Tesco losses at £5bn

Quite an eye catching headline - and entirely accurate.  Yestarday in just one day Tesco lost £5bn.  That is the companies value fell by £5bn.  Quite a shocking figure which comes on the back of quite a shocking performance over the christmas period.  While Tescos LFL (Like for like - so just comparing stores that have been open for over a year) fell in the UK by 2.3%, while it's competitors, Sainsburys for example rose by 2.1%.  Given that we have had a decade or so of phenomonal growth from Tesco these results represent a shock to the markets thus the share sell of resulting in the £5bn loss.

I have frequently spoken on Tesco - here & in other forum.  They have made a number of key mistakes in my mind and have confused their position in the market.  They are giving away too much profit margin through promotion & loyalty incentives, and are rather stuck in the middle between Asda who is unquestionably perceived to be cheaper & Sainsburys who is generally perceived to be better.  They seem to want to grow by adding more and more small format stores but there is growing local resentment to the perceived domination of Tescos in some areas leading customers to actively seek alternatives where possible.  I cannot see that Tescos will again grow their market share in the UK & rather see them stagnating for many years around the 30% mark.

Happy New Year & Contagion

Firstly Happy New Year to readers,

I have often spoken on here how our the fate of the UK economy depends so much on it's European partners.  Nothing demonstrates this more graphically than the interactive chart here - http://www.bbc.co.uk/news/business-15748696
If you take a look at Greece for example it's government debt to GDP ratio is stated here as 166% - clearly a huge figure, but what you can also see is that French banks have lent the most to Greece - some 41.4bn euro.  Of course if Greece were to default on it's debt (declare that it cannot pay it back) then French banks would loose a large part of this 41.4bn euros & many would then need further government help to maintain their solvency. 
Meanwhile with such large debts, Greece cannot affordably borrow on the international money markets (as they are seen to be so risky the rate of interest charged would be unaffordable) the only way that Greece can maintain a deficit is through continued bailouts (other countries making benevolent loans).
How did we allow ourselves to get into such a mess where we are all interdependent on each others fate - well in my view the single euro currency covering such a diverse range of countries from Greece to Germany.  How can one common exchange rate & interest rate be correct for such a mix of countries?

Bond Yeilds will be our downfall...

With consumer spending weak, and demands upon social welfare budgets growing (rising unemployment etc...) most governments need to borrow money at the moment to simply be able to keep paying their bills.  Today in the Autumn statement it has been announced that the UK will have to borrow significantly more than previously thought - something like £127bn this year...  Actually that isn't too problematic for us.  As the markets start to think that the UK is a fairly save investment the rate of interest that we need to pay on this borrowing is pretty low - perceived risk acting directly on the return (interest rate) that borrowers need to pay.  The UK needs to pay just about 2.29% on new debt that it issues.  For some context I pay about 3.5% on my mortgage, so quite reasonably the banks think that I am a riskier investment than the UK government is...

Now for the interesting bit.  Italy has this morning needed to borrow £7.5bn in order to keep paying it's bills.  It needed to pay a record breaking interest rate of 7.89%.  This level of interest is simply unaffordable.  And this is the crux of the current Eurozone crisis, and if it continues Europe will go into recession & given that it holds our biggest trading partners we will not be able to avoid following their path.  So what should be done - ummmm no one really seems to have a satisfactory answer, each possible path is littered with huge pitfalls and more complex than can be explained here, the reality is however that a no action is probably the risky of all possible approaches!  A grand solution is needed and before this is resolved all George Osborne can do is tinker at the edges, he is every bit as much a passenger as we are.

Have Best Buy got the best way revisited...

So on the 5th March this year I blogged on the likely fate of Best Buy in the UK commenting on the madness of their entry to the very developed and competitive market.  Just what were they thinking???  In parallel with Tescos doomed entry to Japan (& US - watch this space) we have a large successful arrogant retailer that is entering a market without properly doing their homework.  There was no space in the UK for Best Buy stores and the competition of Dixons et al. are pretty competent in seeing off the challenge.

So the inevitable has happened & Best Buy will close all of it's UK stores.  The reasons they cite - "growth of product categories such as mobile phones and tablets" ok so why does this mean your stores fail???  "development of on-line retail" was that not predictable when you entered in 2008??  Finally "economic conditions" - here you might have a point, but given that they only entered in 2008 when the global crisis was in full swing this is not news and could have been realised a lot earlier.

This year the venture has lost £46.7m, last year £28.8m and in the previous years of capital investment surely similar figures and you build a picture of a lot of wasted money due to not doing your homework.  I'd like to think that any of my international retailing students could have spotted the errors here & saved a couple of hundred million quid of ultimately pension fund money...

Ok so we've done last orders - now surely it's time...

Today once again a really strikingly poor set of results from Argos.  Like for Like sales are down 9.1% - that is huge.  Below is my previous post from 9th June on their previous city update.  Surely all of the points I made then are valid today.  I maintain the view that there is no place in UK retail for the current Argos format and that a radical rethink is required.  Ditch the printed catalogue to enable ranges and prices to far more flexible and offer swifter delivery pick ups would be a start.  As it currently stands their profit levels represent a paltry return on their investment - they would be better off selling their assets and putting the money in the bank - less risk & a higher return!

Opinionated as always - but argue with me if you think this assessment is wrong!

9th June

Internet retailing has provided great opportunities and challenges to more traditional forms of retail commerce. Today's striking news that Argos' LFL sales are down some 9.6% surely will bring the company to fully examine their strategic options. Make no mistake, a 9.6% fall in sales is massive & even more difficult for a retailer such as Argos who cannot quickly flex their marketing to stimulate greater sales - after all their catalogue is printed with fixed prices etc...

For a long time I have thought that Argos has been too conservative in the face of a changing retail environment. E-commerce and the growth of supermarkets into non-food areas have introduced great challenges, but I believe also great opportunities for the company. What is it that Argos are great at?? They don't have a great product offer - that can be replicated by Tesco deliver or Amazon... Their real unique selling point lies in their ultra efficient store operations and selection of convenient locations around the UK. So how best to utilise this resource. Well in the face of growing e-commerce threat why not use these stores as collection hubs for the consumer - they could give their local store as their address and collect on a weekly basis all of their non-perishable on-line shopping. As a consumer there is nothing more annoying than to get home from work and find that three different couriers have tried to deliver packages & I now need to embark on a road trip to 3 different depots to collect my orders... far rather collated at a store of my choice with a simple customer focused collection method. This service could be free to the consumer with the on-line retailers giving Argos a cut and saving considerably on the otherwise increased courier costs. It does seem that there is a current gap in the market to better serve the on-line retailers and while the current Argos model is surely doomed in a few years they would be best placed to serve this new need. & while their at it what about an Argos drive through....

Light in a dark place

So the economic news doesn't improve does it.  We seem to constantly move from one crisis to the next with an ever increasing sense of eventual double recession or similar.  Just last week the UK unemployment rate increased by some 100,000 to the highest level in 17 years.  So we should all be really depressed right?  No, we have chosen to study in surely the most dynamic of industries and one in which graduates are in very short supply and thus high demand.  A week rarely goes by without at least one key retail company contacting me seeking good graduates to recruit, below is the latest from B&Q announcing a significant recruitment drive.  Studying Retail Management is surely one of the best ways to ensure strong and varied grad job opportunities come economic rain or shine!

Retail Management Graduate Programme

Have you graduated with the last two years?

Do you know any recent graduates who are looking to kick start a fantastic career in retail?

Yesterday, Euan Sutherland announced the launch of our ambitious new Retail Management Graduate Programme at B&Q’s MPs reception held at the Houses of Parliament.

We are looking for graduates with a genuine passion for retail, people and leadership that want to build a foundation for their career where it all happens…in store!

The scheme is open to both internal and external candidates from the 10^th October 2011 and an overview of the scheme can be viewed through the attached link.

Taking e-commerce to a new level...

Aurora fashions (Coast, Warehouse, Karen Millen & Oasis) are to extend their 90 minute delivery time across most of the UK after a successful trial within the M25...  On the face of it doesn't that sound impressive - surf the net during your lunch break & have a new wardrobe of clothes delivered to the office before your afternoon tea break!  But I wonder who really wants this?  Surely the purchase of clothes is the most experiential of shopping - the touch, feel and 'real' look (i.e. not the pixelated 2D look) of the item being key.  Aurora will only be able to offer this service close to existed stores & so it rather begs the question wouldn't you be better off popping out the shops yourself and getting the full experience.  Oh & saving yourself the £9.99-£14.99 delivery charge to boot!