Sunday Retail News Roundup
Greens bargain, Supermarkets suppliers charge, Co-op Bank pressure grows, Chain stores business rates, Tesco chief controversy, Paternity leave, French Connection crisis deepens, Blue Inc serious concerns, BT superfast broadband controls, Call to boycott Tesco.
Cheap, opportunistic, cheeky and unnacceptable was the verdict of one of the biggest shareholders in Arcadia when a yet-to-be-knighted Philip Green emerged with a takeover bid for the retail chain 15 years ago. Even though the £770m offer represented a 30% premium to the prevailing share price Green was getting a bargain. David Cumming at Standard Life Investments led a concerted campaign and with a stake in excess of 9%, he had a meaningful say. In the end he caved in for a slightly higher price, but reluctantly so. History proved Cumming right. Green made a fantastic success of Arcadia turning the Topshop brand into a fast-fashion monolith. Fuelled by debt from HBOS, Green famously took out a £1.2bn dividend just three years later. Estimations are he and his family took out £1.5bn in total almost twice the purchase price. The business may now be flagging, and probably worth less than Green paid for it, but it is clear he got a great deal. Cumming has has manned the barricades over countless big deals, he tried and failed to stop Debenhams being taken private a deal that became a symbol of private equity greed.
Supermarkets are using “shocking” tactics to obtain money from suppliers including demanding they pay up to £25,000 for charity dinner tickets, according to a government watchdog. Other ploys include claiming delivered goods never arrived, asking suppliers to pay to keep their goods on the shelves and charging up to £55 if a customer complains, said Christine Tacon - the groceries code adjudicator. In one absurd example, a supermarket even charged a supplier £45 after a customer claimed to have found a teabag in an egg. The “predatory practices” helped drive more than 150 food producers out of business last year, after 162 failures in 2015 nearly triple the 56 lost in 2011. Last year Morrisons apologised after it emerged it had called dozens of food firms to a meeting where it demanded lump sums averaging £2m from each to keep stocking their products. Food suppliers are reluctant to talk of such “bullying” for fear of reprisals. One willing to speak out is John Smith, whose vegetable packing firm Greyfriars was nearly ruined when Tesco cancelled a contract.
Mail on Sunday.
Ailing Co-operative Bank has been ordered by the Bank of England to hasten plans to split up the £10 billion pension scheme it shares with its former parent the Co-operative Group. The Co-op Bank admitted last week that the immense difficulties over the pension scheme split could scupper any sale or capital raising essential if the struggling business is to stay afloat. Dividing the scheme could also land Co-op Bank with a further bill. The pension trustee could require it to pump millions of pounds into the scheme, which has 89,000 members, at a time when its finances are already under huge pressure. The Co-op Bank has already said it needs to raise a further £750 million of capital to hit existing Bank of England targets. The troubled bank is hoping to find a buyer, but will try to agree a deal with bondholders to wipe out debts if it is unsuccessful. Last week, it announced losses of £477 million for 2016.
The Government is poised for a major clash with chain stores over plans to ease the burden of business rates by levying a ‘digital tax’ on internet sales. Chancellor Philip Hammond gave fresh life to the idea in his Budget speech last week, but the proposal met with ‘intense lobbying’ from big business. The issue has split retailers, with many small shopkeepers believing that a digital levy on the likes of Amazon would level the playing field and help revive battered high streets. The online retailer pays a slim fraction of the rates of high street-based groups. Amazon will see the total business rates bill for its nine main distribution centres in England and Wales cut by £148,000 to £11.3 million a year, despite posting annual sales in excess of £6 billion. Other online groups, including Asos, AO and Shop Direct, which owns Very, have all seen bills drop by 2 per cent on their warehouses. The cut is paid for by increases in areas where property values have soared to keep the overall total the same. Last month, the British Retail Consortium hosted a meeting between Business Minister Greg Clark and some of its most powerful members, including Amazon, online fashion giant Asos and Tesco.
Tesco chairman John Allan yesterday tried to quell a growing public backlash after describing white men as ‘an endangered species’ in the boardroom. His comments at a retail industry conference last week prompted widespread condemnation. But Mr Allan insisted yesterday that he was a ‘committed advocate of greater diversity’. In his original remarks, to a room of aspiring non-executive directors, Mr Allan said: ‘For 1,000 years, men have got most of these jobs. The pendulum has swung very significantly the other way. ‘If you are a white male, tough. You are an endangered species and you are going to have to work twice as hard. If you are female and from an ethnic minority, and preferably both, then you are in an extremely propitious time.’ The comments sparked outrage on social media, with several commentators calling for a boycott of Tesco supermarkets.
Google gives its staff unlimited free ice cream, while drugs giant Johnson & Johnson pays for its workers’ dry cleaning. Now, a UK firm is offering employees another novel benefit: ‘peternity leave’ a day off when they buy a new dog, cat or horse to help the animal settle into their new home. Perhaps unsurprisingly, the firm behind the scheme is Pets At Home, which is introducing the policy for its 8,200 staff, 95 per cent of whom are pet-owners, from next month. Such moves have also helped stem high staff turnover, in 2004, 78 per cent of all workers at Pets At Home left in a given year that fell to 20 per cent last year. The company’s staff benefits also include a day off a year to do charitable work.
French Connection is expected to unveil its ninth year of losses this week as the crisis engulfing the embattled chain deepens. It is fighting a serious cash crunch at the same time as its boardroom descends into chaos. The troubles come amongst predictions of £3bn being wiped from the industry’s profits amid a perfect storm of headwinds from the weaker pound, rising business rates and spiralling wage costs. Retail operating margins could fall by between 3pc and 5pc this year. French Connection is expected to reveal it has failed to improve on last year’s £3.5m of losses while sales are predicted to have slumped further from £164.2m to £155m. Further deterioration in its cash pile is anticipated, it shrunk from £15m in 2015 to £7m last year despite a number of shop closures. It is understood the company will reveal on Tuesday that it has renegotiated a rent agreement on its Oxford Street flagship store with Selfridges, its landlord, to reduce rent payments. Activist Gatemore has been urging the company to offload the flagship shop and accelerate store closures, claiming that it is close to running out of cash. Director Christos Angelides had to step down after becoming chief executive at rival Reiss and Sports Direct’s surprise purchase of an 11pc stake has added to the uncertainty surrounding the chain.
Blue Inc has asked various landlords and lenders to accept staged payments for rent arrears and to write off some of its debt, as well as the suggested closure of 33 of its stores, through a company voluntary arrangement (CVA).
However, landlords have branded the plans, as a “stay of execution” only. Several claim that even if creditors agree to its terms Blue Inc will struggle to continue trading which is an extraordinary fall from grace for a company, just three years ago considering a stock exchange flotation. Two of the company’s main creditors, Barclays Bank, to whom it owes £5m, and a supplier, Padma Textiles, to whom it owes £4.8m, are expected to agree to its terms. Barclays could write off part of the debt, while Padma Textiles could do a debt-for-equity swap.
BT is braced for price controls to be imposed on its superfast broadband services in the wake of a deal with Ofcom to legally separate its network unit, Openreach. The regulator will now turn its attention to the wholesale prices BT charges rivals to use its infrastructure. Ofcom is widely expected to impose limits on how much the telecoms giant can make from its superfast services, which rely on recently deployed fibre optic lines that connect local exchanges with streetside cabinets. BT is arguing that it should remain free to set its own prices under a “fair bet” on a multibillion-pound investment during the financial crisis that was seen as risky at the time. TalkTalk is urging Ofcom to clamp down, saying that it will pass the savings on to consumers. Ofcom is due to publish its proposals on price controls by the end of the month.
Activists have called for shoppers to boycott Tesco after the supermarket’s chairman claimed white men were becoming an “endangered species” in UK boardrooms. Politicians, business experts and women’s groups have all spoken out against comments made by John Allan. In 2016, Tesco appointed women to half of its board’s vacant positions, but it still counts just three among its 11-strong, all-white top team. Despite this, the company is in the top half of FTSE 100 companies in terms of boardroom diversity. Britain’s biggest grocer ranks joint 33rd on the “female FTSE” league table, seven places behind Sainsburys.
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