• Official retail sales figures from the ONS in complete contradiction to those of the BRC and CBI (and no prizes for guessing which ones were readily picked up by the media). Retail sales values were up 2.9% year-on-year in August, with volumes (i.e. net of inflation) up 2.2%. Decelerating growth maybe (year-to-date monthly growth is averaging ca. 4%), but against increasingly demanding year-on-year comps.
  • Mixed results from a number of fashion operators. H&M reported rising quarterly profits for the first time in two years. Global pre-tax profits rose 25% to £413m in the three months to August, while net sales increased 12% to £5.14bn. In the UK, sales grew 3% (+1% in local currency) and the store estate was stable at 300. Ted Baker’s fall from grace continues in the wake of the departure of founder and CEO Ray Kelvin. For the 28 weeks to 10 Aug the business registered a loss of £23m, with group revenue down -0.7% to £303.8m (including a decline of online sales of -1.3%). Further transparency on the scale of the issues facing Arcadia, with Miss Selfridge reporting a £17.5m loss for the year to September, as sales fell by more than 15% to £102m.
  • Stronger results from other players. Following a positive recent trading update from fellow upholstery retailer DFS, ScS posted a 4.6% rise in its underlying operating profit to £14.3m in its preliminary results for the 52 weeks to 27 July. Gross sales grew by £5.8m to £333.3m and the business claimed that its financial health “has never been as strong”. Meanwhile, Greggs posted a 12.4% rise in total sales (+7.4% like-for-like) for the 13 weeks to 28 Sep. In the year to date, Greggs has opened 56 new stores, bringing its store estate to 2,009 outlets. Respectable figures also from jewellery retailer Beaverbrooks, posting increased sales and strong profits for the 5th consecutive year. Turnover increased by 2.9% to £127.4m during the year to March, while operating profits amounted to £12.4m.

Stephen Springham, Head of Retail Research:

Changes at the top at both Tesco and The John Lewis Partnership have dominated the retail headlines this week. Chancellor’s Sajid Javid’s pledge to increase to the Minimum Wage to £10.50 within five years also received considerable coverage. Seemingly incongruous, these two issues do have a common denominator – people. And further underline the huge importance of people in retail, at both ends of the earning spectrum.

Dave Lewis’ decision to step down from his role as CEO of Tesco sent shockwaves through the market. He will leave the business next Summer and will be succeeded by Ken Murphy. There is nothing untoward about his departure – it is entirely voluntary – and Mr Lewis stressed that the decision was “a personal one”. The inference is very much that the drastic turnaround strategy that he implemented has now been completed and now the business is on much firmer footing, it is the turn of someone else to take it forward. There is something refreshing in Mr Lewis’ words that “the tenure of the CEO should be a finite one”.

Dubbed “the man that saved Tesco”, it is difficult to overstate what Dave Lewis has achieved in his five year tenure. Many (myself included) were sceptical of his original appointment, a man from an FMCG background taking the reins of the UK’s largest retailer (and at the time, the 3rd largest retailer globally) in absolute dire straits – an accounting scandal and a £6.4bn annual loss in 2015 were the ugliest manifestations of issues that ran far, far deeper. We were wrong to be sceptical.

The turnaround has been both dramatic and painful in equal measure. But it has worked. Tesco is a far leaner operation now than it was back then. A large proportion of the overseas businesses have been offloaded. Tesco can no longer lay claim to be being the 3rd largest retailer in the world by turnover and it is unlikely to ever rise to those heights again. But in the grand scheme of things, being one of the largest retailers in the world is actually a fairly hollow accolade. Much more important is the fact that the brand has been restored and the business is firmly back on track, operationally, strategically and financially. Mr Lewis has not achieved this single-handedly, but it is hard to envisage it having happened without him. Mr Murphy clearly has very big shoes to fill.

Perhaps the most telling metric is the fact that Tesco has now successfully hit its self-imposed margin target of 4%, six months ahead of forecast. That this is below the fabled 5.2% of the past is academic – there was barely an analyst in the land that thought 4% was in any way achievable as recently as three years ago. A parallel between Tesco and the retail sector generally? The former on its knees, massive overhaul and reinvention, not scaling to its former heights in terms of size and dominance, but in sound health and on the path to a long term, sustainable future. The latter on its knees, in need of massive overall and reinvention, not necessarily returning exactly to where it was, but having an equally sustainable future?

Very different circumstances over at John Lewis . As part of a restructuring plan (“Future Partnership”), the business is reorganising the structure of the Partnership. One of the central planks of the strategy is to streamline the two constituent businesses (John Lewis and Waitrose) under a single executive team. This will involve Paula Nickolds (currently Managing Director of John Lewis) becoming Executive Director, Brand and effectively assuming management of both the department store and food businesses. The restructuring will result in a reduction of around 75 senior management head office roles from the current total of 225. Those departing include Waitrose Managing Direct Rob Collins.

The restructuring of the John Lewis Partnership is far more radical than it appears on the surface, all the more so in the context of the business’ history, heritage and unique ownership structure. Waitrose and John Lewis have always co-existed as separate entities, with significant overlaps in customer base but with little by way of operational synergy. The thinking behind bringing the two under single umbrellas is that it will create a leaner, more nimble structure that will allow the business to react more positively to changes within the retail sector. Over and above the more tangible cost benefits (ca. £100m), surely a secondary consideration.

But the restructuring also carries considerable downside risk. Trimming nearly one third of senior management at a stroke without some material disruption to the day-to-day running of the business seems a very tall order. Longer term, there are major question marks as to whether a single team can effectively run two businesses so fundamentally different as John Lewis and Waitrose. The effectiveness of the restructuring will only become apparent in the fullness of time, but it is undoubtedly a bold (and risky) move.

As an aside, maybe this is time for John Lewis to re-think its stance on Black Friday (8 weeks today, can’t wait)? Its “Never Knowingly Undersold” price-match pledge inevitably means that it is drawn into the Black Friday melee, whether it wants to be or not. Maybe it is time to re-think “Never Knowingly Undersold” too? A tremendous point of difference in a pre-digital age, a burden in a much more transparent market? Should a business that booked a £25.9m loss in its first half really jump on a margin-sapping bandwagon, shifting huge volumes of electrical goods on wafer-thin margins or even at a loss?

The proposed increase in the Minimum Wage was one of the “voter-friendly” government initiatives to emerge from the Tory Party Conference. The Minimum Wage will rise from £8.21 to £10.50 within five years and the age threshold for those who qualify will be lowered from 25 to 21.

Altruistic as Minimum Wage increases may appear, they are very damaging for the retail sector and counterproductive at best. The increases may seem small, but they cumulatively weigh very heavily on retailers’ bottom lines. One of the structural failings of the retail market we have identified on a number of occasions is that operational costs are rising considerably faster than sales. Since 2012, the minimum wage has risen by a total of 33%. Very few, if any, retailers would have seen their top line grow by a similar quantum over the same timeframe. Over the next five years, the minimum wage will rise by a further 28%. Again, very few retailers will achieve comparable sales growth anything like this.

The inevitable response from retailers to these dynamics is to cut costs. And where are the “quickest wins” to be had? Cutting headcount. Ironically, the usual by-product of having a better-paid workforce is a smaller workforce. Rather than the prospect of having higher wages, many retail workers actual face having no wage at all.

People are the lifeblood of any successful retail business. One of the retail sector’s current buzzwords is “experiential”. I’m still struggling to understand what that actually means, but other commentators tend to think broadly in terms of retail theatre and digitisation. I would argue that effective, helpful sales staff are actually a key component of good retailing “experience”. Cutting back on those on the frontline is a woefully false economy.