Retail round up - The Sunday papers

Archived article dated Sunday September 14th 2008

Asda clothes in fashion, Poundland to be put up for sale, Rich international shoppers boost London's West End, Credit insurers limit new cover for Woolworth's suppliers

Sunday Telegraph

Asda has overtaken arch-rival Tesco as the UK's third largest clothing retailer by volume following a concerted effort by the Wal-Mart-owned supermarket to bolster its position in the market. According to industry figures released earlier this summer, Asda's George clothing line leap-frogged Tesco to become the UK's third largest clothing retailer behind Marks & Spencer and Primark. At the beginning of the year, it was half a percentage point behind Tesco in market share terms. In March this year Anthony Thompson, the former M&S executive who runs George, pledged to topple his old employer from its perch as the UK's biggest clothing retailer within three years. Thompson left M&S last year after falling out with Sir Stuart Rose, M&S's executive chairman.

The hard times confronting high street chains might be causing panic across the industry, but some of those at the discount end of the retailing spectrum are revelling in the tough economic climes. Poundland, the value retailer where all items are priced at £1, is to be put up for sale as Advent International, its private equity-owner, seeks to take advantage of shoppers flocking to its stores. Advent, which invested in Poundland in 2002, is about to begin a beauty parade of potential advisers to help with a potential sale or stock market flotation of the business. The process is at an early stage, and Advent is unlikely to begin talking to prospective buyers until after the results of the crucial Christmas trading period are known.

The collapsed tour operator XL Leisure Group was warned of "financial irregularities" almost two years ago - but blocked its auditors from conducting a full investigation into them, The Sunday Telegraph has learned. This weekend, tens of thousands of British holidaymakers were stranded abroad following the package holiday company's slide into administration. According to documents filed at Companies House, KPMG, the professional services firm, resigned as auditor to Excel Airways Group plc in October 2006, citing alleged misrepresentations by directors, "material errors" in financial statements, and attempts to block KPMG from undertaking a "comprehensive independent investigation". The decision not to investigate prompted KPMG to resign as auditor to Excel Airways, which according to the documents was renamed XL Leisure Group on November 23, 2006.

Sunday Times

London's West End has experienced an extraordinary summer spending boom fuelled by rich international shoppers who enabled it to defy the credit crunch that has hit the rest of the country. According to the tracker firm Springboard, shopper footfall in the West End, which includes Oxford Street, Regent Street and Bond Street, increased by 2.5% in August compared with a decrease of 8.5% nationally. Last month some 6.4m people visited the area each week. West End stores proved popular with shoppers from areas more immune to the credit crunch - particularly the oil-rich nations of the Middle East as well as Russia and Nigeria. Attracted by London's milder weather and the chance to snap up tax-free luxury goods, international shoppers from outside the European Union flocked to the West End.

The row between retailers and landlords over the payment of rent 12 weeks in advance could hit a new peak later this month when some occupiers will refuse to write a cheque to cover the next quarter. Instead, some retailers are considering whether to write three cheques, one to cover the first month and another two postdated to cover the subsequent months. Such action would demonstrate the deep frustration that retailers feel with their landlords. It could also trigger a wave of legal action from property owners. Some of the biggest names in retailing have joined forces with Sir Philip Green of Arcadia and BHS and Lord Harris of Carpetright to demand that landlords drop their demand for quarterly rents to be paid in advance. The lineup includes Alliance Boots, Next, Argos, Carphone Warehouse, Debenhams and HMV. Green and Harris have also won the support of the British Retail Consortium (BRC). At a meeting last week with the British Property Federation, the BRC suggested that while the retail industry remains in challenging times, landlords should accept monthly payments for the next two years.

The Observer

Peter Long, chief executive of TUI, Europe's largest tour operator, has warned that 'the days of cheap travel are over' following the collapse of rival XL last week. Long also ruled out buying the company, which was placed in administration after failing to refinance its near £150m debt pile. Unlike a traditional tour operator, XL largely relied on selling air fares rather than higher-margin package holidays. 'An airline is not attractive to us,' Long said. 'The business has no value now that it has ceased trading.' Its businesses in France and Germany have already been sold. XL fell prey to the soaring cost of fuel, which has already claimed airlines Zoom, MaxJet, Silverjet and Oasis. British Airways chief executive Willie Walsh predicted more would fail between now and Christmas. Bookmaker Paddy Power is now taking bets on the next to go, with Alitalia and SkyEurope the favourites.

The credit crunch is forcing British consumers to change their spending habits, according to research by media planning group MPG. A survey of 3,000 families found that 67 per cent of households have reined back spending on luxury items, and 54 per cent now spend less on groceries, while a similar number - 53 per cent - also splash out less on clothing. Nearly 40 per cent are saving less, and 10 per cent have cut back on payments into pension schemes. Not surprisingly, given higher bills for heating the home, nearly 40 per cent of families say they now spend significantly less on energy. But the research also found that 63 per cent say they are not planning to cut back on vices like cigarettes and alcohol. Two-thirds of families - 67 per cent - say they are now spending more on nights in and relying more on home entertainment.

Actor Sadie Frost's clothing company FrostFrench changed hands for just £100,000 when it was bought out of administration last month. The modest sum means the payout to creditors, who were owed £4.2m at the time of the collapse, will be in the region of only 2p in the pound. The lingerie and accessories brand founded by Frost, the ex-wife of Jude Law, and her partner Jemima French, was rescued by a consortium of Norwegian investors who include John Joakim, a film producer. The final dividend could rise as a result of the sale terms struck by the administrators, which included an 'earn-out' clause that entitles creditors to a 3 per cent share of the first year's takings of new venture FrostFrench London Retail, and 1.5 per cent in year two.

Investors are braced for more gloomy news from the retail sector this week, with Kingfisher boss Ian Cheshire expected to strike a pessimistic note about the prospects for its B&Q chain. The UK home improvement market has been in the doldrums for several years but the seizure in the housing market has wrought fresh agony. Last week Homebase owner Home Retail Group revealed plans to write down the chain's value by several hundred million pounds. It said underlying sales at Homebase dropped 8.3 per cent during the last quarter after a disastrous August. Analysts expect sales at B&Q to be down 4 per cent, although the reporting period will not include August. B&Q has fared better as it has not moved into hard-hit areas like furniture, as Homebase has.

Financial Times Sat / Sun

Britain's computer game market, which expanded more than 40 per cent in the first half, has been a leading light on the high street amid deepening gloom. Game Group, the specialist retailer, took the lion's share of revenues in the £3bn market, but others such as HMV and Woolworths made plump profits selling games. But some analysts fear such profits could be under threat from aggressive price-cutting by supermarkets. “We think the opening salvo in what could turn out to be a very bloody war was fired this week by Morrisons,” said David O'Brien at Altium Securities. The supermarket cut prices on its most popular games by up to 50 per cent on Monday.

The Independent on Sunday

Two of the UK's biggest credit insurers, Euler Hermes and Atradius, have stopped providing new cover for firms supplying Woolworths and cancelled some existing policies linked to the company. Ahead of the store's announcement of half-year earnings on Wednesday, expected to show heavy losses, confidence in its long-term viability seems to have hit a new low. "There are no new lines opening on Woolworths and some policies have been cancelled or adjusted," said a source. "It really doesn't look good for them." Trade credit insurance covers businesses against the risk of bad debt due to the insolvency or protracted default of their buyers. Earlier in the summer credit insurers reduced cover for suppliers dealing with the Woolworths Entertainment subsidiary. In recent weeks they have further cut their exposure. The news comes as Woolworths is expected to reveal half-year losses of around £10m, although some estimates suggest it could be as high as £30m. Last week chairman Richard North and new chief executive Steve Johnson met with Malcolm Walker, the Iceland founder, to discuss the £50m offer made by Mr Walker. It is believed that negotiations are continuing.

Mail on Sunday

Glasses Direct, the online prescription retailer, has appointed internet guru Kevin Cornils as chief executive. Glasses Direct founder and executive chairman Jamie Murray Wells said Cornils' experience of working in online businesses alongside their founder was a key reason behind his appointment. “For the past four-and-a- half years we have been growing at 50 to 130 per cent year-on-year”, he said. Glasses Direct sells about 500 pairs of prescription glasses every day and turnover this year is expected to be about £4.5 million, up from £2.5 million last year.

Tragus, owner of the Cafe Rouge and Strada restaurants chains, is expected to unveil a 60 per cent leap in profits tomorrow, helped by customers trading down in the tough economic climate, as well as acquisitions and new openings. The group, owned by private equity giant Blackstone, is believed to have made profits of about £45 million in the year to May and enjoyed strong like-for-like sales growth of three to four per cent.

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