Thursday, August 2, 2018

House of Fraser Problems Illustrate Changes in UK Logistics Sector

On Line Marketing Must Bring Rent and Rate Cuts in High Street
Shipping News Feature
UK – The latest crisis in the high street centred around retail group House of Fraser (HoF) is a tangible indicator of the state of the market, with major ramifications for the British logistics sector. It may also mean a considerable headache for those with investments in the urban commercial property sector. House of Fraser is undeniably in a parlous state, needing £50 to £70 million in short order to enable it to survive. Although seen as a British institution the current principal owner is Chinese group Nanjing Xinjiekou Department Store Co.

The company recently came up with a get out of jail plan by deciding to cut 31 of its 59 retail stores whilst another Chinese investor, C.banner, which owns the toy store Hamley's, was to inject the £70 million, a position from which the group has now withdrawn after the price of HoF stock fell. Mike Ashley, owner of Sports Direct and who holds 11.1% of HoF stock, also offered help, presumably to protect his investment, but that may also well be in doubt as a group of the troubled retailers landlords take the company to court over lost income under the new proposed deal.

So why is this particular case so valid for logistics? According to transport provider ParcelHero one of the main problems has been the inability of the retailer to make the transition to e-commerce, running a website which is simply not fit for purpose. ParcelHero’s Head of Consumer Research, David Jinks MILT, gives his opinion thus:

”The true heart of the problem for House of Fraser is outdated stores and an even more outmoded web site. Our Special Report, released in May, ‘Departing Department Stores’, singled out House of Fraser for criticism because of its antiquated web integration. Ordering furniture such as most of its online sofa range involves leaving the main site altogether and linking to a ‘white label’ site operated not by House of Fraser, but, confusingly by a ‘rival’ furniture site.

”[Rival site} A. Share & Sons is best known for its ScS branded stores. So clunky is the integration that Items placed in main site ‘bag’ do not appear in A. Share & Sons site ‘basket’ and vice versa, meaning it’s not even possible to buy clothes and furniture in the same transaction.”

So the net result for the transport sector is a continuation of the swing away from high street retailing to out of town distribution centres, to process home deliveries ordered on line. For those smaller delivery companies it spells the gradual change of status we have been witnessing over the past few years. To survive many are becoming ‘man with a van’ operations rather than one company running a small fleet. This also impacts larger courier and parcel companies who have to fight low rates for huge multi drop rounds, not necessarily in terms of miles travelled, but certainly by count of deliveries made.

Larger road haulage firms also are affected with goods imported going straight to distribution centres by container or trailer, often these being situated in the hinterland of the ports themselves giving multimodal arrival and departure options. Less road miles are good for the environment but not necessarily for the haulier. Ever more stringent vehicle emission and noise pollution regulations in urban conurbations also make continuing in business an impossibility for SME delivery outfits, unable to keep pace with the demands for new equipment acceptable to the various authorities.

For many in the industry this is a race to the bottom, costs cut to the bone resulting in some contentious issues such as ‘zero hours’ contracts and drivers having to work hours, currently legal for a van driver, but which would be totally unacceptable in a 3.5 tonne or larger truck, an anomaly that is hard for an observer to equate with any logic.

One group who will probably suffer the most from the switch to e-commerce will be those landlords, companies and individuals who own the high streets, and who have yet to realise that the compound problems of outfits such as House of Fraser partially emanate from the fact that businesses in the centre of town need to earn enough to pay the current rent and rates demanded. As is evidenced by this latest case, and it is not the first and won’t be the last, the money is simply not there.

Photo: HoF has a long history, retailers John Barker & Co. (est 1894) was acquired as part of HoF’s takeover of the Army and Navy group in 1975 and wound up in 1988.