Tim Pike, from the Bank of England’s inflation report and agency intelligence division, notes the following about the impact of e-commerce on the consumer sector and labour productivity in a Bank Underground blog post on Wednesday:
The need to stack the shelves of substantially more retail space over the past decade has hit productivity performance. My estimates of labour productivity for the aggregate of Tesco, Sainsbury, WM Morrison, John Lewis Partnership and Marks & Spencer (where output is proxied by turnover deflated by the official retail sales deflator) show that following growth averaging nearly 3% per annum from 2004/05 to 2009/10, labour productivity was broadly static in the next five years. That is partly because multi-channel approaches including e-tailing can reduce labour productivity — especially for the sale of low-value items such as groceries as it is very labour intensive for the retailer to “pick” the goods off the shelf. Official data show that “predominantly food stores” accounted for about 15% of on-line retailing in 2014.
The strategic rationale for the acquisition has been superseded by our decision to launch our online food operation through Ocado, rather than using the Kiddicare infrastructure. A £27m write-off of online costs incurred in setting up an independent online operation was recognised in the first half of the year.
It is imperative that Morrisons focuses very clearly on its core grocery channel. Kiddicare no longer fits our strategy and its poor financial performance will take time to address. Accordingly the assets of the business have been impaired and a charge of £163m, including provision for onerous leases, has been taken in the current financial year. We will seek to sell the business in 2014.
Turns out online retail is hard. Read more
Remember Sir Terry Leahy, driver of the Tesco retail steamroller for more than a decade? New stores, lower prices, chug chug chug.
Well, we wonder if we should be paying more attention to what he is up to these days, after Kingfisher, owner of the B&Q DIY retail chain, offered profits on Thursday that the market and analysts judged disappointing. Read more
Debenhams, a UK department store chain that was once the plaything of private equity, has been back in the market buying up its own stock.
Debenhams plc (the “Company”) announces that on 9 October 2013 it purchased 375,000 of its ordinary shares of 0.01p each through Citigroup Global Markets Limited at an average price of 102.56 pence per share. The highest and lowest prices paid for these shares were 104.00 pence per share and 101.20 pence per share respectively. The purchased shares will all be held as treasury shares.
We know that one day UK high streets will be windswept vistas of pubs, charity shops and discount grocery stores, with the odd place to pick up your online purchases from Asos.
On the way to that utopian dream, however, a great deal of disruption lies. And Citi have spotted that for the likes of Tesco and Morrisons, it looms sooner rather than later. Read more
[Update: the offer has been withdrawn..."recent publicity around the proposal has made it difficult to proceed".]
… and you’re an established but struggling department store operator (think a rubbish John Lewis) and obvious bid target. You’ve never heard of this bidder, but they insist they’re for real. What do you do? Read more
FT Alphaville loves futuristic research reports.
Here’s Espirito’ Santo’s Caroline Gulliver with a look at what we can expect from “shopping in the future”. Some of the points echo our own beyond scarcity and multiple currency/payment method thoughts very closely… such as the idea that quality will become ever more important to customers while pricing will increasingly become a function of who you are and your relationship with the retailer. One price will fit fewer and fewer people. While supply chains and inventory holdings will respond ever more dynamically to demand in order to stay competitive. Read more
Sometimes they are also enough to knock $10bn off your market cap six years after taking place.
Walmart shares were down as much as 4.9 per cent on Monday after the NYT’s investigation into the silencing of a bribery probe in Mexico, before recovering a bit. They were down 4.3 per cent at pixel time, while shares of Walmart Mexico were off 11.4 per cent. Read more
Hermes Real Estate, one of the UK’s largest property fund managers, with net assets of £5bn, has taken control of three shopping centres from Westfield, the Australian developer, reports the FT. Hermes, which manages the British Telecom Pension Scheme, completed a deal on Tuesday to acquire Westfield’s half share in the £400m retail portfolio, which consists of two shopping centres in the south of England and one in Belfast. Westfield, one of the world’s largest shopping centre developers, is understood to be in the process of refocusing its attention on its large, urban property assets, such as its £1.45bn Stratford centre.
JC Penney’s new chief executive has torn up the retailer’s past practice of putting on hundreds of sales a year, promising more control over pricing, the FT reports. Ron Johnson, a former Apple executive, said in a presentation that said that JC Penney unveiled 590 promotions last year. Customers had ignored them “99 per cent of the time,” he said. In addition to a three-tier pricing structure, Johnson also promised to restructure the firm’s 1,100 stores, in a fresh bid to turn the corner on its flagging battle with department store rivals, the WSJ says.
US equity markets are nearly as excited about Black Friday as these shoppers:
Retail sales on Black Friday rose by their biggest margin since 2007 to hit a new record, the FT reports, while online sales grew even faster, according to initial estimates. Store sales on the frenetic shopping day that follows the US Thanksgiving holiday expanded by 6.6 per cent from the previous year to $11.4bn, according to ShopperTrak, which said the number of people in stores rose 5.1 per cent from last year. The National Retail Federation said traffic had been “incredibly strong”. But concrete data are still unavailable for how many items the shoppers bought and whether they snapped up anything other than the heavily discounted goods. However retailers are heartened by the response and are planning more discounts throughout the key retailing period, says the WSJ. The earlier opening hours may have helped attract greater numbers of young customers, says Bloomberg.
Millions of Americans were set to cut short Thanksgiving to head to shops that opened earlier than ever as retailers fought for holiday sales as economic anxiety hung over one of the biggest shopping days of the year, the FT reports. Up to 152m people plan to shop over the three days after Thanksgiving, according to the National Retail Federation, with many queueing under the stars to secure “doorbuster” discounts unveiled on the day known as Black Friday. Black Friday sets the tone for the end-of-year shopping season, which in turn is a make-or-break period for many US retailers struggling to defend market share as unemployment and a weak housing market keep consumer sentiment fragile. Shopper surveys have suggested holiday spending this year will rise by between 2 and 4 per cent from last year. In 2010, holiday sales increased 5.2 per cent to $452bn, returning back to the level of 2007 after two years of declines. Households are “running very tight budgets” and retail executives are concerned about the impact of bleak global economic news on their willingness to spend, said Bob Drbul, retail analyst at Barclays Capital.
In a Ponzi scheme, investors get duped into thinking their money has been invested in a profit-generating investment, when in reality their investment doesn’t actually exist.
Rather than being invested, the money paid in usually goes towards managing short-term liquidity needs. Read more
National retail chains are deserting high streets in the north of England en masse, the FT reports, calling into question the long-term viability of once-vibrant shopping destinations, according to research. Vacancy rates in many town centres in the north and Midlands are now approaching 30 per cent, according to the Local Data Company, which publishes its six-monthly health check on the nation’s high streets on Thursday. Stockport, Blackpool, Grimsby, Stockton-on-Tees, Hartlepool and Dudley are among the retail centres worst affected, with nearly one in every three shops vacant. Average vacancy rates in the north-west region have increased to 17 per cent, the highest in the country.
Wal-Mart’s reputation for maintaining “every day low prices” even during a recession is coming under increasing fire, with the company expected to report a ninth consecutive quarter of declining sales in results on Tuesday, the WSJ says. Analysts said that the company is losing “mind share” as customers increasingly believe better bargains can be found at competitors including Aldi, Dollar General and Amazon. A 0.6 per cent decline in sales is forecast although Wal-Mart’s revenues from abroad and from its Sam’s Club stores are likely to support profit, according to a Reuters poll.
Borders will go into liquidation this week, the company has said, ending its run as the US’s second-biggest traditional bookseller, the FT reports. The book chain said on Monday that it would hand itself to liquidators after cancelling an auction set for Tuesday after it failed to find any last-minute bidders for the business. The liquidation signals job losses for Borders’ 10,700 employees and confirms the company’s status as the highest profile US victim of the growing popularity of online book selling and e-reader devices. Announcing the liquidation, Mike Edwards, Borders president, said in a statement: “Following the best efforts of all parties, we are saddened by this development. “We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, e-reader revolution and turbulent economy, have brought us to where we are now.”
Tesco is poised to trial a version of its successful Clubcard loyalty scheme in the US, as it strives to stem losses at its Fresh & Easy chain, the FT reports. Tim Mason, chief executive of Fresh & Easy, said the business, which currently has 176 stores and will have 214 by the end of February next year, was ready to support a loyalty scheme. It will be known as the Friends of Fresh & Easy card, but will be based on Clubcard. Mr Mason, who played a pivotal role in the introduction of Clubcard in the UK, said: “Clubcard has always been, from the very first day we launched it, the icing on the cake, not the cake itself, and so, therefore, you have to have an established business that is delivering every day for customers before introducing it.” He denied the loyalty card represented a strategic U-turn for Tesco’s US business, which has concentrated on delivering the lowest prices to customers rather than giving a discount through points earned with a loyalty scheme.
Mike Ashley, the founder of Sports Direct, is teaming up with Scottish entrepreneur Sir Tom Hunter in an attempt to move the sports retail chain upmarket. The FT says Sports Direct is in the final stages of a deal to acquire an 80 per cent shareholding in two of Sir Tom’s fashion retail chains, USC and Cruise, for £7m. The deal signals a deeper strategy change for the retailer, which is keen to shed its discount image. Sir Tom will remain “a significant investor” and continue as chairman of both companies. He is also expected to provide strategic guidance to Sports Direct’s board. Sports Direct and Sir Tom’s West Coast Capital declined to comment.
As western luxury brands rush to tap the Chinese market they are having to unlearn gender stereotypes associated with the products they sell, writes the FT. Chinese women buy more whisky and fast cars than their western counterparts, for example, while men purchase more face creams and bags. Coach, the US leather brand, says men represent 45 per cent of the $1.7bn Chinese market for luxury bags and accessories, compared with 15 per cent globally.
Did you know? 0.4 per cent of British consumer spending could be coming from the banks this year.
To figure out why, all you have to do is look at the recently announced pay-outs on the Payment Protection Insurance sold by UK banks. As much as £6-9bn could be winding its way to the pockets of British consumers. Though, as UBS notes, the amount is likely to be somewhat smaller. Read more
Shares in JC Penney closed up 17.4 per cent on Tuesday after it announced it had recruited Ron Johnson, a veteran of Apple’s retail operations, as its next chief executive, the FT reports. Mr Johnson, 52, will invest $50m of his own money in JC Penney’s stock “as a demonstration of his confidence in JC Penney’s long-term potential”, the retailer added. He will face the task of boosting the company’s performance after sales fell in each of the past three years. Johnson led Apple’s strategy of situating select, vast, high-impact stores in premium shopping locations in his 11 years at the tech giant, Bloomberg says – but he now faces the challenge of working with three times as many outlets as Apple currently has.
Just when you thought it was safe to go back into the UK retail sector…
… along comes another shocking trading statement. Read more
Amazon, the world’s largest online retailer, reported a 33 per cent fall in net income for the first quarter as new investments in data storage and distribution eclipsed a rise in sales, the FT reports. The company had told investors to expect a drop in earnings, but the fall in net income to $201m from $299m was steeper then anticipated – and Amazon warned of a further drop this quarter. Amazon’s shares slid nearly 2 per cent in after-hours trading, having fallen 1.7 per cent in the run-up to the results report at the end of official trading. Tom Szkutak, chief financial officer, continued to champion Amazon’s investment plans. But some analysts are concerned about Amazon’s willingness to sacrifice profitability to fund its young “cloud computing” data storage business as well as new distribution centres for the physical goods it sells.
Ebay has made a bid to revive sales growth and diversify its business with the agreed acquisition of GSI Commerce, an interactive marketing company, for about $2.4bn, including debt, the FT reports. Growth in Ebay’s auctions business is slowing, and using GSI to help third-party sellers would allow it to compete with Amazon, Reuters says. Ebay will pay $29.25 a share, a premium of 51 per cent over GSI’s closing share price last week, for the Pennsylvania company, which handles the e-commerce activities for large brands and retailers, including the National Football League, Toys R Us and Ralph Lauren, the FT adds.
UK department store chain the John Lewis Partnership on Sunday said it expected to raise £50m by offerings its 75,000 partners and 1.5m partnership card and account card customers the opportunity to invest in a retail bond, reports the FT. It is the first time the company has sought to raise funds in the retail market, said a spokesman. John Lewis is expected to strike a cautious note in its earnings report on Wednesday, despite expectations of a 15% annual increase in profit and a possible rise in staff bonuses. Nick Bubb, analyst at Arden Partners, forecasts that pre-tax profit in the year to Jan 31 will increase from £307m to £352m. Reuters adds that its the five-year fixed-rate bond will launch on Monday.
The Arctic conditions gripping the UK have claimed their first stock market victim.
Step forward Alexon Group, the retailer that trades under such brands as Ann Harvey and Kaliko: Read more
Retail is in — and real estate is out, says the WSJ’s China Real-Time Report. That’s the message being gleaned from the Hurun Report’s list of Chinese billionaires (ex Hong Kong and Taiwan), which counts between 400 and 500 dollar billionaires in the country. Around 95 per cent of individuals worth over $150 million draw their riches from consumers inside China, from beverages magnates to the lords of the country’s web industry: Baidu’s founder is ranked fifth-richest with the Red Bull soft drink’s Chinese licensee. There’s another Hurun Report list of interest to China, the FT reports: more than half the world’s richest self-made women are Chinese. Zhang Yin, head of Nine Dragons Paper, takes the top spot. Oprah Winfrey is ninth.
Re: Ocado listing Read more
Barnes & Noble, the largest US bookstore chain, said on Tuesday that it was considering a sale because its board believed its shares were “significantly undervalued”, reports the FT. The retailer said it would review options that might include a bid from Len Riggio, its chairman and founder, whose family controls the publicly traded company. The company’s shares jumped more than 25 per cent to $16.04 in after-hours trading after the news. The WSJ notes that today, the bookseller has a market capitalization of just under $950m compared to rival Amazon’s $55 bn. In 2001, Barnes & Noble was worth $2.2bn and Amazon $3.6bn.