Supermarket clothing brands F&F and Tu were left facing an uncertain future this week, after owners Tesco and Sainsbury’s were warned to dramatically reduce their store estates in order to return to growth.
Analysts from Goldman Sachs issued a stark warning on Monday, saying three of the UK’s big four supermarkets – Tesco, Sainsbury’s and Morrisons – must recognise changing shopping habits and shut one in five of their shops by 2020. The research did not include Walmart-owned Asda, as it is not publicly listed in the UK, but it is thought to be facing similar issues.
Goldman Sachs said the supermarkets are suffering from negative like-for-likes because consumers have shifted away from large stores towards smaller convenience shops, discount retailers such as Aldi and Lidl, and online.
It warned that, if these trends continue and supermarkets fail to adapt, sales in large out-of-town stores will fall by 3% every year until 2020.
The report said Tesco had the biggest problem, with 56% of its stores bigger than 40,000 sq ft. In recent weeks Tesco has abandoned plans to open two supermarkets despite actually building the stores.
Sainsbury’s has a similar proportion of stores over 40,000 sq ft. Last week it too scrapped plans for new stores, as it slumped to a £290m pre-tax loss.
Supermarkets account for £1 in every £10 spent on clothing and accessories in the UK, according to retail research firm Kantar. Analysts said any move to reduce store space would have an inevitable impact on the clothing businesses.
John Stevenson, retail analyst for broker Peel Hunt, said groceries would always take precedence over clothing, meaning F&F, Tu and Asda’s George may simply have to put up with smaller physical trading spaces.
However, he said it was unlikely supermarket clothing brands would open standalone stores instead. “We’re not going to see 200 standalone non-food stores, because you don’t get the same sales densities; it will be optimisation of the space they’ve got.”
Stevenson pointed out that a shift to smaller supermarket stores could be good news for high street retailers. “Over the past 10 years they have been hit by the expansion of the superstores. You’ve still got Primark and rapidly growing etailers such as Boohoo.com, so there won’t be a lessening of competition, but it might make the playing field more even.”
One chairman of a high street womenswear chain agreed: “People will spend a certain amount on clothing, and if they can’t find what they want in supermarkets they may look elsewhere.”
Retail veteran and former chair of House of Fraser Don McCarthy said: “Primark and cheaper retailrs will trade well [because of it.] That being said, supermarkets will continue to sell clothes and move further into other categories like accessories.”
Dave Conaghan, owner of young fashion independent Chocolate Clothing in Derry, said: “A decrease in supermarkets where fashion is on offer could only be a good thing for independents that operate in the area.
“Multiples could also pull back market share in areas where the supermarkets close. However, I can’t see it being a dramatic recovery as a lot of the products can still be purchased online.”
Honor Westnedge, analyst at Verdict Retail, said George, F&F and Tu may have to focus more on building those online sales, while introducing in-store online browsing and click-and-collect services to make better use of the space available.
The supermarkets declined to comment.