Retail round up - The Sunday Papers

Archived article dated Sunday August 31st 2008

Wage increases in China push up production costs, Discount retailers take advantage of the credit crunch, Major Woolworths shareholder says offer is not good enough

The Sunday Telegraph

Retailers campaigning to change existing lease structures with landlords risk falling foul of competition laws according to the chief executive of the UK's largest commercial property company, Land Securities. The warning by Francis Salway, who is also president of the commercial landlords trade body the British Property Federation, comes after a group of 35 retailers including Boots, Hamleys and B&Q, led by Topshop owner Sir Philip Green, called for a meeting with a "small representative landlord group" to discuss lease structures. Retailers are understood to be keen to move from paying rent quarterly in advance to paying monthly to relieve pressure on cash flow. Asked whether there could be competition issues thrown up by the retailers' campaign, Salway said: "Potentially yes. I am not an expert on cartel issues but there is always a risk when you come together."

Currys owner DSG International will this week reveal a further fall in sales as the slowing economic environment continues to deter shoppers from buying electrical goods and other non-food items.The retailer is expected to say that total like-for-like sales fell by 5.4 per cent over the 16 weeks to August 18, while UK electricals sales - including those at its core Currys chain - are expected to have fallen by 7 per cent, according to JP Morgan. "We expect DSG's performance to have continued to deteriorate since Q4," the bank said in a note. When DSG last reported in May its like-for-like sales were down by 1 per cent. Late last week German bank Dresdner Kleinwort dramatically chopped its earnings forecasts for the food and non-food retail sectors.

Sales at Aldi rose by 44 per cent over the month of July as cash-strapped shoppers flocked to the discount retailer. The chain, which has 377 stores in Britain, has seen a huge surge in popularity as consumers' budgets have been increasingly stretched by rising household bills. Over the year to date sales at Aldi have risen by 25 per cent. But the rise over July underlines just how much tighter household budgets have become over the summer. The strong performance outstrips all other growth metrics in the food retail sector many times over. For example, over its last financial year Tesco, the market leader, saw UK sales rise by 6.7 per cent.

Asda is exploring shifting part of its manufacturing base away from China because of the soaring cost of doing business there. Andy Bond, Asda's chief executive, said the group was looking at diverting part of its sourcing activities from China and into lower-cost emerging markets such as Vietnam. "In common with other retailers we are always looking to where we source from, and Vietnam is one of the countries we are looking to," said Bond. Prices in China have risen sharply over recent months due to surging wage inflation in the country's manufacturing hubs and rising commodity prices. Retailers claim that non-food inflation out of China is moving into low double digits.

The Sunday Times

Woolworths' biggest shareholder has thrown his weight behind management in rejecting Malcolm Walker's £50m takeover approach, while refusing to deny that he is planning his own bid for the struggling retailer. Iranian property tycoon Ardeshir Naghshineh, who has built up a 10.2% stake in the firm, told The Sunday Times: “Walker is well respected but the board rejected the bid and rightly so. It's not a good deal for Woolies or shareholders.” Walker, founder of the Iceland frozen-food chain, has proposed a deal that would see his consortium - backed by Icelandic retail investor Baugur, also a Woolworths shareholder - take its 815 stores but leave the parent company with a near-£100m pension deficit and most of its £120m debt.

Britain's third-largest holiday company, XL Leisure Group, is in urgent talks with its banks after plans for a refinancing hit delays.The group's lenders, Barclays and the Icelandic group Straumur, are understood to be considering their options this weekend. Airline-industry sources said that Barclays had recruited Kroll, the corporate-restructuring specialist, to advise. The sources said the future of the group could be decided this week.The company is understood to be looking for a new lender after Barclays pulled financing associated with fuel-hedging positions on August 14.

Financial Times Sat / Sun

Stalled demand for Aga ranges and a downturn in sales of its sister brand of Stanley in Ireland have damped half-year profits growth at Aga Rangemaster. William McGrath, chief executive of the upmarket kitchen goods maker and retailer, admitted concerns about rising fuel costs had dented demand for its flagship Aga cookers, which typically cost £7,500 to supply and install. Aga wants to reignite interest in its cast-iron ranges by promoting more economical models that use off-peak electricity and programmable gas systems aimed at cutting costs.

Restaurant Group, the company behind the Garfunkel's and Chiquito chains, has dismissed suggestions that a break-up of BAA's airport monopoly could affect its business adversely. The group, which has repositioned its restaurants away from the high street and into airports and out-of-town malls, runs 44 airport concessions, 30 of which are in BAA-owned terminals. After news this month that BAA could be forced to sell three of its airports including Gatwick and Stansted, there was concern that new owners could bring in other companies to run these lucrative concessions. "The implications are not positive for the Restaurant Group, which has built up its concessions business largely on its relationship with BAA," said Paul Hickman of KBC Peel Hunt.

Vodafone was confident on Friday that it could finalise a deal to win control of Vodacom, South Africa's largest mobile phone operator, after much manoeuvering from rival groups.Vodafone, which owns 50 per cent of Vodacom, made an offer in May to buy 12.5 per cent more from its joint venture partner, Telkom, South Africa's leading fixed-line phone company, for $2.5bn. Telkom disclosed on Friday that it had received new expressions of interest in its operations from groups that it declined to identify. Globacom, Nigeria's second-largest mobile operator, denied reports that it had offered to buy Telkom's Vodacom stake.

The Independent on Sunday

The husband and wife duo Niall and Faith MacArthur, the founders of the lunchtime food chain EAT, are set to miss out on a £75m bonanza following the decision to scrap the proposed sale of the 92-shop group. In a disastrous summer for the leisure and food sector, it is also believed that the proposed management buyout of the pizza chain Prezzo could fail, while the amusement arcade chain HB Leisure has abandoned a sale of a stake in its business.Leon, the London chain of healthy fast-food restaurants is also rumoured to be struggling, though it continues to expand. The abandonment of the sale of EAT comes months after the group, part owned by the private equity firm Penta Capital, was put up for sale with a price tag of £120m-£150m, following a review by its adviser PricewaterhouseCoopers. But sources close to the group said: "It just doesn't make any sense to sell a business like EAT at the moment. The valuations are just two low. That's not to say it won't be sold in the future when things recover."

Vodafone has been accused of "blatant dishonesty" after blocking customers from legitimately quitting their contracts over price rises. Anyone whose bills are likely to increase by more than 10 per cent when the company puts up its charges tomorrow is legally allowed to abandon their contract free of charge. But the network has been telling customers they are still bound to the agreement, and demanding payments of up to £500 for their release. Millions of people could be trapped wrongly in contracts when charges for some calls go up by as much as 40 per cent. As Britain's second-largest mobile phone company, Vodafone has more than 18 million customers, 7.5 million of whom are on contracts.

Mail on Sunday

Woolworths' new chief executive Steve Johnson has begun a full-scale review of the business ahead of his official start date tomorrow. Johnson kick-started the review after a rejected offer for Woolworths' retail division by Iceland boss Malcolm Walker. The approach has put pressure on Johnson to deliver immediate results or risk having the Woolworths chain snatched from underneath him.

Sir Philip Green is to begin negotiations with large property firms in the next ten days that may result in the biggest change in the relationship between retailers and their landlords for hundreds of years. He wants to scrap quarterly rental payments - made in advance - to ease the cash flow of retailers in hard times.Green also wants to review charges levied on retailers by property firms.

Shoppers are defying the credit crunch by opting for Vanilla Toffee Crunch as sales of premium ice creams soar. More than £111 million of luxury ice cream was sold in the past year, a 15.9 per cent rise on the 12 months before, according to market research by TNS.

Sunday Express

Disposable items such as nappies and razor blades could be taxed as luxury goods under Government plans to cut waste. A major report drawn up for ministers suggests items that cannot be re-used or recycled should face punitive taxes similar to those imposed on alcohol and tobacco. The study, funded by the Department for the Environment, Food and Rural Affairs, suggests the taxes would stop consumers viewing disposable items as the “cheap and easy option”, and persuade manufacturers to produce more durable goods. Any move to tax disposable items as luxury goods would lead to a huge increase in price. Taxes now account for about 80 per cent of the cost of a packet of cigarettes and 20 per cent of the cost of a pint of beer. If tax were imposed at the same rate as on cigarettes, the cost of a Gillette Mach 3 disposable razor would soar from about £1 to almost £5.

JD Wetherspoon is expected to reveal pre-tax profits have fallen about 11 per cent to £55 million due to the smoking ban and rising costs. Revenues are expected to have grown because of increased food sales, but Wetherspoon wil say on Friday its profits have fallen sharply.

Shoe retailer Faith closed in on a vital cash injection as second-round bids for the 215-outlet chain were submitted on Friday. Among bidders were the management team, led by executive chairman Steve Cotter, which has secured the support of unnamed private equity backers.

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