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Friday, 25 December 2015

The demise of three common store chains in The Netherlands points at the emergence of a wishbone world in the Dutch shopping culture.

The tragic demise of ‘three store chains for the ‘common, middle class man’,  V&D, MacIntosch and DA drugstores in The Netherlands and the simultaneous success of both high end, ultimately luxury, stores and the low end stores chains, like Action, Big Bazaar and Primark, points at the emergence of a wishbone world  in the Dutch shopping landscape, in which it becomes fatal to be ‘stuck in the middle’.

Clowns to the left of me, Jokers to the right,
Here I am, stuck in the middle with you.

This week was a particularly gruesome day for three renowned, very large and long existing store chains in The Netherlands.

MacIntosh, the owner of several shopping formulas and chains of shoewear, home decoration and lifestyle stores – with over 400 stores in The Netherlands and 130 stores in Belgium/Luxemburg – filed for a Chapter 11 status for its head office and for its shoe- and lifestyle storechains Dolcis, Manfield, Invito, PRO Sport en Hoogenbosch on Tuesday.

At the same time, MacIntosh warned its shareholders that the possible yields of a ‘shopping formula firesale’ would hardly be sufficient to pay back the outstanding debt of MacIntosh itself. In other words, the marked-to-market value of the exchange traded MacIntosh shares would end up being close to nought. This news was enough to blow the remaining value of the stock to smithereens and fulfil this ‘prophecy’.

Such a Chapter 11 status enables MacIntosh to legally put a temporary payment stop on the incoming invoices and other amounts due for MacIntosh and its storechains, in order to acquire time to investigate and improve the financial situation and acquire new sources of funding in the meantime. Although some companies actually survive a Chapter 11 status, for most companies it is the ‘last bus stop’ before reaching the inevitable bankruptcy.

V&D, the large Dutch chain of department stores, ended an already terrible business year in style by also filing for a Chapter 11 status yesterday. By doing so the formerly grand department store chain nearly ended up in the abyss with their 60+ department stores and their hundreds and hundreds of personnel members, while letting down thousands of customers, who still own – now worthless – V&D gift vouchers.

And last, but not least, there was the central head office of DA Drugstores which also filed for Chapter 11 yesterday, due to the fact that the currently 266 independent franchisers of the formula could not pony up enough income for the headoffice to survive independently. 


All the stores of the DA drugstore chain in The Netherlands
Picture courtesy of: www.fd.nl
Click to enlarge
Although the demise of such a head office alone might not sound very alarming, it could have far-stretching consequences after all: such a head office is not only the ‘gatekeeper for the formula’, but on top of that it acts as the – vitally important – central purchase organisation, as well as the central administration and accounting office for the formula.

Without this organization, all franchise-owners of the DA formula become ‘headless organisms' and on top of that they will soon run dry of goods, as virtually all the supply lines for new store stock dry out immediately. On top of that, their central administration and accounting will not be managed anymore, meaning that all the independent stores must acquire the centralized parts of their store administration and accounting on their own computer systems. The latter is really a hell of a job and often almost impossible.

Although by itself the future of the independent DA stores is officially not at stake, this nearing bankruptcy of their head office means ‘de facto’ that a devastating blow has been administered, as these stores can hardly survive without their head office.

With the (expensive) Christmas days and New Year quickly approaching, this was terrible news for all thousands of personnel members of these three store chains, as well as for the numerous shareholders and the suppliers and other creditors, who can probably wave goodbye to a large share of their investments.

And as the following infographic created by HetFinancieele Dagblad shows, these three store chains are not just the next ones in a long, long line of store chains going bankrupt during the last few years; no, in this line V&D is undoubtedly the largest store chain to perish in sales numbers as well as personnel members.

Infographic of large store chains going
bankrupt since 2011
Picture courtesy of: www.fd.nl
Click to enlarge
So even though 2016 should be the year of the definitive return to economic prosperity for the Dutch economy as a whole, the year could not have started worse for the people involved in this three companies.

Among the so-called ‘fatal flaws’ of these companies, the most obvious one could be that neither of them was able to adopt a good online(i.e. internet) strategy with accompanying online portals, to attract the many young and middle-aged customers who prefer to do most of their non-food shopping onlineSo that they could beat the Zalando’s, Bol.com’s, Wehkamp’s and other “successful” internet retailers (i.e. successful as in high sales figures, as being profitable is often another ball game for such online stores).

However, that is only half of the story in my humble opinion. As the following chart with calculated sales figures (based on indexed 2013 sales numbers for both online and B&M stores) from the Dutch Central Bureau of Statistics shows, the sales of the combined internet stores is still only around 10% of the total brick & mortar store sales, in spite of its fast growth. 

So it is not fair to state that increasing internet sales alone is solely responsible for demolishing the ‘old-fashioned’ B&M stores.

Calculated Sales development of B&M stores
vs Online stores in The Netherlands
Data courtesy of: www.cbs.nl
Chart by: Ernst's Economy for You
Click to enlarge
While I have spent an article or two about both the dangerous circumstances for and fatal flaws of such massive store chains like the aforementioned ones, there is another very interesting side to the current, enduring chaos in the Dutch retail landscape.

This side is what we could call the wishbone world in which the Dutch shopping landscape has ended.

The wishbone world of the Dutch shopping landscape
Infographic created by: Ernst's Economy
Pictures courtesy of: www.veendammer.nl, www.jongordon.com
Click to enlarge
At the highest end of the wishbone, there is the enduring and considerable success of the Italian and French designer stores, the brand stores, the luxurious jewellers and bodywear stores and other extremely expensive lifestyle shops for goods of impeccable quality and sky-high prices: jewellers and luxury good stores like Cartier, Schaap & Citroen, Luis Vuitton and Tiffany or high-end fashion shops like Chanel, Gucci, Ermenegildo Zegna or Rive Gauche and their likes.

These are all stores meant both for people for whom a  budget is never concern at all and for people who want to show off to their friends with the wrappings and the shopping bags of these brands, which are almost as desirable as the goods that these brands sell themselves.

At the low end of the wishbone, there are store chains like Primark, Big Bazaar, Voordeelwinkel and Action, which sell fashion and low end lifestyle/consumer goods and household appliances against the lowest prices, for people who can’t or won’t afford to buy something more expensive.

Also these chains are very successful in fulfilling their own mission of being the drainage canals for mass produced low end fashion and consumer goods (i.e. “container goods”) from the low-wage countries (i.e. countries like China, Vietnam and Bangladesh), as well as for the remaining stocks and surplusses of bankrupted store chains and shops.

The shops that are ‘stuck in the middle’ of the Dutch shopping landscape are either surviving by price-stunting their brains out – like for instance the famous “Kruidvat” drugstores, which litterally move from one price-action to another, hoping to earn back their losses from the other same store purchases that people do when they are in the Kruidvat stores – or they lead an increasingly lingering existance, fighting against higher bills and lower sales figures. These are formerly very successful store chains like Blokker and Hema, who now also seem to be at dangerous path towards their future demise.

Many municipalities, exploitation companies for shopping space and interest groups for the retail industry look at these developments concerning V&D, Hema, Blokker, DA and MacIntosh with feelings of shockedness, disbelief and pain.

However, these developments all seem an inevitable result of the enormous, unhealthy increase in shopping space of the last decades, as well as the “Blokkerization” – the increasing monotony and dullness of Dutch shopping centres as a consequence of always the same store chains occupying most of the available shopping space – of the Dutch retail industry.

Even though the economic crisis seems to have finally come to an end, I think that the shakeout in the Dutch retail industry must and will continue, in order for it to become healthy again. This is a painful, but yet inevitable process!

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