How are the high street chains faring in the face of the onslaught of the multiples? Liz Hamson and James Durston report

It is tempting to think that the multiples have hammered the nail in the high street’s coffin this year. Led by the seemingly indomitable Tesco, they have all pushed further into non food - offering bigger and better non-food ranges covering everything from clothing to entertainment and electrical goods. To make matters worse, they appear to have escaped the worst of the downturn in consumer spending prompted by the general economic malaise and anxiety that followed the July 7 terror attacks, thanks to their edge and out-of-town presence.
But is life on the high street really as torrid as it looks? A year on from our first analysis of the supermarkets’ impact on six of the high street’s biggest names and in the week that one of them, Dixons, posted a worse than expected set of full-year figures, we find out whether their counter strategies are having any effect (see boxes on the right).
The overall picture is mixed. While some retailers are showing signs of nascent recovery, for others the outlook is as bleak as ever. Teather & Greenwood analyst Dave Stoddart puts it bluntly: “Too many are not the best at what they do and that isn’t a great position to be in.”
The clothing retailers have been particularly hard hit, says Seymour Pierce head of equities Richard Ratner. “I think there has been a slip. The high street clothing boys are definitely not recovering and the biggest winner is Tesco.”
Price is clearly the major battleground. And it’s difficult to see just how the high street can compete with a £4.95 school uniform (Tesco), a computer package for £279 (Asda) or the latest Harry Potter instalment for £4.99 (Somerfield).
However, argues Ratner, it is not the only factor at play.“Primark, Peacocks and New Look are winners, but it is not all being driven by price. Some of the more aspirational brands such as Hobbs and Monsoon are doing all right.”
Other experts agree that a strong brand proposition as well as keen prices are vital defences against the supermarkets. Verdict Research analyst Nick Gladding points to Argos, which has remained relatively unscathed by the supermarkets’ incursion into its territory.
It is not just the supermarkets that they should be watching out for, adds RW Baird analyst Paul Smiddy. Other high street retailers are also a threat. “Supermarkets are only one part of the competitive matrix and, although they have obviously been putting price pressure on the likes of Next, that pressure comes just as much from the Matalans and Primarks.”
There’s also the rise of online shopping to contend with. Stoddart says: “Everyone is focusing on price, but non-price factors also affect retail positioning. Just as much of a problem for the high street is not what Tesco and Asda are doing but leakage of business into internet and TV shopping.”
Yet, despite the many threats, few high street retailers have implemented any major strategic overhauls since last year. Neither have they grasped the fact that while they may not be able to compete on price, they can create a vital point of difference by stocking exclusive products and offering superior customer service - one of the big gripes for supermarket shoppers.
Nevertheless, Stoddart believes that the threat has been overplayed and that several now have the right management in place to turn things around. It is easy to overestimate the multiples’ appetite for all things high street, he adds. “People have exaggerated the extent to which Tesco is going to own the UK high street. They’re assuming it would be able to find all the floor space it wanted and be able to go into everyone’s categories and pick them off. Then there’s the issue of differentials: of value, service and range.”
Get these right, suggest the analysts, and the long-term prognosis for the high street is not so bleak. Try to compete on price alone, however, and the high street will be found out. Boots
Under former Asda supremo Richard Baker, Boots has ditched concepts such as Pure Beauty and Wellbeing, started shedding periphery interests such as and Boots Healthcare International, and has gone back to the basics. It has also revealed long-term aspirations to move into larger stores and launch more premium ranges.
Despite posting an 11.4% fall in profits in its results, analysts are confident that it is on the right track with its stronger focus on health and beauty and pharmacy.
Verdict’s Nick Gladding says: “It’s pretty early days and it still has its problems, but we think the strategy it is pursuing is the right one. If you look at the Oxford Street store in London, there are definite signs of the direction it is moving in.”
But it must make sure it fully capitalises on its strength in pharmacy and use this as a footfall driver, he warns. If it does so, the long-term prognosis is good, agrees Teather & Greenwood’s Stoddart. “Boots has a reason to exist - the pharmacy gives it a reason. I don’t buy the argument that everyone will jump to Tesco.”

The UK’s largest electronics retailer this week reported a 7% fall in group like-for-like sales in the 16 weeks to August 20, only its electricals chain managing a paltry 1% rise. Trading conditions have deteriorated sharply in the face of competition from the likes of Tesco and Argos. Analysts are now predicting that the retailer, which also owns The Link, Currys and PC World, will try to slash costs even further by closing stores. It has already announced plans to reduce costs by £30m from areas such as payroll, logistics and advertising.
And the worst may be yet to come. Tesco is dabbling in in-store digital “shops within a shop”. It is just testing the water, it insists - but if it does dive in, it could decimate Dixons’ business, some believe.

Under attack from online retailers and supermarkets alike, HMV retaliated last week with HMV Digital, a new music download service. The move followed a bid for Ottakar’s (the group already owns Waterstone’s) and the opening this year of 23 new stores in the UK and Ireland.
Its aggressive tactics are paying off. Pre-tax profit for the year to April was up 10% to £136.2m and DVDs accounted for 44% of sales, up from 37% in 2004. Ernst & Young head of retail Tim Sleep says: “HMV has responded in the best way to the supermarkets. It is focused on quality of service, advice and the range on offer, with staff trained to give customers the sense that they are dealing with people who know what they are selling.”

In the company’s annual report, chairman David Jones used consumer apathy to justify its more cautious stance.
In the short term, his caution seems to have paid off. The group announced an 18% increase in pre-tax profit to £423m in its latest results. It has also added 384 stores and the intention is to maintain aggressive expansion.
But some analysts have reservations about its long-term prospects.
Verdict’s Nick Gladding argues that its offer has failed to keep up with mass-market trends. He also questions the larger store format.
“It has an issue over what to do with the larger stores - they don’t have the range and the merchandising is slightly bland.”

The chain remains on shaky ground despite turning a £72m loss for the six months to February 2004 into a £61m pre-tax profit for the same period this year. Sales were down 2% to £816m and the supermarkets continued to eat chunks out of its share during key promotional periods such as back-to-school, as well as making further incursions into stationery and magazines.The retailer saw a 3% slump in book sales and a whopping 12% fall in sales of DVDs and CDs.
Some analysts nevertheless believe that the retailer is getting back on track. They point out that the refocus on stationery has resulted in an uplift in sales. Ernst & Young analyst Tim Sleep adds: “There’s a much wider range of products now at WHSmith. New lines such as printers, ink cartridges and files make it a one-stop shop now.”
Its HQ restructuring and sale of its superfluous publishing arms are also seen as good moves. However, Verdict’s Nick Gladding says: “There are certain categories it does much better than anyone else, such as stationery. But you can’t have a 660-store estate based on stationery.”

Woolworths is one of the retailers in most trouble, say analysts. Like WHSmith, many of its core categories have been heavily eroded by the supermarkets. Take its entertainment offer. From 2000 to 2004, its pure music market share slumped from 14.8% to 12%, its DVD/video share from 16.1% to 13%, according to Verdict.
Verdict’s Nick Gladding says: “I think it would be challenging to rescue the entertainment side. It’s cheaper to buy from them than other retailers on the high street, but it’s not cheaper than Tesco and Asda. Unless there is a differential, it’s hard to see how it can build market share.”
Seymour Pierce’s Richard Ratner adds: “It’s a bit of a lost cause. It’s going to struggle if it can’t get its margins back up.”