Simon says – but Tesco disagrees

Take Aim, fire. Peter Simon, the flamboyant, no-words-barred boss of fashion retailer Monsoon, has good reason to be pleased with himself – and he’s letting everyone know about it.

Monsoon has just turned in the best results in the high street so far this year: a 13 per cent improvement in like-for-like sales and a 32 per cent hike in pre-tax profits, which contrasts painfully with the dismal performances of Marks & Spencer and, well, nearly everyone else as well.

Simon used the results announcement as a platform for one of his favourite hobby-horses. As it is gaining increasing currency, and not just among retailers, it merits further investigation. Crudely put, the corporate code demanded by the City (especially following the Higgs Report) is ‘a load of bollocks’. In other words, the degree of reporting transparency and general investor scrutiny required these days has a crippling effect on the corporate energy and innovative capability of any company quoted on the main Stock Exchange, as most major retailers are.

Simon speaks from a position of knowledge and strength. In 2003, amid much hullabaloo, he delisted from the main market in favour of the regulation-lite Alternative Investment Market (Aim). It’s not just Monsoon’s results that seem to bear out the theory that going private (or a least regulation-lite) leads to enhanced entrepreneurial flair, better marketing, sourcing, merchandising – and therefore performance. Look at New Look again (went private last year). And let’s not forget the doyen of high street retailers, Philip Green, and his most private of private companies, Arcadia. It sounds like the making of a virtuous circle: on the operations side, senior executives can use their talents more freely; consumers benefit from the market intuition this can bring; and investors like the higher (albeit riskier) returns that private equity entails. Which means the likes of Simon have no trouble in raising the money to, for instance, expand abroad.

It’s all very compelling as a theory, apart from one big counter-fact called Tesco. Companies don’t come more blue-chip than Tesco: it’s number 11 in the FTSE-100 (and, indeed, figures in the FT global 500) with a market capitalisation of about &£25bn. Yet it powers from success to success, an apparently mature company with a rate of growth that would put many small caps to shame. In the seven weeks to January 8 (the key Christmas trading period), for instance, like-for-like-sales were up nearly eight per cent (excluding petrol). As is well known, Tesco now accounts for &£1 in every &£8 spent in the UK on retail products. Its share of the UK grocery sector, where it originated, now touches 30 per cent. Which might suggest that it is about to run out of steam, but for the fact that non-food sales are now driving its growth, and even in this relatively virgin territory it can already boast annual sales of about &£7bn and a UK share of 6.5 per cent. There is, in short, no sign here that the requirements of City discipline are having an inhibiting effect upon the marketing, buying, merchandising and strategic thinking that have made Tesco what it is.

Tesco’s worst enemy will be its own success. There may be a time when its dominance in non-food (it is about to open its first non-food outlet) comes to resemble its dominance in groceries. If so, expect a vociferous ‘something must be done’ counter-blast.

Stuart Smith, Editor

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