Tag Archives: Brexit

‘Market Matters’ – September 2018

Buying companies as a going concern is fun. Sometimes. Despite purchasers’ best efforts when sniffing around accounts, staff contracts, order book, supply contracts and other ‘due diligence’ they inevitably spend a couple of years digging up buried bodies:‘ Oh sorry, didn’t you know the HQ is built over an old mineshaft? Well tough luck – the legal concept of ‘caveat emptor’ applies. In other words ‘buyer beware’ or ‘tough luck – you should have asked the locals’.  

One of the biggest liabilities for a purchaser is often staff pensions.

One of the biggest liabilities for a purchaser is often staff pensions. Hence the unholy row when Sir Philip Green’s Arcadia Group sold BHS for £1 complete with a large hole in it’s staff pension fund. Then BHS went bust. Valuation theory says the price paid by a purchaser reflects the liabilities it has assumed and the seller is home and dry now someone else is carrying the can. That’s the theory, but life is more complicated than that.

Mike Ashley is arguably the best corporate retailer of his generation

The Chinese have a saying: ‘The best time to collect firewood is after a storm’ i.e. timing is everything. Mike Ashley, billionaire owner of Sports Direct is an expert at timing. He bought the 59-store House of Fraser chain for £90m hours after it went into receivership thus avoiding liability for the staff pension fund and £70m of unpaid bills owed to suppliers. This was his latest strategic bet at buying financially-distressed retailers. Since he founded Sports Direct in 1982 he’s never been able to resist a bargain. He bought heritage brands Karrimor, Lonsdale and Everlast to promote as own-label merchandise then sold-on Dunlop to the Japanese for a tidy profit.  Mike Ashley is arguably the best corporate retailer of his generation – a successor to Ralph Halpern of Burtons and Sir Philip Green of Arcadia.

 Mike hasn’t got a gong (yet)

Just like them he is famously combative. He refused to appear in front of a Parliamentary inquiry to answer questions about working practices at his distribution warehouses. After arm-twisting with threats of gaol in the Tower of London he did appear but unlike Philip Green he didn’t call for the resignation of Frank Field MP, Chairman of the ‘biased’ Work and Pensions select committee. As Mike hasn’t got a gong (yet) there was no kickback from the Commons Forfeiture Committee to have his knighthood annulled.

Frank Field MP is one of the most experienced and widely-respected members of Parliament

Frank Field MP is one of the most experienced and widely-respected members of Parliament and doesn’t want another public inquiry punch-up. He politely suggested this is an opportunity for the new House of Fraser owner to cover himself in glory. ‘Mike Ashley should take responsibility for the pension scheme’said Mr Field. ‘It is in surplus and…he would be smelling of roses compared to his rivals on the High Street.’ That was one way to offer unwanted advice and twist the knife in Sir Philip at the same time – despite Philip’s voluntary donation of £360m to the BHS pension scheme. Sir Vince Cable, LibDem leader and former business secretary was worried the Government Pension Protection Scheme will have to fund another bail-out.He proposed administrators be made to report on large deals e.g. House of Fraser to MPs. ‘The danger is an agreement which is reached is unfair to one or other parties. It could be the unsecured creditors like the suppliers, or it could be the taxman, or in this case there are worries that it’s unfair to the pensioners’. Quite so – but what reporting to MP’s would achieve is unclear.

‘The new Harrods of the High Street’

Many High Street Landlords had been terrified at the thought of business rates on empty properties and lost rent with H of F closing down. They breathed a collective sigh of relief at the buy-out then cracked open another Bollinger when Mike announced he would create ‘the new Harrods of the High Street’. Ashley certainly has the financial muscle to do so but has left staff and suppliers wondering if it will be at their cost. Wholesale suppliers only get paid after goods are delivered and there is – allegedly – £70m owing to them and sales floor concession-holders are only paid after goods are bought by customers. Albert Arkwright, nice but rather dim leader of Mudford-on-Sea Council said: ‘Phew that’s a relief – for a moment I thought our Mudford store might be for the chop…’

Other troubled retailers are worrying about a potential takeover

Other troubled retailers are worrying about a potential takeover, particularly those in whom Ashley holds a stake e.g. Debenhams. He has a 29% holding in the chain and their credit rating was downgraded last month when credit insurer Euler Hermes reportedly reduced cover at concerns over inability to pay bills in full and on time. Debs are holding redundancy talks with staff whilst Chief Exec. Sergio Bucher attempts to secure £10m of cost savings this financial year and double that each year in the future.

Mary Portas, business commentator and so-called ‘Queen of Shops’ has relaunched her retail consultancy service

Meanwhile Mary Portas, business commentator and so-called ‘Queen of Shops’ has relaunched her retail consultancy service by affirming her belief in SME’s (Small and Medium-sized Enterprises) at ‘Business Spotlight’ sessions sponsored byNatWest Bank.

‘British means well-designed and well-made. China is desperate to achieve that recognition but ‘made in China’ just doesn’t cut it’.

La Portas suggested a new breed of boss is emerging; one who is more fun, more thoughtful and freer of the old hierarchies which hold back innovation. And they’re not worried about Brexit because there is ‘huge equity and power in the British brand. British means well-designed and well-made. China is desperate to achieve that recognition but ‘made in China’ just doesn’t cut it’. But she also said the Government should be doing much more to help small businesses export their goods and servicesShe also encouraged Local Authorities to support the ‘tide of innovative and creative new enterprise’ by building cheaper operating spaces in towns and cities. ‘I wish the Government would support them by building bricks and mortar spaces’ she said. Maybe she had overlooked Market Halls.

‘Any brand that connects with women in a deep and meaningful way is going to win’ 

Mary suggested British businesses are strong innovators in food, wellbeing, health and beauty.‘Anything that makes us feel and look better’ she said. More should be be done to sell to the female half of the population. ‘Any brand that connects with women in a deep and meaningful way is going to win’ she opined. Future businesses will be more inventive, more principled and less restricted than those of today. ‘I just wish I could be around in 50 years’ time to see it all happen’ she said.

Mary who…?’

When asked to comment, Mike Ashley reportedly said:‘Mary who…?’

‘Market Matters’ – August 2018

Consider the UK’s High Streets. Hard on the heels of House of Fraser’s announcement of dozens of closures and the rumours about Debenhams you could almost forget how long they’ve been a bad news story. It was back in 2012 the penny finally dropped they were in trouble and it couldn’t be blamed on the 2008 banking collapse or the previous Labour government. Grant Shapps MP, the keen young DCLG Housing and Local Government minister launched the ‘Portas pilot towns’ competition backed by David Cameron and Mary Portas banging on about Markets as the saviour of High Streets. But what happened then? Not much. The money and policy initiatives fizzled out as attention shifted to Brexit and Cameron and Shapps disappeared faster than a Blockbuster store.

The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates.

And yet somehow the High Street still staggers along. The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates. Here are a few Losers, Movers and Bruisers we’ve seen over the last few years….

The Losers:

Woolworths: Founded in 1909, 830 UK stores in 1995 then administration in 2008. What happened?

Our Price: Crashed out of Vinyl, DVD’s and Cassettes in 2004 thanks to online streaming. At about the same time Radio Rentals (remember them?) finally threw in the towel, followed by Blockbuster Video in 2013.

British Home Stores: Closed it’s 160 stores in 2016 amidst allegations that owner Philip Green starved it and the staff pension fund of investment. Well over half the former BHS stores still remain empty today.

Poundland: Owned by South African retail giant Steinhoff with 700 stores, many being former Woolworths units. Currently involved in a major accounting scandal – rather like Tesco 18 months ago.

New Look, Carpetright, Monsoon and Mothercare: planned closures announced.

The Movers:

Marks & Spencer: 280 stores in 1997 and now over 1,000 – shifted from fashions and clothing to luxury foods at edge of town locations.

Argos: 380 stores in 1996, now some 850 mainly at edge of town and retail park locations. Bought by Sainsbury and central to the Asda merger because of their excellent distribution network.

Currys/PC World/Carphone Warehouse: Merged then downsized and bailed out of the High Street to retail parks where they’re doing OK. Mind you Carphone Warehouse on the High Street is having a rough time with 100 closures expected.

Boots Chemists: More than doubled their town centre outlets from 1,000 in 1995 to 2,500 today by adding another 1,500 edge of towners.

The Bruisers:

Charity shops: over 11,000 in the UK at the last count. Welcomed with open arms by High Street Landlords desperate to avoid empty rates liability.

Coffee shops: Costa now have 2,200 stores across the UK. Don’t mention Starbucks, Vat and Corporation tax in the same sentence.

BooHoo: Doing very nicely online thank you amongst 16-30 year-olds thanks to no business rates and ‘Bricks ‘n Mortar’ overheadsA fine example of how to target a specific consumer group and their lifestyle.  

Mergers, consolidation, moving online and relocating to the edge of town is THE pattern

What this shows is just how little sentiment there is amongst the big boys. Mergers, consolidation, moving online and relocating to the edge of town is THE pattern. According to the Centre for Retail Research the number of online retail sales as a proportion of total retail sales has risen from 2.5% in 2004 to 22% in 2018. That is a simply staggering growth rate and any retailer who ignores the trend is dead in the water.

So who will replace multiples on the High Street?

So who will replace multiples on the High Street? The Centre for Retail Research says don’t despair – it will become a social centre. It will shift from commerce to leisure with more space given over to restaurants, ‘artisan’ foodstores, health & beauty and ‘lifestyle’ outlets. Less errr…’glamorous’ locations such as Mudford-on-Sea will have to make do with Charity shops, bookmakers and vape stores. ‘Lifestyle’ retailers such as Joules and Ted Baker are doing well, but only in top 100 towns. Future casualties will to be shoes, household goods, furniture, textiles and music/games. Those offers are increasingly replaced with Amazon collection boxes.

E-commerce is like one of those creepy robot lawnmowers

The CRR also highlighted the rise in ‘Showroom’ and ‘Concept’ stores. These are sparsely-staffed display units which allow Customers a hands-on experience but retain the cost advantage of selling online. E-commerce is like one of those creepy robot lawnmowers – it works for you 24/7 whatever the weather and if you’re a home producer selling on Ebay or Etsy gives you a physical showcase for your products.

Dyson have just launched an Oxford Street demonstration store where you can test drive their vacuum cleaners and hairdryers, helped by charming young men who can’t do enough for their lady customers – or for the men either come to think of it. Note the cunning combination of hairstylist and vacuum cleaner salesperson. Wow.      

You can’t underestimate how activity stimulates confidence

To attract leisure-users and investment High Streets need to differentiate– offer something which makes them more attractive than the High Street in the next town. The easy fix is to spend zillions on repaving and relighting but to my mind it is better to spend it encouraging small businesses. More rent and rates caps, pop-up shops in empty units, Town Council and landlord partnerships, events and Markets. You can’t underestimate how activity stimulates confidence. There are some towns where an energetic and innovative B.I.D or Town Centre Partnership is really making a difference.

Don’t feel you need to spend zillions on retail demand surveys

And finally, if you are a B.I.D. don’t feel you need to spend zillions on retail demand surveys. Henry Ford, the mastermind behind mass-produced automobiles was once asked what he thought about Customer research. He replied: “If I’d asked the public what they wanted they’d have said faster horses….’

 

Blockbuster

Boohoo

 

Back in November the Chancellor, George Osborne was feeling quite flush after the OBR (Office for Budget Responsibility) forecast he’d have a windfall £27 billion to spend over the next 5 years.

George used it to avoid cuts in tax credits and stave off a threatened rebellion amongst Conservative backbenchers. But four months later the OBR had downgraded it’s forecast because the world economy isn’t growing as fast as expected. So having spent it already George had no alternative but to announce .5% p.a. cuts off the government spend (currently £750 billion p.a.) That way he does at least have a chance to meet his commitment of eliminating the fiscal deficit (difference between tax income and expenditure) by 2020. However, government spending is projected to rise to £850 billion p.a. by 2020 so that represents some £4.25 billion of cuts in that year alone which is a lot of noodles. And everyone is carefully ignoring the elephant in the room – the eye-watering level of government debt run-up to stave off a banking collapse.

Delivering local council services through the ‘Big Society’ agenda will be more likely than ever

Achieving the savings will be no easy task for Government departments squeezed for the previous 10 years. Delivering local council services through the ‘Big Society’ agenda will be more likely than ever. County education authorities were given a warning that HMG intends to ‘set schools free’ from council bureaucracy by requiring them to convert to academy status. Presumably someone has done the maths and can see the cost savings.

Lock-up kiosk businesses in market Halls celebrated after Small Business Rates Relief was made a permanent concession

As well as cutting expenditure the Chancellor announced cuts in taxes to stimulate the economy. This included an immediate increase in personal allowances to £11,500 but no increase in VAT thresholds which was a shame. Lock-up kiosk businesses in market halls celebrated after Small Business Rates Relief was made a permanent concession with the RV threshold doubled to £12,000 with taper relief up to £15,000. Hopefully the Valuation Office and local councils will now co-ordinate their paperwork to avoid the need for individual applications.

Sweetened drinks represent only a fraction of the sugar consumption by kids whose processed meals mean they eat their own weight in sugar each year.

Of course any Budget Chancellor needs a high profile, headline-grabbing announcement to stop MP’s from dozing-off during the boring fiscally bits. George opted for a ‘sugar tax’ on sweet drinks with the £520m raised going to help the NHS combat childhood obesity and fund school sports. With suspicious alacrity the School Food Campaigner Jamie Oliver was pictured jumping for joy outside Parliament. The share price of Tate & Lyle also plunged until investors remembered their company had sold it’s sugar business back in 2010. George made the crackingly self-righteous statement that: ‘I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation: ‘I’m sorry – we knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing’. Great stuff, George, but sweetened drinks represent only a fraction of the sugar consumption by kids whose processed meals mean they eat their own weight in sugar each year.

George couldn’t resist having a swipe at the ‘Brexit’ campaigners

With the 23rd June EU membership referendum rapidly approaching, George couldn’t resist having a swipe at the ‘Brexit’ campaigners. Eurosceptics reacted furiously and accused him of misrepresenting the opinion of the OBR when he said it had warned of ‘negative implications’ for the UK’s economy after a Brexit. George has reason to be worried – the latest public opinion polls show voters are pretty evenly split with the FSB saying it’s members are ‘insufficiently briefed’ and the CBI sitting on the fence. The OBR joined them on the fence with a statement that ‘It is not for us to judge at this stage what the impact of a Brexit might be on the economy and public finances’. And no-one has mentioned immigration yet.

Restrictions on Sunday trading

The spring budget came a couple of weeks after the government failed in another attempt to remove restrictions on Sunday trading to stimulate the economy. It tried to dodge an inevitable fight with the clergy, shopworkers unions and ‘Keep it Special’ backbenchers by proposing local councils should set the hours. This fooled no-one. It then offered to amend the proposals in the House of Lords if MP’s voted in favour. That simply annoyed the fence-sitters and resulted in an unlikely alliance of backbench Conservative, Labour and SNP MP’s voting 317 against vs. 286 in favour.

Ministers conceded the proposals would not be resurrected

Ministers conceded the proposals would not be resurrected. The ‘High Streets’ planning minister Brandon Lewis announced through gritted teeth that ‘We respect the view of the House of Parliament. The Commons has spoken and given a very clear view – we have to absolutely respect that’. Brandon’s pronouncement was reminiscent of a famous radio interview comment by Dick Tuck, a would-be U.S. Democratic Senator. He sombrely conceded defeat in his California election campaign by announcing: ‘The people have spoken – the bastards’.