Morrisons' profits up amid the pain

Morrisons has clearly done well out of shoppers downshifting, with profits up to £449m. Meanwhile one in seven high-street shops is now boarded up, so it's hard to escape the retail gloom...

by Dave Waller
Last Updated: 06 Nov 2012

The UK’s fourth-largest supermarket reported a 2.2% increase in like-for-like sales for the six months to 31 July, ahead of analysts' forecasts. Pre-tax profits rose to £449m, from £412m a year ago, and the company expects to hit its 2011 targets. A veritable success given the environment it’s operating in.

Morrisons also reported a 3.5% increase in total customers, with a record average of 11.5m visiting the stores each week. The chain seems to have pulled off the neat trick of positioning itself to nab those looking to tighten their budget but still shop for quality produce.

But it has been slow to move with the times. Morrisons has yet to make its belated move to online grocery sales – that’s due to kick off in 2013 – but after making its first steps by buying online US baby product retailer Kiddycare in February, it’s now hired Apple’s former internet store director Simon Thompson to inject some life into the shift. Thompson was one of Apple’s most senior European marketing bosses, and former chief marketing officer for lastminute.com, so he clearly knows his virtual onions. Morrisons isn’t messing about either: it’s packing the team are off to New York to suss out online retailing from US internet grocer Fresh Direct.

It certainly makes sense to get its act in gear: the UK online grocery sector is currently worth £4.8bn, but that’s expected to double by 2015. Sounds like a lucrative aisle to be rolling the trolley down. But it’s perhaps not so good for the rest of the high street. According to a new report by the Local Data Company, one in seven shops is now boarded up, the victims of a faltering economy and the trend towards shopping out of town and even online.

In the most depressed locations, the vacancy rate is one in three shops. The worst-hit small town was Leigh Park in Havant, near Portsmouth. Stockport and Blackpool top the list of larger centres, with vacancy rates at more than 25%, and among medium-sized centres, rates are nearly 30% in Dudley and West Bromwich. Even Wandsworth, ‘the brighter borough’ in south London has slipped on to the list of the 10 small centres with the highest levels of shop vacancies. And that’s a place that’s decidedly more big bonus than bargain bin.

It’s a grim picture, but at least the decline seems to have stalled: the first half of 2011 was only as bad as 2010. The question is what can be done to sort it out. People’s habits are changing, and the whole thing’s a self-fulfilling cycle – people start avoiding the country’s homogonous high-streets because they don’t have everything they want, which in turn drives increasing numbers of shops to fall through the cracks.

Note the similarly glum numbers posted by Home Retail Group - like-for-like sales at Argos and Homebase fell sharply, 8.6% to £859m at Argos, and 3.1% to £382m at Homebase.

An oft-mooted solution is to cut the VAT rate to help small retailers. But that seems nothing more than a sticking plaster. The fact is, there’s not much cash about right now, but there are tons of retailers going after it. It’ll require something more dynamic to arrest this slide…

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