Wednesday 17th August 2016
In case you missed them, a round-up of interesting retail related stories from the last week or so.
A low share price (418p in Feb 15 to 199p), low profits (not all discounters are making a fortune), and a weak pound (thanks Brexit) meant Steinhoff, who already owned a quarter of the business, can finally get its hand on Poundland. Poundland has not been doing great, to put in bluntly. Its share price reflects that and, for investors, it has a ready-made comparator in Poundworld….who have been doing just fine! But, Steinhoff know retail and getting its hand on Poundland offers it, and its other retail businesses a great opportunity. Discounters like B&M and Wilko are thriving and Steinhoff’s foray into value with ‘Guess how much!’ (‘GHM!’) demonstrates its desire to operate in the discount sector. That may have been reinforced by Brexit and the predictions (such as those from IGD, Kantar etc) that the discount market will continue to grow in the coming years. Having Poundland may mean Steinhoff have much more buying power for GHM! Which may also mean GHM!’s prices will be better than the major players. And, after some adjustment following the acquisition of 250 99p stores, it is also likely that Poundland’s £1bn business will become an excellent, large and profitable addition to Steinhoff’s retail portfolio in this country.
The UK’s decision to leave the EU following the recent referendum has, perversely, created huge uncertainty; and the retail sector is no exception. Now that the Brexit campaign has proven victorious, retailers are having to realign their strategies, but the uncertainty about what leaving the EU means for the industry means that any strategy will be forged on an element of doubt. The coming months will tell us more about what is in store for the sector, but until then retailers will be calculating how to stimulate spending and maximise margins in a sea of uncertainty. For more analysis read the full article.
Morrisons and Ocado this week announced a revised deal which Ocado’s Tim Steiner optimistically described as a “win-win outcome for both parties”. It’s certainly a win for Morrisons and in particular for CEO David Potts who, it would appear, was less than impressed by the terms of the existing deal between the parties. Morrisons’ recent tactical play of partnering with Amazon seems to have had the desired effect and provided Morrisons with the bargaining position it needed to improve the terms of their deal with Ocado. Under the terms of the new deal Morrisons will reduce costs and enable itself to offer online grocery shopping to parts of the country it couldn’t previously reach.
The potential impact of Brexit on the food and drink industry is difficult to assess as the effects are most likely to be felt in around six months to a year, but what are the issues? The big problem for suppliers is that the pound has dropped considerably in the wake of Brexit, making it more expensive to buy overseas products. Supplier’s prices are fixed and if products they purchase are more expensive it means reduced margins for retailers. It is fair to say that businesses with less exposure to currency fluctuations and integrated supply chains that can be flexible are likely to profit most from the uncertainty. On the other hand, those tied into long-term contracts and operate on low margins could find themselves in severe difficulty if food prices continue to fall but input costs increase. For more analysis read the full article.
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