The blame game

David Coombs tried as hard as he could to buy a suit from the high street, but they just weren’t selling. Our multi-asset investments head worries deep-seated problems are behind poor performance from UK retailers.

6 November 2018

There’s an old joke about the high street: it’s a place you go to try out things you want to buy online. Little did I realise just how much UK shops have internalised this...

A few Saturdays ago I ventured out to buy a new dinner suit for a family wedding. I’m a bit funny about picking suits online. I thought I’d treat myself and went to Selfridges (Harrods is for tourists and I’m too cheap for Saville Row). Unfortunately the suit that caught my eye cost much more than any I’d bought before. The concession didn’t have my size, but they promised to call me on the Monday to tell me when it would be in.

Monday came and went with no call. I phoned the store on Wednesday and was told to wait until I got a call. I asked them to put me through to the department instead. Very reluctantly the chap finally agreed to try. He did and told me no one was answering. Then there was an embarrassing pause. Eventually I said, “And?” “Oh,” he said, “perhaps you could call back?” I declined and asked him to remind the concession to call me.

They never did, so I bought the same suit direct from the designer’s own store. I’m sure Selfridges won’t miss one purchase. Or will it? Is this a one-off or a systemic failing of its customer services? You would think the high street would be hot on offering better customer service to offset the disintermediation threat of online shopping. Are the managers even testing their own stores and processes?

Many UK clothes retailers have taken to consistently blaming the inconsistent British weather for poor sales. How can you blame consistently inconsistent British weather? In the newspapers this week was a report about the woes of mid-range restaurants. According to the paper, they are failing because fickle customers prefer pop-up street food. Fickle? Or able to smell (sorry) better value and quality elsewhere? Many of the UK’s restaurants are only “mid-range” because of their excessive cost. In my experience, the quality is exceedingly poor.

I think these narratives are dead canaries. Any company that blames its customers (or any weather short of a typhoon) for its choices is a company whose management is either out of touch, arrogant, desperate, incompetent or in denial.

Yes, fashions come and go, whether in retail or leisure. But quality and value have a much better shelf life. Quality is often – not always admittedly – limited by scarcity. Scarcity brings that feeling of exclusivity, a sense of experience and a more elastic price. It also tends to be linked to longer production times with higher-cost raw materials and labour.

All of these factors need to be considered when investing in companies. Too often a good retail concept is pumped full of debt and “rolled out” too quickly across too many locations. They quickly lose the spark or service or exclusivity that made them attractive and exciting to customers. In the past I always tried to remind myself of Tie Rack and Sock Shop, but you could just as easily add Burberry and Superdry to that list. Our multi-asset portfolio funds own Ulta Beauty, a retail specialist in the US that is expanding across the country. It is not yet calcified and boring like many UK retailers have become. Ulta focuses on ensuring its customers get the best experience possible, making sure that each visit is worthwhile and offers something online shopping does not. It has been a great success so far, but we remain vigilant, regularly taking profits as the threat of saturation remains very real.

As markets took a dive in October, we took the chance to buy LVMH Moet Hennessy, a company that protects the exclusivity and cultivates the aura of its products. It owns luxury brands across different industries, from high-end cognac to handbags that wouldn’t fit the cash you’d need to buy them. What do they all have in common? You never see them in discounters or spot end of season sales. You definitely don’t see them selling £100 lower-grade versions at the outlet centre! Incidentally, you see more Ralph Lauren polo shirts on Swindon’s streets than Man United shirts! Think about that.

It always pays to think like a customer when investing – or running – a business. It’s the fundamental question: why would someone want to use this company. I guess many investors have been too busy using Amazon to give this a go, otherwise you’d expect a lot more resistance to some pretty lame excuses.

One or two bad experiences are a shame, but three of four in this day and age can quickly become a reputation and a trend. And that’s how you get a value trap!