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BUSINESS LIVE: Consumer confidence improves as retail sales grow

By Live Commentary

Updated: 03:24 EDT, 22 September 2023

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The collapse of Wilko has left rival B&M as perhaps the leader in bargain retailing on the high street, with analysts touting the group to maintain its rapid growth trajectory.

It was revealed on Monday that last-ditch talks to resuce Wilko had failed, as auditors were unable to agree terms with the owner of HMV to save jobs at 200 stores.

But B&M has already swooped to snap up 51 of Wilko’s 400 store estate in a £13million deal, as it capitalises on its rival collapse. 

This is Money examines how B&M became a UK retail powerhouse, why it would want to buy a large slab of collapsed Wilko’s stores, and the group’s growth plans.

What does B&M do? 

B&M sells everything from food and pet supplies to kitchenware and electricals.

It was formed in 1978 by Malcolm Billington and Brian Mayman with the company originally known by the names of its founders – Billington and Mayman.

In 2004, it was sold to the Arora brothers, Simon, Bobby and Robin. It then became B&M.

The brothers, whose father ran a cash and carry in Manchester, have since turned B&M into a fast-growing chain. 

A key part of B&M’s success lies in the retailer’s ability to source its huge range of merchandise directly from its own Asia-based buying operation, which it gives it an edge on design and value. 

Former Tesco chief executive, Sir Terry Leahy joined the business in 2012 before departing in 2017, with the company at the time experiencing soaring sales and profits thanks partly to new store openings and the acquisition of frozen food retailer Heron Foods.

The bargain retailer employs 30,000 people across its 937 stores and also owns Jawoll in Germany.

Having been listed on the London Stock Exchange for just under a decade, B&M shares have become a staple of many investors’ portfolios.  

Richard Hunter, head of markets at Interactive Investor, said: ‘The shares listed on the market in June 2014 at a price of 270p. 

‘The stock did not take long to capture the imagination of investors, such that B&M was promoted to the FTSE 100 in September 2020, where it remains today. 

‘The shares kicked on after this promotion and peaked at around 640p in December 2021.

‘Although the shares subsequently retreated from those heady highs, currently standing at 556p, there has nonetheless been an increase of 51 per cent in the price over the last year.

‘The recent boom to its fortunes is largely as a result of its value offering to consumers, which has come into sharp focus given the general pressure on customer wallets and the cost of living crisis being experienced by some.’

Why did Wilko collapse?  

In August, Wilko announced that it was entering administration, putting 12,000 jobs and 400 stores at risk.

Mark Jackson, chief executive of Wilko, said in an open letter last month: ‘We left no stone unturned when it came to preserving this incredible business but must concede that with regret, we’ve no choice but to take the difficult decision to enter into administration.’ 

Signs of Wilko’s woes emerged in 2017 when the company commenced a redundancy consultation affecting 4,000 jobs. 

Wilko posted a £65million loss for that year and continued to disappoint thereafter.

The company made a series of moves to improve its financial position, including a strategic partnership with DHL, further job cuts and a £40million funding lifeline secured from Hilco UK earlier this year, which was later extended.

The Mail on Sunday exclusively reveled last month that Wilko paid out a total of £77 million to the owners and former shareholders of the stricken retail chain in the decade before its collapse. 

This included a £3million dividend last year, which was paid despite Wilko racking up losses of £39million. A total of £3.2million was doled out in 2018 when Wilko slid to a £65million loss.

Retail experts have pinned the blame for Wilko’s eventual collapse on the cost of living crisis and economic uncertainty, as well as its failure to recover from the impact of the pandemic. 

But B&M sales grew by 24 per cent between April and December 2020, while other ‘non-food’ bargain outfits have also performed well. 

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown described B&M snapping up some Wilko stores as ‘symbolic of its meteoric rise, as it benefits from the mis-steps of its rival’.

She added: ‘B&M’s position on retail parks rather than predominantly high streets helped it during the pandemic when customers favoured out-of-town locations. 

‘It’s likely that B&M picked up new customers during this time who permanently switched from Wilko. 

‘B&M also had a good handle on its proposition and pricing techniques over the last couple of years which has helped it win and retain fans.’

What are B&M’s expansion plans? 

In a trading update in May, B&M chief executive Alejandro Russo, outlined his vision for the company, which will see the retailer significantly grow its store estate.

He said: ‘Previously we have made it clear that the 950 target for store numbers is conservative but even so, it represents c.35 per cent more stores than today, and with newer stores being on average bigger than existing stores and having higher total sales, the sales growth should be even greater than this 35 per cent. 

‘We will accelerate our new store openings back towards 40 stores per annum, with c.30 expected in FY24, but focus will always remain on new stores generating a leading return on investment. 

‘We will not compromise on our investment targets, and we will not open unprofitable stores just to meet a store opening target. Sustainable profitable growth is at the core of our business.’

The company also plans on opening 20 Heron stores in the UK, in addition to 10 more shops in Frances. 

Interactive Investor’s Hunter said: ‘Its most recent acquisition of 51 Wilko stores is also a show of intent. 

‘As has been so many times in the past in the retail sector, the survival of the fittest prevails. 

‘The companies which remain not only have a smaller pool of competition as others go to the wall, but also may get an opportunity to snap up all or part of rival operations at bargain prices, such as was the case with Wilko.

‘The market consensus of the shares as a strong hold suggests that some investors believe the price to be up with events for now.’

HL’s Lund-Yates cautioned that ‘there are still broader challenges that B&M needs to contend with’, particularly as consumers continue to feel the pinch. 

She said: ‘The cost-of-living crisis is pushing people towards discount options, but overall spending is due a dip because of very high interest rates and the squeeze on incomes. 

‘The lack of online strength is also a weaker point, and could see it lose market share in the long run.’ 

Retail is in the blood for Nish Kankiwala, the former Hovis boss who has become the first-ever chief executive of the John Lewis Partnership, owner of the department store chain and Waitrose grocery stores.

His family came to the UK from Mumbai, India, in the 1960s.

At first his parents couldn’t afford for Kankiwala and his sister to come to London, so the children stayed with their grandparents who had six sari shops.

‘I used to go to the shops on the way to school,’ he says. ‘I love fabrics.’

It sounds ideal for a man who will be responsible for all John Lewis’ cushions, curtains and beautifully upholstered sofas. Not to mention the fabled haberdashery and dressmaking departments.

Kankiwala originally had a clothes stall on Walthamstow market in east London.

He was also running the family’s shop attached to a Post Office in Tottenham, north London, when his father fell ill, while he was studying for his degree at University College London. ‘I did engineering, but I couldn’t escape my retail destiny,’ he laughs.

Kankiwala finds himself back on the shop floor in one of the hardest jobs in the industry – restoring John Lewis and Waitrose to their former status. The two chains were once synonymous with quality, service and being the undisputed destination of choice for Britain’s middle-class shoppers.

Waitrose, for example, was the first British supermarket to sell hummus – in the 1980s – and sushi – in 1996 – as well as being the first to offer organic produce.

It has its own farm and was the first to have its own vineyard. In a sign of the times it also has the largest value range with more than 900 ‘Essentials’ products.

Though its middle-class credentials still run deep, there is even an ‘Overheard in Waitrose’ satire on social media, poking gentle fun at the pretensions and foibles of the customers. But the business has struggled in the pandemic and the rampant inflation that followed.

Underlying those problems, which hit the retail sector as a whole, the department stores seemed to lose their mojo when faced with tough competition online and elsewhere on the high street.

John Lewis, the largest employee-owned operation in the UK with 74,000 partners, dropped its ‘never knowingly undersold’ policy, a move that would once have been sacrilege. Even its well-heeled customers are more hard up.

‘The Bank of England wants to make people feel a bit gloomier so they spend less, and it is working,’ says Kankiwala pointedly.

‘If you look at previous booms and busts sometimes it goes too far and we tip into recession. The trick is to avoid that. But that is for the bank. I just run shops.’

He says Anyday – the John Lewis ‘entry level brand’ for home and fashion – has ‘grown significantly’ as has the Waitrose Essentials label.

He is also looking at offering Klarna-style payments by instalments, which are often associated with lower income consumers. ‘I think we will develop a buy-now-pay-later product,’ he says. ‘Especially in the younger generation, people expect it.’

Kankiwala, who was a non-executive for two years before becoming chief executive officer, will be working alongside chairman Dame Sharon White to try and restore the partnership’s place in the nation’s hearts.

They have their work cut out. Losses for last year were £234 million and partners have had only one bonus in the past three years.

The hope is that installing Kankiwala as the first chief executive of John Lewis and Waitrose will supercharge the revival. Previously, the two chains had separate bosses, each reporting to the chairman.

‘We have never had a CEO,’ Kankiwala says. ‘In the old days we had two of everything. We have brought together all the functions and they all report to me now.’

Kankiwala’s task is to implement the recovery strategy – called the Partnership Plan – drawn up by White three years ago. The five-year blueprint aims to reduce costs, improve service and branch out into areas such as financial services and high quality rental housing.

The target is to make £200 million profits in the next two years and £400 million by 2025. Along the way, White has pledged to bring back partner bonuses when profit hits £150 million and debt falls.

But given the downturn in the economy since the plan was put in place, is this still realistic?

‘We are midway through it,’ he says. ‘We have had the cost of living, rising utility bills and an additional £180 million of costs.

‘It means we need to go even harder in some areas of the plan where I can bring my skills into play. Number one – I am fixated by customers. Growing up as I did, I can think of a thousand examples of learning from customers because they tell you the truth, though you might not like it.

‘Number two is cost. With all the extra expenditure coming out of the business we really have to make sure we are as productive as possible. In some areas we are not as efficient as other retailers. We need to look at waste and the supply chain.

‘The third area we need to supercharge is technology. We’ve not invested as fast as we should have.’

Despite three years of losses, he believes he can still hit the profit targets. ‘I broadly think they will be achieved by taking out more costs,’ he says.

‘When the previous team did the work, their assumption on inflation was about 3 per cent. We have taken out £300 million of costs already. This year we will probably take out £100 million.’

‘In procurement, we can do better. But we want to do it sustainably, not just slash.’

John Lewis has shut 16 shops since the pandemic, resulting in over 2,000 redundancies. And nine Waitrose shops have been closed, leading to more than 500 job losses. Kankiwala says there are no plans to shut any more shops.

When White talked in March about the possibility that there might be more implications for jobs, she meant by natural turnover. No redundancies were announced.

As for reinstating bonuses, he says staff are more concerned about higher basic wages. Partners have been promised they will be paid at least the Real Living Wage of £10.90 an hour – or £11.95 in London – once profit is over £200 million. Customers may be surprised this was not already the case.

There have been suggestions that the plight of John Lewis had become so desperate that White was prepared to dismantle the partnership model in order to bring in new investment. Kankiwala, however, is adamant that the partnership is safe in his hands.

Kankiwala spent most of his career in the mainstream corporate sector including Pepsico and Burger King. His most recent role was at Hovis, where he negotiated a sale to private equity.

The buyout barons have a hard-headed approach to business that is inimical to the partnership ethos. So is he really wedded to it?

‘I am,’ he insists. ‘I genuinely feel that the partnership model is a better one and will be replicated elsewhere.’

Sadly, his parents have passed away and are not here to see their son take one of the biggest jobs in British retail.

‘My mum and dad would be really proud,’ he says. ‘When I used to sell clothes on the market, we were poor. I am very privileged to be here because I come from nothing. My sister is in India and she would say ‘You have a big shop now’.’

BUSINESS LIVE: Retail sales handed April bounce; Brickability CEO to step down from role; Revolution Beauty results ‘significantly below’ forecast

By Live Commentary

Updated: 07:32 EDT, 26 May 2023

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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The financial regulator has taken a major step towards reviving the retail bond market for Britain’s small investors. 

The Financial Conduct Authority (FCA) is consulting on removing barriers to participation in bonds, also known as fixed income, which could see the regulator bring an end to onerous disclosure requirements that effectively bar everyday investors from the market.

In the UK, the average investor can buy shares of all kinds but is largely shut out of investing in bond markets directly and will typically invest in a bond fund to build fixed income exposure instead. 

The London Stock Exchange launched the Orb market (Order book for Retail Bonds) in an attempt to open up direct bond investing for Britain’s small investors. 

A series of high profile launches included a Tesco Bank retail bond in 2012, paying 5 per cent annual interest until 2020, which was so popular it had to close its doors early. Meanwhile, a Lloyds Bank bond trading on the market pays 6.5 per cent until 2040. But after the initial fanfare, the Orb market saw new issues slow to a trickle.

Falling interest rates, an abundance of cheap central bank money and investor cash for companies looking to raise funds, and controversy over unregulated mini-bonds all dented the Orb market in investors’ eyes.

But the FCA’s plan combined with the higher interest rate environment could see more companies  

Approximately 89 per cent of securities included in the regulator’s Official List are non-equity securities. 

There have been increased regulatory requirements for bond issuers in the years since the 2008 global financial crisis, including an increase in disclosure rules for products with a denomination of less than €100,000.

For companies issuing non-equity securities, meeting the increased disclosure standards has become a more onerous task so they typically opt instead to borrow from large financial institutions. 

This is because it requires a summary, details on the issuer’s history and inclusion of cash flow statements and other financial information. 

It’s therefore often easier to completely avoid targeting retail investors that can’t meet the €100,00 threshold.

The FCA said this has led to a ‘bifurcation between wholesale and retail markets’ and while the €100,000 threshold was intended as an investor protection measure it has been ‘indiscriminate’.

‘We are therefore proposing to adopt a single standard for bond disclosure in the prospectus regime, with the existing wholesale disclosure annexes as a starting point.’

The FCA also said it was considering whether the regime should make a clearer distinction between types of non-equity securities to ‘reduce risks of investor harm’.

Investors should always tread carefully when buying company debt via bonds, because the money you make depends on the firm not going bust.

They should also know what type of bond they are buying. Retail bonds listed on the London Stock Exchange’s Orb market are regulated and must meet strict rules. 

Mini-bonds, which were a controversial investment touted at ordinary investors, were not listed on Orb and not regulated. 

The mini-bond market came under scrutiny following the collapse of London Capital and Finance, which left thousands of savers with huge losses.

The FCA banned mass marketing of mini-bonds to ordinary investors, many of whom claimed they bought them thinking they were protected savings products

But even in the retail bond market, things can go south. British investors in a £50million retail bond from Eros Media World were hit after the Indian Bollywood group failed to make an interest payment in October 2022.

In March, Eros offered investors 60p per £1 on half of the bonds, with the remaining bonds rolled into a new transaction that will not be repaid until 2026.

Stacey Parsons, head of fixed income at Winterflood Securities and chair of the working group Investor Access to Regulated Bonds, said the FCA’s new proposals were a ‘beam of light’.

‘The regulation may well turn out to be the easy part in all this, changes to process will also be required by stakeholders in the debt capital markets ecosystem to achieve better access for all investors.

‘However, capital markets can and do adapt and we welcome the FCA offering a legitimate pathway of change. What is needed now is debt capital markets to function with everyone in mind – both wholesale and retail, where it is feasible.’

The consultation period will run until September 2023.