Retail round up - The Sunday papers

Archived article dated Sunday August 24th 2008

Cerebus sells its Merchant Equity Partners stake, Malcolm Walker to meet Woolworths board, Debenhams bosses freeze their own pay

Sunday Telegraph

Cerberus, the American hedge fund, has sold its stake in Merchant Equity Partners, the owner of the MFI furniture chain, to Hilco and Goldman Sachs. The secretive investment firm was one of the original backers of MEP but is understood to have sold its stake in the furniture chain's owner several months ago. It is believed that its stake was split between Goldman and Hilco, the turnaround specialist, both of which were existing MEP backers. MEP was launched by Henry Jackson, a former investment banker, and has made two acquisitions in the furniture retail sector. As well as MFI, MEP also owns BUT, the French furniture and electricals business, which it bought earlier this year from Darty, the owner of the Comet electricals chain. The reason for Cerberus's sale is not known and the company declined to comment last night.

Financial Times Sat/Sun

The UK economy shuddered to a halt in the second quarter, data showed on Friday, ending a 16-year run of unbroken growth that the Labour government had trumpeted as proof of its economic competence. Sterling slid to its lowest level for more than 11 years against a basket of currencies and hit a two-year low against the dollar as the Office for National Statistics revised its initial estimate of second quarter growth down from 0.2 per cent to zero. The pound's fall will heighten pressure on the Bank of England to ease monetary policy, in spite of signs that the peak in inflation still lies ahead.

As economic growth grinds to a halt, the British consumer also appears to be stumbling. Household spending, which accounts for nearly two-thirds of GDP, fell 0.1 per cent, quarter on quarter - the first such drop in two years. Given that consumer spending has been the engine driving the UK economy, faltering expenditure is worrying. “It's a shock to the system,” said Gary Dugan, chief investment officer at Merrill Lynch Wealth Management. Although inflation is much lower now and unemployment nowhere near as high, there are parallels with the early 1990s, Mr Dugan said. In particular, falling house values and heavily indebted consumers make for a toxic mix that will drag down consumption much further. “People in the City think that everybody out there knows what's been happening in the economy - they don't. Then they'll have their credit card lines cut,” he said. This could be “the worst Christmas in years”.

Champagne houses, faced with dizzying increases in production and transportation costs, are making their bottles thinner. The sturdy bottles have traditionally weighed more than twice a standard wine bottle to contain the pressure of sparkling wine - and have been deliberately weakened prior to ship-naming ceremonies to avoid the bad omen of a failure to smash. Now G.H Mumm, the champagne house owned by French spirits and wine group Pernod Ricard has completed a trial production run of 2.5m champagne bottles weighing 835g - 65g less than the standard bottle. Mumm has put the lighter bottles it has produced in its trial in caves where the bottles will age for at least two-and-a-half years. The house ran the trial at the request of the Comité Interprofessionnel du vin de Champagne, the French trade association that represents grape growers and champagne producers and oversees the sale of 330m-340m bottles annually.

The Sunday Times

The founder of the Iceland food chain, Malcolm Walker, would slash overheads and considerably narrow the product range in order to revive Woolworths, should he succeed in his attempt to buy the beleaguered high-street retailer. Retail analysts expect him to replicate his reinvigoration of Iceland, which he returned to run in 2005 after a four-year hiatus marked by poor results. One observer said that Walker had taken a “back-to-basics” approach at Iceland, and that a similar strategy would be likely if he gets his hands on Woolworths after an initial proposal to acquire the 815-strong chain was rebuffed last week. “Woolworths is selling things like mobile phones and computers - that's not really their business, is it?” said the analyst. Walker, who heads a consortium including Baugur, the retail investor that owns Iceland stores and a 10% stake in Woolwoths, is expected to push this week to meet the Woolworths board to discuss a revised offer for the retailer.

Britain's biggest car dealership, Pendragon, which said eight weeks ago that it was difficult to forecast year-end profits after a sharp fall in sales, will announce this week it will slash its dividend. Trevor Finn, the group's chief executive, is to scale down the payout to reflect the tougher economic conditions Pendragon is facing. But it is understood he will not scrap it. The national dealer, which runs a network of more than 300 sites, will reveal when it reports full-year results that pretax profit has collapsed from the previous year's figure of £34.8m on sales of £5.1 billion. However, the company will still be in profit - helped by a £15m Vat rebate - even after bearing the cost of 500 redundancies across the group. It is still generating cash.

The Observer

The dire state of the British housing market will be underlined this week when Savills, the upmarket estate agency chain, reveals that it is axing scores of jobs as deals dry up and selling prices tumble. In London, Savills will say, homes selling for £900,000-plus are simply not moving as sellers hang on in the hope that they can get a better price in a year's time. The company will disclose that homes in some parts of the capital have fallen in value by as much as 10 per cent and that sales volumes have dived by nearly 50 per cent. The company employs more than 3,000 people in 111 UK offices, but that number is expected to reduce significantly by the end of this year as fears grow that house prices could fall by as much as 30 per cent before December 2009 and that transactions nationally could plumb levels not seen in 30 years.

Tesco has acquired the UK assets of US entertainment supplier Handelman in a move that could intensify the price war with specialists HMV and Zavvi. Handelman revealed it had sold a 'substantial portion' of its UK business to Tesco in a regulatory filing. The Michigan-based company, which supplies music, DVDs and games, has decided to close its music division in the face of falling CD sales. Tesco caused a stir two years ago, when it axed its music supply contract with Woolworths-owned EUK, opting to take the operation in-house with the help of Handelman from April 2007. The decision was a disaster for Woolworths, which issued a profit warning after losing the business, worth tens of millions of pounds. Analysts said direct sourcing had enabled Tesco to lower the prices of CDs in its stores. The encroachment of supermarkets into entertainment, adding back catalogue, internet and download services, has had a profound effect on the market, forcing specialists such as HMV to respond with price cuts of their own. 'On selected products, Tesco is happy to use CDs as loss leaders to get people into the store,' said one analyst. Tesco declined to comment on the details of the deal.

Mail on Sunday

Bosses at Debenhams have agreed to bear the brunt of tough conditions on the High Street by freezing their pay. Chief executive Rob Templeman, finance director Chris Woodhouse and other senior managers will receive no pay rise in the next twelve months. About 1,000 head office staff, due a pay review next month, will have their rises deferred at least until after Christmas.

Ocado has launched a membership scheme that it claims will cut the cost of home deliveries. The move will also generate up-front cash for the loss-making business. Ocado on Demand gives 'free' delivery to customers paying £40 for three months' membership, £60 for six months and £105 for a year.

Major retailers have joined a growing storm of protest against a new 'empty office tax' that has forced companies to demolish vacant blocks and warehouses. Asda has thrown its weight behind a British Property Federation to abolish the rules, which require commercial property owners to pay full business rates while seeking temporary tenants for buildings awaiting redevelopment.

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