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Retail round up - The Sunday papers
Archived article dated Sunday June 22nd 2008
Tesco poses as 'local' trader, UK beer sales tumble to the lowest since 1975, Monro plots high street return, Debenhams to delay paying bills as sales tumble, Dragons' Den panellist Peter Jones pursues mobile rival 20:20, M&S buyback 'misguided', Electric shocks as retail sector falters, Furniture prices 'will go through the roof'......
The Sunday TelegraphTesco has been accused of using underhand tactics after it used a local retailer to "front" a planning application for a massive supermarket development. The application for an 80,000 square foot store in Barnstaple, Devon, was submitted in the name of local retailer Brian Ford's, despite Tesco having acquired the independent retailer a year earlier. No mention was made of Tesco's involvement in the scheme, which will, if permission is granted, be built on the site of the existing Brian Ford's store. In drawings accompanying the application the proposed supermarket was branded Brian Ford's and the involvement of the local retailer trumpeted. However, it is understood Tesco has always intended to build and operate the store itself if the application succeeded. Although Tesco has not broken any laws by not disclosing its involvement in the scheme, rival retailers described the tactic of applying for permission in the name of a local retailer as "underhand". "This is a Trojan horse planning application. It has, effectively, been fronted by a local retailer. It is misleading," said one supermarket executive. But a spokeswoman for Tesco denied any wrongdoing or the suggestion that it had attempted to mislead. "Brian Ford's is a local family run company. They did not want to cause uncertainty to their staff until it was clear if these plans would progress. The motivation was not to conceal Tesco's identity it was to help them maintain stability in their business," "As it got closer to a planning decision we insured that the planning authority was informed that they would not operate the store," she added.
Figures released to the brewing industry by the British Beer and Pub Association, and seen by The Sunday Telegraph, show total UK beer sales fell 1.7 per cent in the year to the end of April. The effect of the decline in consumption, combined with rising utility and commodity costs, an increase in beer duty, and the impact of the consumer downturn and smoking ban is having a catastrophic impact on Britain's pubs. Pub closures are running at 27 a week, according to the BBPA, amounting to some 1,200 that have been forced out of business over the last 12 months. Nick Bish, chief executive of the Association of Licensed Multiple Retailers, which counts 15,000 UK pubs among its members, said: "This is a bell-weather of the economic situation where you have a perfect storm of the smoking ban, credit crisis and loss of consumer confidence."
Angus Monro, the former Matalan and Marks & Spencer executive, is enlisting the support of Permira, one of Europe's biggest private equity firms, to target some of Britain's struggling high street retailers. Monro is assembling a war chest and will target a struggling chain with a turnover of at least £1bn. He is believed to have secured backing from Permira, the New Look co-owner, and is in talks with other private equity houses. Monro is busy identifying potential targets. One group that he is known to be interested in is Mosaic, the Oasis-to-Karen Millen fashion conglomerate owned by Baugur, the Icelandic investor. A lot of privately-owned retailers are breaking some of their soft covenants at the moment. By the end of the year they will break harder covenants and the banks will be in the driving seat," said Monro. "I am looking at retail companies with scale or a reasonable brand - public or private," he said.
The Sunday Times
Debenhams has extended its payment terms to suppliers to 96 days amid claims that trading conditions are “deteriorating”. The department-store chain, which lost 18% off the value of its shares on Friday, closing at 44p, denied it was lining up an emergency rights issue. Industry sources say that Debenhams, with £970m net debt, has seen sales slide by up to 9% against last year in recent weeks. Suppliers are bearing the brunt of the downturn in sales with payment terms greatly extended and are also being asked to give larger discounts on goods.
In a research note issued on Friday, Piper Jaffray retail analyst Mike Dennis set a 17p price target for the stock. He wrote: “We believe Debenhams is struggling to generate cost savings of £20m and net debt reduction of £140m for next year, as department-store sales keep falling and costs are rising. “The fact that net debt remains close to £1 billion and supplier credit at £260m-plus, on reduced cash generation, leaves few options, in our view, but to raise additional capital from investors or banks, even after a cut in the final dividend.”
Dragons' Den panellist Peter Jones is trying to win control of mobile-phone distributor 20:20 Mobile. Bank sources say he made an offer to 20:20's lenders last week. Jones made much of his money in telecoms. He ran what became 20:20 for Phones4u tycoon John Caudwell before setting up in competition with his own firm, Phones International. 20:20 has performed poorly since it was bought by private equity firm Doughty Hanson from Caudwell for £347m in September 2006. The company breached one of its banking convenants this year and senior debt is trading at a quarter of face value. Sources say Jones's first offer was rejected. His plans could still be torpedoed as Doughty negotiates to inject another £15m into the business. Lenders, led by RBS and Mizuho, are working on a capital restructuring that will see them swap £175m of debt for a stake that will leave Doughty with roughly 50%.
Marks & Spencer's share buyback programme has been criticised as “misguided and mistimed”, raising fresh questions about the retailer's corporate governance in the run-up to its annual meeting next month. The chain raised £550m in bonds last December to fund the programme. Since then it has spent £600m in share buybacks as the share price continues to fall. Last Thursday M&S bought 2m further shares at 343p in the day before the company went into its closed period. On Friday the shares closed at 339p. Nigel Sedgley of Collins Stewart's Quest research team said buyback strategies like this were harming shareholders. “There is evidence that buying back shares when the share price is falling, or where profitability is under pressure, simply destroys value for continuing shareholders,” he said.
The Independent on Sunday
Shares in DSG International fell to new lows of 46p last week ahead of results this Thursday which are expected to show continued tough trading at the electrical retailer. The group's chief executive, John Browett, will again be under pressure to explain how his new strategy, announced to investors in May, is being implemented. Shares in DSG have fallen steadily, from a high of 176p, over the past few months after two profit warnings. Mr Browett has already said that pre-tax profits would be down to around £200m, from £295m last year. DSG's shares have come under pressure because of investors' fears of serious competition following Carphone Warehouse's recent deal with Best Buy to open new stores across the UK and Europe. The French electrical retailer Kesa, which owns 250 Comet stores in Britain and Darty in France, is also likely to warn of tougher times to come.
The Observer
Shoppers have been warned they face the spectre of even higher prices in the months to come as the perfect storm of dire trading and cost pressures threatens the viability of some retailers. Carpetright chief Lord Harris said the trading climate meant retailers would have to pass on costs to customers. He likened the trading conditions to the 1974 recession and warned: 'Prices will be higher in stores. Retailers can't absorb price increases at this level.' He said Carpetright had seen 15 per cent inflation in input prices over the last six months as a result of the strengthening Euro.This weekend directors at ScS Upholstery were locked in talks to stave off the sofa chain's financial collapse. Retailers of household goods have been hardest hit by the dramatic slowing of the UK housing market, with rival sofa chain Land of Leather striking a rescue package last Wednesday in the shape of a £15m rights issue to tide it over after sales plummeted 35 per cent. ScS is trying to raise cash after credit insurers stopped providing coverage to suppliers, meaning the financial risk would fall on them if they continued to work with the retailer. As The Observer went to press the situation at ScS was said to be changing on an 'hourly' basis but insiders suggested a sale of the business could come as soon as next week. Shares in the sofa firm crashed 80 per cent after credit insurers said they were no longer prepared to provide suppliers with insurance and the possibility of it entering administration has not been ruled out. Quarterly rental demands fall this week and directors must decide whether to pay in full rent, a bill estimated to run to more than £5m.
Tagged as: retail round up - sunday papers | M&S | carpetright | debenhams | ScS | tesco
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