Humbling of the icons
Sharon White is having a baptism of fire at John Lewis. as a partnership organisation, it is held to higher standards of governance than other retailers. one can only imagine the pain involved in shutting eight stores and placing 1,300 jobs in jeopardy.
This on the same day as another high Street stalwart, Boots, revealed it is to shed 4,000 jobs and close its 48 optician outlets.
The drivers at Boots’ owner – Stefano Pessina’s Walgreens Boots alliance – are very different from those at John Lewis. Growth at Boots’ global pharmacy and drug store network has been driven by ruthless ambition and a debt-laden private equity financing model. The UK operation, run by Dixons refugee Seb James, is paying a heavy price. There will be sympathy for Boots’ caring workforce but less for James and his lieutenants, who, unlike the supermarkets, have not had a great lockdown. In spite of key pharmacy stores being open, Boots found itself on the wrong side of many landlords over unilateral suspension of rents.
There is a common theme in the John Lewis and Boots sackings. Pandemic and furlough have emptied city centres and strangled travel. It is not surprising that among John Lewis closures are smaller outlets at heathrow and St Pancras in London. It seems quite short-sighted to close now when, if Britain is to have any chance of recovery, air and Eurotunnel travel will have to bounce strongly.
The closure of the Bullring store in Birmingham could be politically embarrassing. It cannot be what West Midlands mayor andy Street, a former John Lewis managing director, can be hoping for as he limbers up for a postponed re-election campaign.
retail is changing dramatically. It is hardly surprising that former ofcom chief White is pushing the digital button hard at John Lewis, where 60pc to 70pc of sales are expected to be online this year against 40pc previously. Personal experience suggests that John Lewis has catching up to do compared to rivals such as amazon and Dixons during lockdown. It appeared perpetually out of stock of mainstream white and electrical goods. Before anyone had heard of Covid-19, the great complaint among retailers was soaring business rates and unfair competition from amazon. one of rishi Sunak’s first actions as Chancellor was a one-year business rates holiday. Latest closures signal that even before Covid-19, the bricks-and-mortar model was creaking.
Engine trouble
DaMaGE limitation continues at rollsroyce, but the costs are horrendous.
Sorting out some expensive hedges, together with revenues at 20pc of normal levels, meant a £3bn outflow of cash in the first half of the year and a prospective annual outflow of £4bn.
Best to be hoped for in 2021 is cost reductions and some restoration of flying hours. all that the UK’s premier engineering group can offer investors at present is that in 2022 it could accumulate £750m in cash. Ideally, rolls-royce could do with a big rights issue to strengthen prospects, but one doesn’t imagine that would be possible unless it became a government-supported Project Birch candidate. The Ministry of Defence is being helpful in bringing forward contracts, and work on Britain’s new Tempest fighter continues apace. rolls is also in contention for a couple of big Pentagon contracts including the engines for the next generation Black hawk made by Bell and the Boeing-built B-52 bomber. one fears, however, that with Covid-19, ‘america First’ might have a bit to say about that.
one better development is that with so many large aircraft grounded, rolls has managed to fix the faults on the Trent 1000.
That means that as world aviation cranks up again, there will be no expensive downtime for which rolls must compensate customers. Investors should be grateful for small mercies.
Tax dodgers
hMrC was much less enamoured with rishi Sunak’s £9bn job retention bonus than employers. It is rightly concerned about how revenues are fleeing the exchequer when so many taxes remain unpaid.
Latest estimate from hMrC is that, in 2019, the tax gap – the difference between what should have been paid and what was collected – was £31bn. Blame for 43pc or £13.5bn of the missing money is laid at the doors of small businesses. Just £1.7bn relates to the wealthy, regarded by public enemy number one by Labour and the unions. There’s a surprise.