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Morrisons to close 11 stores as profits dive 47%

Boss David Potts says his turnaround strategy may take a while.

by Adam Gale
Last Updated: 05 Nov 2015

Morrisons is to close another 11 loss-making stores as the supermarket price war continues to bite. The announcement comes a day after the grocer sold its 140 convenience stores to retail entrepreneur Mike Greene and Greybull capital for £25m (at a loss of £30m).

Like the rest of the Big Four, Morrisons is under siege from the hyper-efficient, low-cost German invaders Aldi and Lidl. The good news is that the initial bombardment may be over – Morrisons’ like-for-like sales decline slowed to -2.4% in its last quarter, from a high of -7.6% in mid-2014.

The bad news is that the war is not. Pre-tax profits continue to fall, dropping a painful 47% to £126m for the six months to August 2.

New boss David Potts is desperately attempting to halt the firm’s decline, with a strategy built on cutting prices, cutting costs and improving the shopping experience. Morrisons ‘invested’ £181m in low prices over the half, eating up almost all of the £189m in cost savings it made towards its £1bn target.

Those savings were in part achieved by ‘delayering the business’ (cutting management, including 720 head office jobs and reducing the leadership team from 110 to 65), though ditching its loss-making supermarkets and expensive convenience stores won’t exactly hurt Morrison’s full year costs either.

Improving the shopping experience, meanwhile, has involved adding an extra 5,000 floor staff, simplifying offers, operating more local services such as dry cleaning, and beginning a process of refurbishing its stores, 200 of which haven’t had an upgrade in five years.

Will it work? Emphasising Morrisons’ comparative strengths over Aldi and Lidl sounds smart, but as Potts sees no end to the price war (‘we expect deflation to continue as we keep investing in our proposition’), it’s unclear how the firm will get back into a position to make the big profits of the past  - and time is running out to do so.

 ‘With every trading update comes more pressure to turn the retailer’s fate and deliver some good news,’ said Phil Dorrell of consultants Retail Remedy, while praising Potts for getting rid of the ‘leaky bucket’ of the M Local portfolio.

John Ibbotson of Retail Vision, on the other hand, thinks the convenience stores with their growth potential were precisely the wrong part of the business to sell. ‘Potts is in a battle and with the disposal of his convenience stores, he just threw away his archers,’ Ibbotson said.

Whether Potts’ back-to-basics strategy is the right one will ultimately be shown in Morrisons' P&L. ‘It will be a long journey,’ he admitted. But are shareholders patient enough for that? By the looks of it, a slowing sales decline doesn’t cut it – shares fell 3.6% to 169.6p in mid-morning trading.

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