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Sunday, 12 October 2014

The climate for retail stores in The Netherlands is still killing. Perhaps surprisingly, however, it are not only the small, independent stores that perish.

This was a typical bread-and-butter week in 2014. Nothing out of the ordinary happened….

At least, except for the fact, that two of the largest retail store chains in The Netherlands – with both well over hundred brick-and-mortar stores – were tarnished as being in deep, deep trouble.

Travel agency D-Reizen – a traveling behemoth with over 500 stores – which took over a few hundred stores after the OAD bankruptcy, came deeply into the red figures itself and is now forced to close down approximately 150 stores within the next three years, in order to survive.

And Halfords, a massive bike and car parts retailer with 130 stores, went bankrupt and is now only hoping to make a second beginning soon, with a minimal amount of spilt blood, in the form of mass lay-offs. 

Their chances, however, seem dim. Het Financieele Dagblad wrote about Halfords:

Retail store chain Halfords has been declared bankrupt, by the Court of Justice of Midden-Nederland. About 535 people work at the company.

The bankruptcy is applicable to 102 stores, as well as the head office in Veenendaal. Apart from this, Halfords has 28 stores, which are operated by independent entrepreneurs. 

The company mentions ‘changing market circumstances and an economic climate, which improves very slowly’ as main reasons for the bankruptcy. A spokesperson declares that Halfords is suffering from the circumstance that more and more people order their goods online, instead of in a brick-and-mortar store.

On June 30, 2013, the store had been sold to Peter Jan Stormmesand – already the CEO of Halfords at the time – by its former owner Macintosh Retail Group, for the token amount of €1. Macintosh already wanted to abandon the company for years and offered Halfords a €9.5 million loan to enable the necessary management buy-out.

The remainder of the article dealt with the chances for survical of Halfords. Although there is still optimism among the executive management and they see ample opportunities to continue the store chain, which allegedly has ’12.5 million visitors per year’, I personally consider the chances of Halfords surviving this shakeout quite dim.

The stores are (in)famous for their cheap, Chinese bikes and further they are not specialized bike stores, not specialized car-part and car detailing stores and not specialized… in anything. It is a little bit of this and a little bit of that, but nothing special at all. 

To put it bluntly: the store sells nothing that numerous other store (chain)s don’t sell at the same or better prices.

Besides that, the formula has probably suffered from exhaustion, like many other store chains: simply too many stores at too many poor(?) locations.

The second store chain in dire straits is the aforementioned D-Reizen. 

Travel agency D-reizen is currently in dire straits. The retail organisation will write deeply red figures this year and is forced to shut down dozens of stores. CEO Will van den Hoogen confirmed this to De Telegraaf.

According to Van den Hoogen, the chain's headwinds have been caused by the malaise in the traveling industry, as probably at least half of the current 1200 brick-and-mortar traveling stores in The Netherlands will disappear, due to the rise-to-power of online traveling shops. In earlier years, there had been 2500 brick-and-mortar travel agencies.

“Besides that, we suffer from considerable reorganisation expenses, due to the merger of D-reizen with VakantieXperts and Thomas Cook Travel shops. We want to amortize these expenses within this year and that yields a loss. All bonuses for the store personnel – more than 1000  workers –have been withdrawn. We must get the picture straight, in order to move into the future healthily”.

Van den Hoogen announced to abandon loss-bearing travel stores without hesitation. “Together with our partners, we still have approximately 500 stores in The Netherlands. In about 3 years, 350 of these stores – only the ones that earn money – will be left”.   

Of course, the internet has been a particularly massive factor in the traveling industry and in many more parts of the retail industry. Why would you f.i. visit a traveling agency, when you can order almost any trip from the comfort of your own chair.

Still, I consider myself to be a sucker for the services rendered by a travel agency:
  • the good and useful advices about interesting travels and beautiful destinations;
  • the possibility to hear exactly those offers that I like and;
  • the possibility to book my travel immediately, without any hassle and surprises and without the chance of ‘sending my money into oblivion’, when I order my trip at just the wrong site.

Nevertheless, since the Mrs. started to live together with me, I totally stopped visiting travel agencies. My wife books our travels online and she always manages to get the best trip for the best price. She never failed at that yet.

And also for many other products and services, the internet and internet shopping seem to become the answer to all questions. 

Nevertheless, the internet is not the only reason for the lasting, general malaise in the retail industry. Not for D-reizen and not for many, many more store chains. 

The biggest reasons, in my humble opinion, have been the suicidal expansion of many of these store chains in recent years and other flawed strategies of these store chains themselves. These flawed strategies are visible through the following two symptoms:

Just too many of the same chain stores at too many poor locations:

Since a few years, it seems that the combination of too many of the same chain stores at too many poor locations, is starting to eat away the margins of the famous Dutch and foreign store chains. 

It seems that the Dutch consumer, still numb after six years of crisis, has enough of the ubiquitous overkill in retail stores and particularly of the overkill in the same boring chain stores. You could call this ‘chain store fatigue’.

There are simply too many C&A branches, too many V&D stores, too many Blokker stores, too many HEMA-stores and too many of all these other renowned chain stores. Only a few stores, like Primark, seem to be the goose with the golden eggs nowadays, but this effect won’t be lasting, in my humble opinion.

In stead of shopping enthusiastically, the Dutch consumers still go through the motions and wait further for the sales periods, which are ever more frequent and longer in size. Why would you buy something for the full price, when you can get it for half the price in a few weeks.

And there is more…

Devastating loss of margin through price erosion:

One of the worst causes for loss of margin at all these store chains, is a phenomena called ‘price erosion’:

When you have a number of competing store chains, which sell the same lines of articles, deliver the same service level, have roughly the same expenses and cover about the same geographical areas, then they have to distinguish themselves through the price of their articles. And you know what that means: discounts, discounts and even more discounts…  

These store chains are often stunting with their prices so fiercely, that their margin totally evaporates and they hardly keep their heads above water. This continues, until the strongest and 'baddest' store chain is the last store chain standing. This is the store chain with the deepest pockets and the best purchase prices and discounts from its ransacked suppliers.

Some of these store chains see their cheap ‘stunt’ articles as a means to lure in interested buyers, hoping that these will also buy normally priced articles. However, in most cases this is a fallacy, as this behaviour by customers does not happen automatically and often does not happen at all. Period.

Many people buy only the stunt article and leave, waiting for the next stunting period, which inevitably appears a few months later in the same shop or a day later at the next store chain.

The results of this kamikaze strategy have been devastating for many of these store chains. Megapool, a large store chain of household appliances and consumer electronics bankrupted in the past and quite recently, the same happened with other large store chains, like Block, Harense Smid, E-Plaza and Apple reseller iCentre.

MediaMarkt, the Germany company of megastores in household appliances and consumer electronics (“I am not crazy” is their aggressive (translated) punchline in virtually every country, where they appeared), seems the next victim to lose the ‘battle for the bottom price’, due to price erosion. 

Winners can seemingly become losers at lightning speed in The Netherlands.

Personally, I think that many more chain stores will perish, as people are tired of the mediocre quality, ordinary and indistinctive articles and the ubiquitous price stunting of many of these chains.

I personally think that the future could look particularly bright for small, specialized shops with goods of exceptional quality, exceptional service and really exclusive brands and articles: so-called niche stores and state-of-the-art shops.

My brother Rob is optician with an independent optics shop, who is a sucker for quality and style. 

Besides that, he is a genuine innovator in his line of business, incorporating his groundbreaking ideas regarding modern spectacle frame design and production and contact lense measurement in his business, to the benefit of his customers. 

He does not even bother to compete with the massive optics store chains, like Pearle, EyeWish Groeneveld or SpecSavers.

Rob often tells me when we talk: “Shops that give away their main products for free – like glasses and spectacle frames  are utterly crazy. It is a rat race…

In earlier times you got one pair of specs for free, while buying one pair. Nowadays, you get two pair of specs for free at Pearle, when you buy one pair. Are these guys out of their darn minds?

And what good are three sets of specs, when they are not measured correctly and have a poor fit or an incorrect strenght of glasses?! 

I sell my customers one pair of specs at a fair price. The glasses are measured perfectly, the frame is fitted to a T and my customers can always come back for service or a refit, when they need it.

My customers appreciate that and know the quality for which I stand. They not only come back to my shop, but tell their friends and relatives about it too! They pay a few bucks more in my shop, but get the best quality and service in return for it!”

And so there are many more independent shops, who gave up the rat race to the bottom price and instead go for the best quality and service. I think that such shops ultimately have the future, although this is more a gut-feeling than sheer science. 

Specialization and exceptional quality could become the key-words in years to come.

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