers are much more price sensitive now but they are still interested in designer and premium products – TK Maxx gives them the best of both worlds and its model now has real resonance with consumers.”

The world’s leading direct beauty seller, Avon, takes the fifth slot in the index. The retailer has built a strong reputation among shoppers for product quality and innovation and also scores well on convenience and service. “Consumers appreciate Avon’s high levels of personal service and they like convenience Avon’s direct selling method gives them” says James Flower.

When it comes to the individual retail sectors the strength of the John Lewis Partnership is further revealed. The department store side of the business comes top in three sectors (clothing, homewares and electricals) while Waitrose tops the food and grocery sector. In the remaining sectors, Wickes heads DIY, TKMaxx tops footwear, Amazon music and video and Avon personal care. “John Lewis is a department store in the true sense of the word” says James Flower, “it has real authority across all of the sectors it trades in and scores more highly than traditional specialists in those sectors.”

Verdict, which forecasts that overall retail spending will fall by 0.7% this year, maintains that satisfying and holding on to customers will be a key driver of success. “Overall there will be no growth in the market this year” says Neil Saunders “so holding on to every customer and every pound they spend is critical. Retailers that don’t understand their customers will quite simply lose out.”

The current cold weather should provide a boost as coats and knitwear are snapped up by shoppers who have not had need of either for the past couple of winters.  However this will not stop 2008, a year in which we have witnessed a raft of casualties, being the second toughest year since the turn of the century with value growth of just 2.4%.  Volume growth is also its lowest in nine years.  ”With shoppers having less to spend and becoming more selective in what they buy, clothing retailers will have to stand out from the crowd to win market share, and it is retailers in the largest segment of the market, the middle, that are losing out” says  Maureen Hinton, lead retail analyst at Verdict Research.

During a decade of constant price deflation shoppers have been buying more and more clothing items as retailers across the board have reduced their prices in order to remain competitive against the value retailers.  With price deflation averaging -2.8% between 1998 and 2008, the number of clothing and footwear items bought per head of the population has increased from 36 to 61.  But as prices came down and retailers opened more and more stores, consumers have become saturated by product and choice and with value now a given in the sector they are becoming much more selective.

The beneficiaries have been the premium and niche retailers that are growing their collective share the fastest despite the downturn.  This is evident in the £19.4 billion womenswear market – the main driver of the clothing market.  The middle, mass market operators, such as Marks & Spencer, Next and Bhs are the ones that are losing out.

All retailers, including those positioned at the price-led value end of the market, are now faced with cost rises in the supply chain that are far more difficult to absorb as operating costs have been cut to the bone.  With demand falling and cost inflation making it inevitable that prices will rise, a new model is emerging.  The low cost, low price, high volume trend of the past decade is being replaced by a higher cost, higher price, lower volume model that is better suited to the demands of a changing consumer.  The benefit of this model is that it operates on a higher margin and can produce higher profit levels.  Growth in the UK clothing market will slow over the next five years and to gain market share, retailers will have to grab share from competitors.

Though the value sector has been instrumental in driving down prices, its growth is slowing as the larger operators take up the volume sales in the market and it is the premium and niche retailers that are gaining share as shoppers are seduced by brands that deliver a unique proposition centred round a lifestyle.  The surfboard inspired brands such as Fat Face, those offering an aspirational leisure proposition such as Joules, Boden and Howies and the urban edgy ones such as Ted Baker and All Saints are all attracting shoppers tired of mass market offerings.

“The benefit of having a distinct brand” says Maureen Hinton, “is that it inspires shoppers and they will put it at the top of their list when clothes shopping.  Furthermore it can be extended into a wide range of products; and provides the means to international expansion, creating greater growth opportunities”.

“The market leaders have recognised that they need to segment their offers into sub brands to target an increasingly diverse customer base, but the execution is not always successful” continues Maureen Hinton.  “It takes a different mindset to deliver a compelling offer in a mass market environment and customer service, a key element of this proposition, is much harder to deliver in a self select environment” she added.

Commenting on the findings of the research, released at a Breakfast Briefing held at Barclays Bank, Jeremy Rance, National Head of Retail and Wholesale for Barclays Commercial said: “Consumers are saturated by product from recent years of indulgence and in the current economic environment are being more discerning with their spending. The result is that consumers are shunning anonymous high volume goods for those which have more identity and perceived value.  This is having an impact on the middle market as shoppers buy fewer items but switch to niche and premium brands which have more identity or trade down to value retailers.” In the current climate, retailers should be focussing on generating and conserving cash, thinking about their unique selling propositions, their stock levels and evaluating all their processes to reduce costs.”

*From a Breakfast Briefing based on Verdict’s latest series of clothing sector publications held for clients of Barclays Commercial Bank.

Though retail sales at airports will remain resilient in developed markets, it is the emerging markets of Asia-Pacific and the Middle East that offer the most exciting opportunities for retailers. The clean slates of emerging market airport development provide huge scope for growth that is less feasible – physically or financially – in regulated and restricted mature markets, and this is now being taken advantage of by airport operators.

Increasing passenger numbers are a key driver with the strong growth witnessed over the last five years set to continue, particularly in emerging markets according to Verdict. “The key factors stimulating this growth are increased affluence, growing tourism, rapidly expanding airline networks and new routes (especially those of low cost carriers).  The increase in business travel as a result of globalization is providing a further boost to airport retailers,” says Nick Gladding, Verdict Research Lead Analyst and author of the report.

Opportunities greatest in Middle East

The Middle East has seen the fastest growth in passenger airport traffic over the last five years and will remain the fastest growing region over the forecast period. Between 2002 and 2007, retail sales in the four key Middle East markets of the UAE, Qatar, Bahrain and Oman more than doubled from $461million to $1.2bn and Verdict expects sales to double again and reach $2.5bn by 2012.

At the forefront of this growth is Dubai international airport in the United Arab Emirates, which alone will be used by 50m passengers in 2008.  Already regarded as a regional hub, Dubai is set for dramatic expansion.  In 2008 retail space will more than double through the addition of a new concourse and terminal, enabling it to accommodate broader ranges of jewellery, luxury and fashion items.  Looking further ahead Dubai has potential to be the world’s largest international airport with the new Maktoum International airport adjacent to the existing airport under construction, which will lift capacity to 100m passengers per year.

The huge success of Dubai in promoting itself as an alternative transfer destination for long haul flights between Europe and the eastern seaboard of North America to the Far East and Australasia has encouraged other Middle East airport authorities to upgrade their infrastructure.  A new terminal is under construction at Abu Dhabi intended to enable it to compete more effectively against Dubai when it opens in 2010, while a third UAE airport at Ajman is due to open a year later.  Not to be left on the sidelines, other Gulf States, most notably Qatar and Bahrain also plan terminal extensions that will include substantial retail facilities.

China: liberalization to boost investment

The Chinese market also offers enormous potential to airport retailers. Despite the rampant economic growth of the country in the last five years and investment in preparation for the Beijing Olympics, airport retailing is still a nascent market and offers great scope for development.  China is expected to become the world most popular tourist destination creating a vast increase in domestic and international air travel. Nonetheless, aside from new airport openings in Beijing and Shanghai, many of China’s airports fall short of international standards and inward investment has been limited by the state ownership of the nation’s airports.  That said, restrictions on foreign investment are due to be relaxed and opportunities are being assessed by western airport operators keen to capitalize on the increasing affluence of Chinese consumers. The result, Verdict expects, will be an increase in retail spending at Chinese airports from $300m in 2007 to $612m in 2012.

India: low cost carriers boost growth

India offers tantalising possibilities to airport retailers. As a country that already has a strong trading culture and an international mindset, India is fast becoming a key market in global airport retailing with investment from international airport operators including the Swiss-based Nuance Group and Britain’s Alpha Airports Group, now owned by Italy’s Autogrill.

India’s emerging middle class, strong consumer culture and rising number of people flying -both domestically and internationally – will drive growth.  The air travel market is being buoyed by the development of low cost airline carriers as well as the reconstruction or extension of antiquated airports – around 100 airport schemes are planned, following on from new airports in the key cities of Bangalore and Hyderabad that have opened this year.  Low cost carriers are still in their early stages of development in India and have huge potential to make air travel more affordable and increase footfall at airports.  The thriving Indian economy will also boost demand for business travel, both within the country and internationally from western companies that outsource operations.  Together these factors, Verdict calculates, will lift retail spending at Indian airports from $127m in 2007 to $318m in 2012.

Loyalty rates down across the board

Loyalty to retailers in 2008 declined at its sharpest rate for the past ten years. Over 22% of shoppers – some 10.8m people – now say they are dissatisfied with the store they do most of their shopping at and that they would prefer to shop somewhere else. Although not every customer will act on their disloyalty, such a high level of fickleness is extremely worrying for retailers who are already struggling with weak consumer sentiment and spending.

“In the current environment it’s critical for retailers to hang on to every customer they’ve got; no one can afford to lose business” commented Neil Saunders, Consulting Director at Verdict.

“Such a low rate of loyalty demonstrates the extent to which people are shopping around and are increasingly willing to punish retailers that don’t meet their expectations. It should act as a wake-up call that retailers need to become better at meeting the needs of their customers”.

While the credit crunch, which has made consumers more inclined to shop around for bargains, is partly to blame for the increase in disloyalty – it is not the whole story. An increase in the choice of where consumers can shop has also driven the long term decline. The proliferation of new, often international, retailer entrants combined with an extensive selection of internet retailers has made it easier than ever before for shoppers to switch their custom.

“As competition has intensified it has become increasingly difficult to hold onto customers and retailers now need to work harder than ever before to retain shoppers” comments Saunders.

Discounters cashing in on low grocery loyalty

On a sector basis, food is a particularly fierce battleground with almost one-third of shoppers saying that, if they were able, they would shop somewhere other than their current main grocery store. Such a low level of loyalty comes despite the fact the major grocers have engaged in a variety of initiatives from price cutting to loyalty cards to retain consumers.

This is potentially good news for the discounters such as Aldi, Netto and Lidl which have been cashing in on disloyalty among the larger grocery chains and growing their own customer numbers. Verdict’s analysis shows that all three chains have increased their share of food shoppers over the past year.

“While their customer share remains low compared to the likes of Tesco, there can be no doubt that the grocery discounters have been successful in attracting significant numbers of new customers” commented James Flower, Senior Consultant at Verdict. “In the current environment their price focus has real resonance with hard pressed families”.

Loyalty leaders

While the general picture is bad news for retailers, some do manage to secure higher levels of loyalty. Verdict’s analysis shows that John Lewis in electricals has the highest loyalty rate of any retailer in the country: almost 91% of its main shoppers say there is nowhere else they would rather use. The retailer has achieved such a high level of loyalty by offering exceptional levels of service, good value for money and having deep ranges on offer.

“John Lewis understands its customers and it delivers on their needs in everything it does” said Neil Saunders, “it is a simple formula, but it’s one that’s extremely difficult to execute consistently.”

Marks & Spencer in footwear, Amazon in music and video and Dunelm in homewares, along with John Lewis again, this time in homewares, are the other top four retailers.

Lessons for retailers

Over the next few years retailers will need to work much harder in terms of understanding what their customers want and delivering this through products, prices and the store environment. Some of this will not be easy and may involve additional expense in terms of investment in customer service initiatives. Nevertheless, those that do not invest risk ceding customers to those that do.

The findings of the report, launched at a Barclays Commercial Bank industry briefing, confirm the retail sector’s increasing challenge to retain a constant customer base. Jeremy Rance, National Director of the Retail and Wholesale Sectors at Barclays Commercial Bank added:

“The research shows that the current climate is causing consumers to shop around not just for price and value but also for a distinctive quality of service and connectivity with the retailers. They are proving to be more discerning than ever, requiring phenomenal consistency of performance from the retailers in return for their loyalty. For those retailers that can uniquely combine range, convenience, layout, facilities, customer service and price into a compelling proposition, they will be rewarded and rewarded well, striking a chord of intrinsic and intangible values in the heart of the consumer.”

Department Store sector set for third consecutive year of growth

According to Verdict Research, the Top Three luxury department store operators, Harrods, Selfridges and Harvey Nichols, have collectively outpaced the overall department store sector by a significant margin for the past six years and have been instrumental in sustaining its growth in 2007.

The UK department store market contracted in 2004 and 2005 as a result of a weak performance from market leader Marks & Spencer combined with the exit of struggling players, in particular the Allders chain.  Since then the sector has enjoyed two consecutive years of growth and Verdict Research expects it to enjoy a third in 2008.  While it is Marks & Spencer’s recovery that was a major factor in boosting the sector in 2006, in 2007 strong performances from premium operators has underpinned its growth.

Premium retailers reaping rewards of investment

Apart from market share gains, profit densities have improved at all three of these department stores.  Harrods, Selfridges and Harvey Nichols occupy three of the Top Five places for profit densities, alongside Marks & Spencer and John Lewis.

Of the Top Ten department store retailers, Harrods recorded the biggest improvement in operating profit per sq ft between 2005/06 and 2006/07 with a rise of £30 per sq ft, followed by Selfridges with an improvement of £16 per sq ft. This has been achieved by making existing space more productive rather than opening new stores.

“These retailers are creating a virtuous circle by investing in their stores and ensuring the store experience matches the aspirational status of the brands they stock”, says Maureen Hinton, lead retail analyst at Verdict Research.  “This not only differentiates them from the rest of the high street, and crucially from supermarkets’ burgeoning non-food offers, but also provides consumers with a pleasurable shopping experience that combines the convenience of having a comprehensive offer in one location with leisure and indulgence.”

John Lewis pulling ahead

John Lewis, which leads the pack of traditional department store operators, has also enhanced the shopping experience for its shoppers with store refurbishments, improved product ranges and the introduction of more contemporary brands.  These, and the success of its online offer, have been a major factor in it growing its market share from 16.8% in 2002 to 19.1% in 2007 widening the gap with Debenhams and closing in on Marks & Spencer.

These trends show that it is wise of House of Fraser to focus on enhancing its own premium positioning with its store refurbishments, the introduction of new, exclusive brands, and improved customer service.

Verdict forecasts more growth in 2008

The market leaders, Marks & Spencer, John Lewis, Debenhams and House of Fraser all have extensive store opening plans in 2008 and this will ensure market growth.  But Verdict also expects consumers to continue spending with the premium operators.  “As money becomes tighter, consumers are more selective about where they spend and are more in need of a rewarding and indulgent shopping experience to lighten their mood,” concludes Hinton.

Retailers: the space race

Over the past ten years the economic environment has been benign and its impact on retail has been positive. Even so, the retail sector has become increasingly competitive. In large part this has been due to the expansion of retail space which has given consumers more choice in where to shop and has spread consumer spend more thinly between a greater number of retailers and shopping locations.

Since 1998, net of closures, an additional 49m square feet of retail space has come into play. Although this is a substantial amount – the equivalent of well over 1,600 average sized Tesco supermarkets – solid growth rates for consumer spending made such growth economically viable.

However, going into 2008, the amount of retail space due to open shows no sign of abating despite the fact that retail spending is set to slow dramatically. Over 2008, an additional 9m square feet of space (net of closures) will open.  While this new space is likely to trade well, it will do so to the detriment of existing retail space. When the growth of the internet is taken into account, the amount of spend available for existing retail space will actually contract.

Neil Saunders, Consulting Director at Verdict comments: “Unfortunately for retailers, the laws of supply and demand are absolute: demand from consumers is falling at a time when retail supply in the form of new space is increasing. The bottom line is that there just isn’t enough growth to go around between existing physical retailers, new space and the internet. Something, somewhere, has got to give.”

Consumers: the big squeeze

One of the reasons for sluggish demand is the state of consumer finances. For the past ten years consumers have been willing and able to spend. They have been helped, in part, by low interest rates, high levels of confidence and rising house prices. All of these things have allowed shoppers to live beyond their means and have allowed sustained and healthy levels of retail growth.

However, these golden growth drivers which have underpinned retail growth are now becoming tarnished. Credit is no longer easy to come by, confidence is low and there is significant pressure on disposable incomes. Indeed, costs for households are outstripping income growth by some margin. The upshot is that the consumer will cut back on retail spending.

“The UK consumer is going to feel the pinch in 2008″ comments Saunders, “and this means one thing – for the foreseeable future, the era of solid year-on-year growth for retail is over.” Verdict Research forecasts that over the next ten years retail spending will grow by an average of 2.8% per annum, compared with an average of 4.9% over the last ten years.

On a sector basis, the picture is more mixed but compared to last year almost every sector in retailing will witness a slower rate of growth.

The result: retail crunch

The upshot of slowing demand and increasing supply will have a dramatic and widespread on retail. While some successful players will still grow, the outlook for others will be less positive with a squeeze on margins likely across most sectors. The number of retail bankruptcies will likely increase and many retailers, over the longer term, will examine their store portfolios and will try to close unprofitable branches and underperforming space.

Neil Saunders comments: “We are not predicting disaster for the retail economy as a whole but there are undoubtedly rough times ahead which will sort out the winners from the losers – and not all of those losers will survive.”

For the survey Verdict Research quizzed customers about where they shopped most frequently, and then asked them to rate those stores in terms of range, price, convenience, quality, service, ambience, facilities and layout. The data was collated to give retailers a score for each of these criteria, as well as an overall consumer satisfaction rating.

John Lewis regained the top spot in the 2008 Index, having been nudged into second position last year by its sibling, Waitrose. The department store business performs well across a range of measures, but it is in service that it excels: John Lewis has been ranked top on this attribute since the survey began eight years ago. Author of the report and Verdict’s Consulting* Director, Neil Saunders, says this is unsurprising: “The idea of good service at John Lewis isn’t simply a fad dreamt up by management for short term gain – it’s an integral part of the business, supported by an ownership structure which reduces staff turnover and gives partners, at all levels, a real incentive to perform well. The result is an enthusiastic workforce which is knowledgeable about products.”

Waitrose, John Lewis’s sister company, came second in the Index after attaining the top ranking last year. The retailer does particularly well in both ambience and layout where consumers give it top marks. Joint report author James Flower,  Retail Analyst with Verdict Research, said that Waitrose’s score was impressive: “Because of the intense competition in the grocery sector and because most people dislike food shopping, it is very difficult for supermarkets to attain high satisfaction scores – Waitrose is the exception and that demonstrates the degree to which it really offers something different and relevant to its customers.”

Dunelm, the specialist homewares retailer comes in at number three in the Index. Shoppers rate the chain for the amount of choice available at its stores and for its keen prices. Dunelm offers consumers a comprehensive range of own-brand merchandise which helps differentiate it against other players in the homewares market. “This combination of range authority and good prices will be increasingly important in allowing Dunelm to compete against the grocers as they keep expanding into homewares,” comments Flower.

The internet retailer Amazon retains its position of fourth place this year. Customers are particularly satisfied with the depth of its range, its price competitiveness and its convenience. Amazon also scores well on service where it is ranked fourth. “Amazon constantly strives to make life easier for its customers” says Saunders, “it has one of the most effective, efficient and innovate delivery services of any internet retailer which is vital for satisfying busy consumers.”

IKEA the Swedish furniture giant comes in at number five. The extensive product choice available at the retailer’s massive stores is the primary driver of satisfaction. However, IKEA has improved its rating for convenience this year after introducing its online home delivery service.

When it comes to the individual retail sectors the strength of the John Lewis Partnership is further revealed. The department store side of the business comes top in three sectors (clothing, homewares and electricals) while Waitrose tops the food and grocery sector. In the remaining sectors, Wickes heads DIY, TKMaxx tops footwear, Amazon music and video and Avon personal care. “John Lewis is a department store in the true sense of the word” says Flower, “it has real authority across all of the sectors it trades in and this is part of its appeal among shoppers – people go there because they know they will find what they’re looking for.”

Verdict believes that over the next year, as trading conditions become tougher and consumers more demanding, building loyalty will be a key driver of retail success. “The fact is that consumers today have more choice than ever before” says Saunders. “If a retailer gets it wrong it’s very easy for a shopper to go elsewhere. It’s no longer sufficient to pay lip service to ‘keeping the customer satisfied’ – it has to be a philosophy placed at the heart of a retail business.”