Martin Flanagan: Food is faring well but other retailers need to be cautious

Published on Thursday 11 March 2010 20:16

IT WAS definitely not a case of "Retailing recession? What retailing recession?" but the strong profits and forecasts from leading British retailers yesterday showed that despite their caution about the future they have been making money in the present.

Supermarket giant Morrisons beat City forecasts with a 21 per cent jump in annual profits to 767 million. It sweetened things further for the City with a thumping 41 per cent leap in the divi.

One tends to expect the big food retailers to be resilient in a recession. Food is a pretty defensive sector, given we die without it.

But it was the news from elsewhere that was also low-key agreeable for the high street.

Underlying annual profits at middle-Britain department store group John Lewis (which, admittedly, does include the Waitrose food retailing group) rose 10 per cent to 306.6m.

And Home Retail, home of the Argos catalogue shopping group and Homebase DIY chain, gave the market further good retailing news by hiking its profit forecast for the year to 27 February to 290m from 285m.

Home Retail's optimism even shrugged aside a sharp 9.4 per cent slide in like-for-like sales at Argos for the final eight weeks of the period, as a snowbound Britain deterred shoppers from venturing out.

However, the DIY bods proved hardier souls, with same-floorspace sales at Homebase down just 0.6 per cent over the period.

Rounding off a good few days in the sector, the British Retail Consortium revealed on Tuesday that retail sales recovered in February after the January snow, with particularly strong sales of clothing and footwear.

However, without wishing to rain on even a minor parade of cheer, stern tests for retailers still remain.

An axe to public spending by whichever government takes power this year, the certainty of higher taxes (including, very probably, VAT), and the likely withdrawal of monetary stimulus will all act as potential deterrents to shoppers.

If, as some economists believe, the Bank of England starts edging interest rates back up late in 2010 that will also likely put a brake on spending.

So is it just a case of the high street enjoying it while it can before a reckoning down the line?

It's impossible to say as nobody knows how the wider economy will pan out.

A current snapshot of opinion would indicate that most businesses and the City believe it will be a muted economic recovery at the very best, one hardly likely to get the fantastic plastic swishing at the tills again.

And, at worst, there is the fear that the "cure" for Britain's astonishing debt mountain – massive fiscal retrenchment – will be as painful as the disease, and that there is no certainty that the economy will not go into a double-dip recession.

The high street would hardly be immune if such a downbeat scenario played out. Food retailers would stay resilient, but the others?

Pub expansion demands a more pragmatic approach

PUBS group JD Wetherspoon expanded like billy-o in the 1990s and early in the new millennium only to pull in its horns and scale back the pub-openings when the economy later hit the buffers.

But now it is indicating it wants to open pubs at an ambitious 50 a year to add to its nearly 750-strong estate.

And yesterday the group put in place the financing facilities to do it. It is an ambitious statement of intent by Tim Martin's group, but perhaps its robust trading in recent times compared to most of its peers has engendered this confidence.

In recent years Wetherspoon has nailed its colours to the "value" mast – charging much less for its drinks than competitors. "You get more beer for your buck with us" has been the unsubtle message.

Cheaper food offerings and coffees have also been a major part of the group's pitch, as it also reversed an earlier ban and allowed kids to come in with their parents.

Wetherspoon now says its pubs will soon open at 7am, instead of the current 9am, to capture the early-riser breakfast trade.

Previously it has also reversed its policy not to show sport in pubs by having football matches on with the sound down. In short, Martin obviously feels nothing is ruled out to gain a significantly bigger slice of the market.