The Retail Note - 2 March 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- In a pre-close statement, Primark has announced that group sales for the half year to 4 March 2017 are expected to be 11% ahead of the previous year in constant currency. At actual exchange rates, sales growth is likely to be closer to 21% The UK has performed well, with like-for-like sales 2% ahead of last year. Some 800,000 sq ft of new selling space has opened since the end of its last financial year, including the launch of 16 new stores across the UK, Ireland, Spain, Germany, France, Italy, the Netherlands and the US.
- Strong annual figures from Greggs. Total sales rose 7.0% to £894.2m last year as the bakery retailer continued to diversify more into the food-to-go market. Like-for-like sales increased 4.2% during the year and operating profits grew 8.6% to £78.1m. Pre-tax profits hit £75.1m, up from £73m in 2015. As a result of ongoing shop refits, 92% of the estate has now been modernised.
- Proof that retailers are not necessarily all in re-trenchment mode. Holland & Barrett plans to open a further 60 stores in the UK and Ireland this year, and is also looking to add store-in-stores in Hong Kong as part of its partnership with Superdrug owners AS Watson. The expansion push will take the number of Holland & Barrett stores to 1,385, of which 761 will be in the UK.
Stephen Springham, Head of Retail Research:
"A wave of job losses at three leading UK institutions (John Lewis, Tesco, Boots) has cast another shadow over the retail market. The circumstances behind each may be very different, but there is a common denominator in the need to continually cut costs. Although not articulated by any of the three in question, it would be naïve to assume that the introduction of the National Living Wage is in no way responsible. Evidence of the second of this year’s three headwinds (business rates and rising input costs being the others) starting to bite?
"John Lewis to cut jobs amid online shift’ probably wins the award for laziest and most ridiculous headline of the week. The 700 jobs reportedly under consultation are actually catering staff in its in-store restaurants and administration staff in its carpet, curtain and blinds fittings service. Neither can in any way be the result of supposed online migration – even in the frankly unlikely event of carpet and curtain sales dramatically shifting to stay-at-home shoppers, it’s hard to see how the Internet is actually going to fit your Axminster or S:CRAFT shutters. Nor are the in-store cafes about to be out-sourced to Deliveroo. Desperately unfortunate for those affected obviously, but what we are actually seeing is internal house-keeping and basic cost cutting.
"Boots is reviewing up to 400 jobs amid a restructure of its photo business. Some 220 of its 320 in-store photo labs across the UK will close, although customers can still send films away for developing at its centralised photo lab in Nottingham. Hard to dispute that a slump in demand for traditional photo developing services is behind this decision. The whole structure of the photography market has changed through digital and smartphone technology and it’s worth stressing that unstaffed photo kiosks, which allow customers to print photographs directly from their smartphones, tablets, portable hard drives or USB sticks, will continue to operate in more than 1,000 Boots stores. A sign of the times rather than anything else."
Tesco is to axe 1,700 deputy manager positions in its Express convenience stores as a way of improving service. The deputy managers will be replaced by 3,300 shift leaders. That means, the grocer said, there will be “more of our colleagues on the shop floor, more often”. Again, hard to argue against the logic. But it also seems difficult to divorce this completely from the The National Living Wage - introduced on 1 April 2016 for all working people aged 25 and over, and currently set at £7.20 per hour, it will rise to £7.50 from April 2017. It might not seem much, but this can significantly ramp up the cost base for the retailers themselves, particularly in more marginal c-stores.
Well-meaning as The National Living Wage may be, it again demonstrates how limited an understanding the government actually has of the UK retail sector. Few, if any, of the major retailers are likely to take the PR risk of denouncing increases in The National Living Wage, but they have to balance the cost books. For many, reducing headcount is an unwelcome but inevitable by-product of higher staffing costs. For the second week running (cf last week’s note on business rate revaluations) we have a robbing Peter to pay Paul situation. Lest we forget, retail is second largest employer in the UK and the fourth largest contributor to the UK economy. Perhaps more should be done to support it, rather than undermine it.