It has become a recent New Year tradition that retail chains claim that, while the approach to Christmas was slack in trading terms, the last-minute rush exceeded all expectations and led to sell-out profitability. This observation is usually accompanied by a senior management official solemnly announcing that shopping habits have changed over the past few years, with Christmas consumers leaving their spending until the last moment.
Quite unconnected to the solemn retail manager’s motive, of course, is the fillip that this good news provides to the share price of his store chain, as the equities market grabs at any straw of comfort on the high street. What happens subsequently is that, at about this time in January, the Christmas trading figures start to emerge. They turn out to be awful, any “last-minute rush” being lost in the barren wastes of the rest of the last quarter of the year.
Share prices fall again but, it is hoped, the net valuation will be mitigated by the slight support that was provided by the story of the “last-minute rush”. Some retailers fantasise that they can talk their price up as much as it falls back when the trading figures appear. In these markets, I fear that will prove over-ambitious.
A variant on this exercise is the line that, while Christmas was slack, the January sales have gone a storm. I’m afraid that this story is for those who not only left out a glass of sherry for Father Christmas but who, even now, are looking forward to the Easter Bunny. Listen, how many people have you met who say that they shop for Christmas presents in the January sales because they’re cheaper? Exactly. The truth is that the sales only look like consumer booms because they’re compared with such a dearth of trading during the Christmas period.
Another way of putting it is that the customers who turn up for the sales have always been there – it’s the ones before Christmas that have gone missing. I have this on the authority of a respected market researcher who wishes to remain anonymous (for obvious reasons). Markets don’t migrate from December to January – consumers just don’t behave like that.
A kind of new-variant CJD (Consumers Just Don’t) is to be found this year in an exciting new tactic employed by Sir Geoffrey Mulcahy, chief executive of Kingfisher, the retail group responsible for the likes of Woolworths and Superdrug. This tactic is not to pretend that there has been any last-minute pre-Christmas rush, nor to claim any miraculous pick-up in the New Year, but to let it be known that you want to sell the businesses anyway.
This is a spoilt-child policy, but nonetheless effective for that. When things aren’t going your way, you announce petulantly that you aren’t playing any more. You can even imply that you weren’t trying very hard in the first place, because you had long ago lost interest. Grown-up business people usually make this sound more important by talking about “non-core activities” that can be disposed of to realise “shareholder value”.
I’m writing this before Kingfisher’s Christmas trading statement emerges this week, but I think I can safely assume that it won’t have proved to be a very buoyant one. The very fact that Kingfisher appears to have abandoned a demerger and separate float for the merchandise division, which embraces Woolworths and Superdrug, in favour of a management buy-out for the former and a trade sale for the latter would seem to imply that their valuations this week are heading south.
If they weren’t, Mulcahy would presumably have an interest in maximising shareholder value through demerger and flotation. Let’s not fool ourselves – what Kingfisher has done has put the For Sale sign up over the Woolworths and Superdrug businesses. It’s not quite the case that any offers will be considered, but not far off all the same.
Kingfisher, quite naturally, is letting it be known that it already has an offer for Superdrug of about £300m. You can bet that it’ll turn out to be higher than that, so that shareholders are given the impression of the price being “forced up”.
Woolworths, meanwhile, is being talked about in buy-out terms of being valued at as much as £1.5bn. That should keep Woolworths’ ambitious management on their toes.
The co-ordinated way in which these plans and prices emerged at the weekend, just before trading statements, must be aimed at flushing out other buyers and starting an auction. Again, that’s in the best interests of shareholder value. But Mulcahy is playing a dangerous game. For starters, it’s difficult to see how Woolworths and Superdrug can effectively be separated – they are like Siamese twins in their distribution channels and Superdrug’s occupation of Woolies’ floorspace.
Add to that the fact that Kingfisher, despite carefully constructed dissemination of its break-up message, has signalled that it is in a buyers’ market. Remember that Tomkins abandoned demerger plans for Ranks Hovis McDougall and was ultimately forced into a sale to Doughty Hanson at a knock-down price. There are dangers attached to over-soliciting your wares.
In the market’s excitement for a deal of this size, it’s all too easy to forget that the real message should be that Kingfisher is starting a fire-sale. And that, in turn, shows the parlous state of the retail market in this New Year.
George Pitcher is a partner in issue management consultancy Luther Pendragon