Sunday Retail News Roundup
Watchdog bury teeth into Tesco, Co-op bank Carney plans, Home food deliveries boom, BT accounting scandal, Britain's credit boom and retail sales, Dragon stake Finery London, French Connection founder City rebellion, Tesco competition probe, Tesco escalate Marmite wars, Dreams owner planning sale, French Connection and Under Armour talks, Luxury retailers Chinese new year hopes.
Tesco faces a lengthy competition inquiry over its proposed £3.9bn takeover of Britain’s biggest food and drink wholesaler as rivals prepare to lobby the watchdog over the deal. The City was astonished on Friday at the announcement of a cash-and-shares takeover of Booker. Rivals complained that the deal would double Tesco’s share of the convenience store sector to at least 20% and increase its overall share of the grocery market to more than 30%. The enlarged group will also exert greater influence over suppliers. Dave Lewis, the chief executive of Tesco, promised £175m of annual cost savings within three years.
The Bank of England is considering a further intervention into the Co-operative Bank that could lead to the lender being wound up before the end of the year. John Worth, the finance director of the loss-making bank, warned investors in a brief statement last Thursday that it was set to fall short of the capital targets it had agreed with the regulator. The bank’s executive team is now scrambling to submit a new restructuring plan to the Bank of England to buy more time. However, the repayment of a £400m bond due this September could complicate matters
Mail on Sunday.
Demand for home delivery of groceries is soaring, with sales up 29 per cent last year and the online grocery shopping revolution has been high street supermarket driven. Researcher Mintel estimates that 48 per cent of households now do most of their grocery shopping online, while 11 per cent buy all their provisions over the internet. In total, £10 billion a year is now spent on online grocery shopping, but predictions are that by 2020 this will have risen to almost £15 billion. The major supermarkets are the biggest beneficiaries of this shift towards online shopping Asda, Morrisons, Sainsbury’s, Tesco and Waitrose and online supermarket Ocado. Grocery comparison service mySupermarket rates Asda as the cheapest overall when looking to buy a selection of popular branded products.
The plunging price of BT shares has seen the value of stock owned by the company’s 700,000-strong army of small private investors plummet by £900million as the company battles with the effects of an accounting scandal. BT remains one of the most popular stocks for private investors more than 30 years after it became the first of the major state-owned industries to be privatised by Margaret Thatcher’s Government. Small investors have up to 1,600 shares each in the media and telecoms company, which means the value of their combined shareholding amounts to £3.3billion at Friday’s closing price of 302p.
Consumer borrowing is up 10 per cent over the past year, official figures are expected to show this week. At the same time, the savings rate has fallen and prices are rising. Retail sales figures for the first half of January from the CBI show a marked dip after the seasonal binge, the worst drop in the CBI measure since 1983, which may be a sign that self-imposed austerity will win the day. But one month’s data does not a summer make. Tesco's dramatic takeover of Booker (billed as a merger, but we all know who the senior player is) may provide a silver lining for shoppers. The supermarket giant is to make considerable savings by merging operations with Booker. This will boost its negotiating power with suppliers and hold down prices, which are being driven higher by the slump in the value of the pound. This, in turn, may allow it to play hard in the price battle with its rivals. The fierce price competition in the grocery market is the one hope consumers have that the fall in sterling will not all be passed through in pricier products. The deal is a potential boon for consumers, at least in the short run, and this looks like a smart move by Tesco chief Dave Lewis. But it is not a boon for suppliers, who will face a vast grocery buyer in the shape of a combined Tesco/Booker. Smaller suppliers may see profit margins squeezed and be driven to make their own cost savings.
Touker Suleyman, fashion entrepreneur and TV Dragon, is expanding his empire with a stake in British womenswear label Finery London. The brand, two years old next month, joins Hawes & Curtis and Ghost in Suleyman’s portfolio. He bought shirt maker Hawes & Curtis in 2001 for £1, followed by fashion label Ghost in 2008 and has invested in start-ups including boat shoe brand Docks Rio and handbag maker Huxley & Cox. His company Low-Profile supplies retailers including Marks & Spencer.
Stephen Marks, chairman and founder of fashion chain French Connection, faces a rebellion from City shareholders. One rebel said last night it was considering invoking Financial Conduct Authority rules that would force Marks to face a shareholder vote over his position, while stripping him of his 40 per cent voting rights. Rebels including Gatemore, OTK Holding and Zoar Invest hold 15 per cent of the shares in total.
Tesco's surprise £3.9billion takeover of cash and carry group Booker has alarmed suppliers. It will see the supermarket’s tentacles reach into thousands more stores and almost half a million pubs, restaurants, canteens and other food outlets, critics have warned. The deal last night led to calls for a competition probe and for the grocery watchdog to receive new powers.
Tesco’s £3.7bn takeover of the cash-and-carry giant Booker is expected to reignite the feud between the supermarket chain and Unilever, with chief executive Dave Lewis braced for the industry’s biggest suppliers to claim the deal will create a dangerously dominant player. Mr Lewis said his main competition concern around the deal, unveiled on Friday, was that the consumer goods giants would fear that a combination of Britain’s biggest supermarket and the top food wholesaler to local shops could strong-arm them on pricing. Booker is a supplier to hundreds of convenience stores including the Budgens and Londis chains, which compete with Tesco’s own small shops. It sells branded and private-label goods to more than 500,000 customers and a stable of 18,000 products. The wholesaler also supplies restaurant chains, including Wagamama and Byron, with food. It has emerged that Richard Cousins, one of the FTSE’s most respected bosses, resigned from the board of Tesco earlier this month in protest at its plans to buy Booker. It is understood Mr. Cousins felt the deal was too complex and was pushing for Tesco to simplify its operations instead of expanding.
The owner of bed retailer Dreams is planning a £400m sale of the chain just four years after rescuing it from the scrapheap. Private-equity firm Sun European Partners has appointed investment bank Rothschild to sound out potential buyers after trebling profits, wiping out debts and closing a raft of stores. The retail chain is on track to report sales of up to £285m in its latest accounts, while it now makes above £35m of underlying earnings following a 40pc boost in like-for-like sales.
Under Armour, the American sportswear giant, is in talks to snatch French Connection’s flagship Oxford Street store as the British retailer weighs a series of asset sales to shore up its dwindling cash reserves. French Connection had been looking to offload the building, which has a lease expiry date of 2025, for around £10m but has recently reduced the price tag to £5m. French Connection has indicated it is hunting for replacements for long-serving directors Dean Murray and Claire Kent but founder Stephen Marks, who holds both chairman and chief executive roles, is privately insisting it would be more disruptive to the loss-making company if he stepped down. French Connection has been shutting unprofitable shops and now has just 39 in the UK, down from 58 two years ago. It is understood that another five to eight stores are due to shut imminently. Pre-tax losses at the company swelled last year from £1.6m to £3.5m.
As the year of the monkey gives way to the year of the rooster, Britain’s retail industry is hoping for more visitors from the world’s second-largest economy. Flight bookings from China to the UK are up 88% on 2016 for the Chinese New Year holiday period, which runs from 18 January to 1 February. The post-Brexit vote fall in the value of the pound, which has made Britain 11% more affordable for visitors from China, has combined with an easing of the visa system and an increase in the number of direct flights to make the UK a hot destination. Chinese shoppers are particularly good news for the UK’s retail sector asthey are big spenders, spending an average of £2,174 each during their stay, about three and a half times the average of other visitors.
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