Sunday Retail News Roundup

Sunday September 4th 2016

Morrisons starts new price war, Chappell faces Spanish claim, Marks & Spencer jobs cull London HQ, Supermarkets fight it out, The Great British Rip-Off, Cath Kidston Chinese control push, Poundland takeover touch and go, Sports Direct showdown burning investors questions.

Sunday Times.

Morrisons is set to reignite the supermarket price war this week when it slashes the cost of 160 everyday essentials. It plans to apply an average 12% cut to the prices of 130 meat and poultry products and 30 fruit and vegetable lines. The aggressive move comes despite signs of stabilisation among the “big four” grocers, Tesco, Sainsbury’s, Asda and Morrisons, after several years of disruption caused by the rise of German discounters Aldi and Lidl. Data from Kantar Worldpanel for the 12 weeks to July 17 showed that market-share losses by the leader, Tesco, had slowed to their lowest pace since 2014. Kantar said the mildness of the decline from 28.5% of the market a year earlier to 28.3%, was due in part to an improved performance from Tesco’s troublesome big stores. Morrisons’ market share fell by 0.2% to 10.7%, although it recorded its best sales performance in seven months. However, Asda remained in turmoil. Margins at Tesco, Sainsbury’s and Morrisons have been squeezed as they have sacrificed profits to bring down prices.

The disgraced former owner of BHS and his wife face a court action in Spain over allegations that he misappropriated hundreds of thousands of euros from an oil depot. Olivia Petroleum, which owns a storage facility called Istamelsa in the port of Cadiz, is understood to be preparing to file a “denuncia”, a legal complaint, against Dominic and Rebecca Chappell this week. Olivia Petroleum, owned by chartered accountant Steve Rodger, accuses Chappell of taking improper payments from the company. He is said to have spent some of the money on yacht accessories and sent some to his wife’s account. Istamelsa was Chappell’s last venture before he bought BHS. It is significant because he used it to burnish his credentials for the department store deal. When he bought BHS, Chappell said he had been “very successful in the oil and gas business over the past couple of years” and had reaped a ￡5m “bonanza”. In fact, he was pushed out of Olivia Petroleum in late 2011 and had his shareholding in its Cyprus holding company, Roscous Trading, diluted to a tiny minority in 2012. Chappell took €368,800 (￡309,200) of unauthorised payments from Olivia Petroleum, including €23,858 spent on the company’s credit card at places such as Desty Marine and X-Yachts in Southampton. A report in the Spanish press claimed last week that the amount taken could be as high as €462,000. Olivia Petroleum is understood to allege that some of the money was sent to Rebecca Chappell.

Mail on Sunday.

Five hundred jobs will go at Marks & Spencer's London headquarters. M&S will cull about 15 per cent of staff at its Paddington office, with more than half of the cuts affecting contractors. The job losses will sour further relations between staff and board after a protracted row over pay at the retailer. Chief executive Steve Rowe has been trying to overhaul the company's pay and pension scheme, most controversially cutting premium pay for Sundays and Bank Holidays. A protracted slump in clothes and homeware sales has left the company facing persistent questions about its strategy. Earlier this summer Mr Rowe branded the performance of its clothing and home arm 'unacceptable' after like-for-like sales plummeted 8.9 per cent, and is due to unveil a new strategy in the next month or two.

Grocery bills are set to be slashed this week as supermarkets unleash a new wave of price cuts. Morrisons will launch the autumn offensive tomorrow with cuts of up to 20 per cent on meat and poultry and more than a third off vegetables. Other supermarkets are understood to be preparing their own deep discounts in what is set to be one of the fiercest rounds yet of price cutting in the battle for shoppers. The autumn offensive is the latest attempt by Britain’s biggest grocers to fight off the invasion by German discounters Aldi and Lidl. Just last month, Lidl emerged as the fastest-growing supermarket in the UK, with Aldi a close second. Between them they have captured a 10.7 per cent share of the grocery market, up from 6 per cent five years ago.

Female branded toiletries can cost 50 per cent more than the male branded equivalents. The Fawcett Society is set to release research on Monday showing the high pricing disparity between male branded items like razors, shower gels, and even clothes and the same product marketed at women. Morrison's came out as one of the top offenders according to the society's research, with their razors costing more than half as much for women, and including less. The equivalent basket of goods in Morrison's cost 56 per cent more, in Sainsbury's cost 25 per cent more, while the baskets in Tesco cost 24 per cent more and in Asda, 22 per cent more for women. The Fawcett Society said 'The top four supermarkets between them have a 70 per cent market share. The majority of their customers are women'.

Telegraph.

The Chinese backers of Cath Kidston are negotiating a new multi-million-pound share deal that would see them take control of the retailer famed for its kitsch floral prints. Baring Private Equity Asia is understood to be in advanced discussions to buy out TA Associates, another private equity firm, in the latest high-profile UK deal involving an Asian investor. Last week Japan’s Softbank gained shareholder support for its ￡24bn takeover of ARM, the biggest ever takeover of a British company by a Japanese corp[oration. Cath Kidston has 226 shops worldwide with 68 in the UK, including its flagship store in Piccadilly. The company is also planning to open its first stores in India. As a result of the latest deal, expected to be announced later this month, it is understood that the Hong Kong-based private equity firm will end up owning 80pc of the company, while TA Associates will cut ties following a six-year long investment. Ms Kidston continues to own 11pc whilst senior management, including chief executive Kenny Wilson, own the remaining 9pc.

The takeover of Poundland by Steinhoff is balanced on a knife edge amid speculation US hedge fund Elliott Management may scupper the ￡610m deal at a crunch shareholder vote this week. Elliott has built a near 25pc stake in Poundland, making it the retailer’s biggest investor ahead of Steinhoff’s 23.6pc portion. The intentions of Elliott, which was founded by billionaire Paul Singer, are unknown but it has the power to block the takeover if it wishes. The deal needs the backing of 75pc of the Poundland share votes, excluding the Steinhoff stake. Elliott has already intervened once, having successfully agitated for Steinhoff to lift its offer for Poundland last month. However, Steinhoff, the South African owner of the Harvey’s furniture chain and Bensons for Beds, only increased its bid by 5p to 227p-a-share, including a 2p dividend. It is thought Elliott wanted more. Elliott regularly pushes for higher bids during takeovers, having recently forced Anheuser-Busch InBev to hike its offer for FTSE 100 brewer SABMiller to ￡79bn. There is speculation that the hedge fund could scupper the Poundland deal and take the loss to ensure its bluff is not called in other deals where it agitates for better bids.

Guardian.

Mike Ashley and the board of Sports Direct face a showdown with shareholders this week over a host of problems including treatment of its employees, corporate governance and ailing performance. Investors in the controversial firm, which has faced months of pressure over working conditions for staff, get their chance to quiz directors at Sports Direct’s annual meeting in Shirebrook, Derbyshire, on Wednesday. Ashley, who founded the company and still owns 55%, is the executive deputy chairman and will attend but in the past he has stayed quiet, leaving the difficult job of answering questions to chairman Keith Hellawell and chief executive Dave Forsey. After a tumultuous year for the retailer, these are the questions that investors should ask at the AGM - What improvements have been made to working conditions in the main warehouse in Shirebrook?, What’s the status of the HM Revenue & Customs inquiry into Sports Direct?, Will Keith Hellawell resign as chairman if a majority of independent shareholders fail to support him?, When will you appoint a permanent finance director?, Who is conducting the review of the company’s board and do you pledge to publish and implement its findings?, Why is the delivery of online orders overseas being managed from a house in Cleethorpes?, How would you describe your relationship with suppliers, particularly Adidas?, Are you finding it more difficult to attract and keep staff?, Is Mike Ashley still committed to Sports Direct?.