Sunday Retail News Roundup
Mothercare pay row, Carney calls for help over Co-op bank, Supermarket homewares, Consumer debt bubble, John Lewis 2017 start-up accelerator programme, Store Twenty One high street woes, Just Eat deal questions, Co-op Bank bondholders protect interests, Austerity bites.
Mothercare is considering softening bosses’ long-term bonus targets as profits and share price stay under pressure from weak trading conditions on the high street and a patchy overseas performance. The retailer’s pay committee is discussing setting lower hurdles for the next long-term share awards to chief executive Mark Newton-Jones and team. Share awards for Newton-Jones in 2014 and 2015 were worth £1.8m and £1.2m respectively but the annual report last May revealed Mothercare’s international slowdown was “likely to lead to nil or very limited” payouts. At the time it would review “what measures and weightings” should be used to work out the next share awards. Shares in the chain, which has more than 160 British stores and about 1,300 abroad, have fallen by a third over the past 12 months to 118.5p. Pre-tax profits fell by almost 16% to £5.9m in the six months to last October.
The Bank of England, led by Mark Carney, has called in advisers to help prepare for a possible closure of Co-operative Bank. The Bank of England has appointed advisers at Deutsche Bank to draw up contingency plans. If no sale can be agreed, Co-op bank will have to attempt to raise £750m in new capital. A group of hedge funds led by Aurelius Capital, Silver Point Capital and Monarch Alternative Capital took control of the bank in 2013 after discovery of a £1.5bn black hole in its accounts. Monarch recently sold its entire stake. Other investors have also sold off the bank’s riskiest debt, which plunged to 27p in the pound last week. A senior unsecured bond has plummeted to 81p in the pound. The Bank of England is said to be braced for a “worst-case scenario”, under which Co-op bank would be closed and wound down through the formal procedures created after the financial crisis. Britain’s other banks prepare for a new round of stress tests by the regulators set to be the toughest yet. Co-op bank told interested parties to submit bids by the middle of next month. But the interest in the bank among its high street peers dwindled last week after the chairman of Sabadell, the Spanish owner of TSB, said the struggling lender did “not fit our strategy at the moment”. Two other chief executives of British banks said they had little interest in buying the whole business, which has £20bn worth of loans, 1.4m current account customers and 105 branches. Co-op bank reported an annual loss of £477m last month, bringing cumulative losses over the past five years to £2.7bn.
Supermarkets are now an established source of homewares as well as weekly groceries. Last year, George Home (Asda) was way ahead of its rivals for living-room, kitchen, bathroom and bedroom textiles, according to research by GlobalData. In 2016, 21.4% of shoppers who were buying cushions, curtains and throws for the sitting room made a purchase there. Tesco was the top supermarket source of tableware, attracting 19.9% of customers in this sector. Overall, Asda and Tesco were the most popular supermarkets for interiors: 15.2% of homeware buyers shopped at Asda and 14.2% at Tesco. Compare those figures with 9.7% at Sainsbury’s and a mere 1.3% at Waitrose.
Mail on Sunday.
The Bank of England may this week move to rein in consumer credit amid fears that households would be vulnerable in the event of an economic slowdown. The Bank’s Financial Policy Committee could outline plans to tackle the surge in household borrowing very soon by restraining risky lending. Senior committee figures expressed deep unease about the breakneck growth in credit card debt and unsecured loans. The British Bankers’ Association last week showed some slowdown in the growth of unsecured credit. But the rise in net borrowing on credit cards hit an 11-month high of £301million in February, with £66billion owed on credit cards. Consumer credit has buoyed the economy, the Bank of England believes. Earlier this year Bank officials told MPs that two-thirds of the £30billion increase in consumer spending over the past year had been accounted for by the £20billion rise in consumer credit over the same period.
The John Lewis Partnership is calling for applications for JLAB 2017, its annual global start-up accelerator programme. Waitrose is joining the scheme this year, creating the UK’s largest retail tech accelerator for firms with disruptive retail tech ideas. The scheme is run with innovation specialist L Marks. The programme was launched in 2014 to help talented tech start-ups fast-track growth by giving them access to John Lewis’s resources and the chance to apply for funding in exchange for equity. The scheme enables John Lewis to tap into emerging innovation in retail. Five to ten successful applicants will take part in a 12-week programme. They will receive support from senior-level mentors and free workspace in John Lewis’s head office in London’s Victoria and Waitrose’s head office. Each team will be eligible to apply for funds of up to £100,000.
Last week Brantano collapsed into administration, Agent Provocateur was sold in a rescue deal to Mike Ashley and Jones Bootmaker teetered on the brink. A thousand jobs are at risk at the discount fashion retailer Store Twenty One, formerly known as Quality Seconds, which is in talks with lenders after rent payment defaults. The company struck a rescue deal with creditors last year through a controversial company voluntary arrangement (CVA), but is still struggling as more pain sweeps the high street. The CVA deal allowed the retailer to shut 77 shops and persuaded landlords for 17 of its 202 stores to take a 25pc rent cut. Landlords for more than 80 other stores were asked to accept monthly rents rather than quarterly payments. At the time, the business owed more than £2.6m in tax to HMRC and was being pursued by local authorities over unpaid business rates. Other suppliers were due to receive just 10p in the pound.
Investors are worrying over how the competition watchdog will assess the proposed £200m acquisition of online food delivery specialist Hungryhouse by its larger rival Just Eat. If the Competition and Markets Authority analyses the tie-up in the context of the entire food take-away industry, investors believe the proposed merger will get the green light. But there is a growing concern that regulators will focus only on the online delivery market. Just Eat has roughly 27,600 UK restaurants signed up to its platform, against 10,000 on Hungryhouse.
Hedge funds invested in Co-operative Bank have started to hold talks about forming a bondholder committee in preparation for a painful capital raising or wind-down of the troubled lender. Bondholders are looking at ensuring their interests are represented in the event the lender forces through a debt-for-equity swap or the Bank of England intervenes and puts it into resolution. There is rising concern loss-making Co-op Bank will fail in its attempt to orchestrate a rescue by attracting a suitor willing to acquire its entire business.
Confectionery firm Mars is shrinking the pack size of favourite sweets including Maltesers, M&M’s and Minstrels by up to 15% in the latest example of an industry trend that is shortchanging shoppers. It is the second time within a year that Mars has reduced the number of Maltesers in its sharing bags, which now weigh in at just 93g. Last autumn packs of Maltesers, billed as the lighter way to enjoy chocolate, shrank from 121g to 103g. The American food giant appears to have taken action across its bestselling brands: family packs of M&M’s are now 25g lighter at 140g, while bags of Minstrels and Revels are also almost 10% lighter. Prices are unchanged.
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