Fabric strained as even the high street’s best hit troubled patch

john LEWIS is part of the fabric, often literally, of Middle Britain. The unquoted staff‑owned department store group and food retailer (it owns Waitrose) is to many a model of how a retailer should be run. Next is a publicly‑quoted, middle-of-the-road fashion retailer, a fairly ubiquitous presence on our high streets. Though with contrasting business and financial operating models, both have been among the most sure-footed of retailers navigating their way through the economic downturn in Britain that is now well into its fourth year. However, their interim results statements show that even two of the most astute, agile and established retail brands are not immune from the high street headwinds.

In the first six months of 2011, John Lewis has been hoisted by its own petard, specifically its slogan “never knowingly undersold”.

That pledge has seen it having to match sharp‑ elbowed discounting by rivals, including the likes of Debenhams and Argos, costing John Lewis more than £9 million in the period and driving operating profits down 55 per cent. Despite the consequent pain, John Lewis is not ditching what it considers one of its core trading maxims.

It will continue to compete on price, even though Charlie Mayfield, group chairman, sees no likely improvement in trading conditions before next spring at the earliest.

Next, meanwhile, also has mixed news on prices for its customers. After passing on commodity price leaps this year, particularly in cotton, the firm says it is confident there will be virtually no inflation in its selling prices in the first half of 2012.

Less positively for consumers, chief executive Simon Wolfson believes there is little scope for actual price cuts because the group is seeing significant inflation in big sourcing areas such as China.

In addition, Wolfson says the eurozone sovereign debt crisis is an unpredictable element for retailers because is it is unclear at this stage how far indirectly it may hit consumer sentiment in the UK.

Some retailers are weathering the downturn better than others, but none are completely upholstered against the depressed climate.

Stalemate as eurozone seeks solution to sovereign debt woes

S&P TRIGGERED worldwide consternation and earned grudging respect in the summer when it cut the credit rating of America’s debt.

Rival ratings agency Moody’s got into the act yesterday, cutting the credit quality of two French banks because of their exposure to Greece’s debt.

Moody’s action couldn’t help but highlight the growing risks to Europe’s financial sector from the eurozone sovereign debt crisis. It has ramped up the pressure on Angela Merkel and Nicolas Sarkozy to come up with a solution that is credible to the financial markets but also politically acceptable to their respective German and French electorates.

Meanwhile, getting Athens to implement an acceptable austerity programme looks more than ever like trying to nail blancmange to the wall.

The possibility of Greece defaulting on its bailout conditions still looms large, however much Merkel, in particular, tries to quash such talk.

The cynical view of markets is along the lines of “They would say that, wouldn’t they?” Increasingly those markets see the issue of eurobonds, which would be implicitly underwritten by the Germans, as the only way out of the sovereign debt crisis. But that would almost inevitably need a politically unacceptable greater degree of European fiscal union. Deadlock reigns.

Indian asset managers need to learn the art of ‘speaking out’

A THOUGHT before we criticise the UK’s not infrequently supine (or lacking in spine?) fund management industry for not going public with its opposition to poor managements.

F&C Asset Management, one of the UK’s more proactive players in highlighting poor corporate governance, has done research showing India’s biggest ten fund managers voted against Indian company boards at fewer than five out of 1,000 meetings in the past year. India may be the world’s biggest democracy, but its fund managers have patently not got the hang of the “speaking out” thing.

Talk about all being for the best in the best of all possible worlds from Mumbai to Calcutta. Except, it clearly isn’t. Earlier this year, Indian securities industry regulators wrote to asset management companies demanding they become the “conscience” of Indian business.

It followed the embarrassing 2009 crash of Satyam, the stellar Indian software company that fell to earth after a $1 billion (£640 million) accounting fraud. But F&C, which holds $1.2bn of Indian equities, says 50 per cent of Indian asset managers have abstained from voting on every resolution during the past year. Is Indian fund managers’ most searching question of boards “Why are you so good?”