Four retailers, two experiences. Profits were down at John Lewis and Next. Sales were down at Home Retail Group, the company behind Argos and Homebase, but Morrisons had a scorcher. The reasons aren’t hard to guess, but they are important all the same, and point to the form the economic recovery will take.
Last year, John Lewis seemed impervious to all the gloom. While all around retailers talked the talk of recession, John Lewis thrived. Those days are gone.
Pre-tax profits dropped 27 per cent to £108m in the six months to July on last year. Profits at Waitrose, a real superstar last year, fell 8 per cent. John Lewis blamed the poor performance in its department stores on the declining property market, saying this dented homeware sales. As for Waitrose, well, you can guess the reason for its decline – the reason is called credit crunch.
Next suffered too, with profits down 12 per cent. Simon Wolfson, the retailer’s boss said: “Next year there is very little we can see that will reduce the financial pressure on our customers…Food and energy prices continue to be well ahead of last year and our customer base is particularly exposed to higher refinancing costs of mortgages.”
The triumvirate of retailers reporting woe was completed by Home Retail Group. Like-for-likes sales at Argos were down 5.8 per cent in the 13 weeks to 30 August, while Homebase saw sales fall 8.3 per cent.
Morrisons, by contrast, is back. It seemed to take an age for it to sort out all those problems created with the purchase of Safeway, and for a number of years, bad news seemed to be all the corporate department of the retailer could manage. But, in the six months to 3 August, pre tax profits leapt by 19 per cent, and like-for-likes were up 7.6 per cent.
And what did the retailer have to say? It talked about “toughest trading environment for many years.” That must smart. While other retailers are really suffering, Morrisons says yes, things are bad, but we are doing okay. It’s like that kid at school who came out of every exam moaning how difficult it was, and then got top marks for everything.
Why is the UK number four supermarket doing so well? Morrisons said: “More shoppers are choosing Morrisons because of our price-crunching deals.”
And that really is the point. The British public, just like shoppers in the US, are reacting to the credit crunch by being more careful with their shopping. In the longer-term this will lead to reduced demand for food, and will lead to lower prices, which in turn will make us feel better off and lead to economic recovery. This is the stuff the economic cycle is made of.
Morrisons is benefiting from the same force that will form the foundations of the next boom.
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