John Lewis hits the wall
John Lewis and Morrisons are very different enterprises. one is a partnership which runs department stores and an upmarket food retailer, Waitrose, rooted in the South, and the other a publicly quoted grocer, unashamedly northern in origin.
The John Lewis Partnership produced shocking first-half results, making profits of £1.2m on gross sales of £5.5bn.
The favourite store of the chattering classes blamed everyone but itself for a suboctane performance. In particular it heaped criticism on business rates and uncertainty due to Brexit negotiations, sparking an onslaught from Brexit Secretary Dominic Raab. Both are legitimate claims, with John Lewis having to fork out £10.2m of business rates at its oxford Street store alone.
Reality is that Morrisons faces exactly the same environment as John Lewis, including competition from online disrupters and nofrills retailers. Arguably it is less vulnerable on business rates because it doesn’t trade on oxford Street.
nevertheless, its first-half results were relentlessly upbeat. The group revealed a 9pc rise in first-half profits to £193m and produced its best quarterly sales performance in nine years. Chief executive David Potts credited a record-breaking summer heatwave, the World Cup and Royal Wedding for an exceptional performance.
Most of the uplift was due to shrewd management, including a focus on fresh food counters, private label and homewares. Morrisons also has been rewarded for embracing online by agreeing distribution deals with ocado and Amazon.
Even though it faces the same consumer mood as John Lewis and soaring business rates at 500 stores, it spares us the sob story. In spite of Brexit and the endless downbeat commentary from the TUC, Labour and some whingeing bosses the economy is remarkably resilient. Tax receipts have been strong and the unemployment data remarkable, with the jobless rates falling to 4pc. Vacancies are at a high level and average earnings rising.
The Bank of England has adjusted its economic forecasts up. Growth was stronger in the second quarter than expected at 0.4pc and Bank economists have upgraded growth for the current quarter from 0.4pc to 0.5pc. The interest rate-setting Monetary Policy Committee notes services and construction output grew very strongly in the quarter to July. Given that services account for up to 80pc of output that cannot be bad and doesn’t suggest the negative Brexit effect cited by John Lewis.
It, like M&S, holds a special place in the national psyche. But it needs to look to its own organisation, service and ambition rather than external excuses. Sticking the word ‘partners’ all over the fascia may be a gee-whizz marketing device engineered by managing director Paula nickolds, but fundamental changes in the store footprint and service look urgent. If chairman Sir Charlie Mayfield and nickolds can’t deliver better returns there will need to be change at the very top.
Debt time bomb
noT everyone is confident the financial system is safer post the crisis. Dissident views have been heard in the past 24 hours from Sir John Vickers, former chairman of the Independent Commission on Banking, who thinks banks might be distributing too much in dividends, and Gordon Brown with his ‘sleepwalking’ into crisis warning.
now the managing director of the International Monetary Fund Christine Lagarde is joining the nay-sayers. She warns that public debt levels in emerging markets have reached levels last seen in the 1980s’ debt crisis, and low-income countries, mainly in Africa, face unsustainable burdens.
Lagarde cautions that governments are vulnerable to higher interest charges. Debt levels among low-income countries have soared from 33pc of national output in 2013 to 47pc now. That is disastrous for poor nations with limited capacity to raise taxes and reduce debt.
Distress is being seen among emerging market countries including Argentina, Turkey and South Africa. Venezuela’s problems are off the map. Very scary.
Picture imperfect
A MonET on the directors’ floor once might have been considered evidence of success, an investment and a source of tranquillity. not for the newly ensconced chairman of a famous but troubled retailer who has ordered it be taken down and loaned to a major gallery.
Who could we be talking about?