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The first casualty of 2007 appeared as early as 3 January when Plumbs, the long-established Wigan-based operation, called in BDO Stoy Hayward as administrators.
Eight of the ten stores were closed immediately, with two – Bury and Wigan – staying open to clear stock. Seventy-six staff were made redundant. The usual suspects were blamed – fewer shoppers on the high street, aggressive supermarket competition and an increasing willingness to buy online. Major product shortages also hit hard.
As Plumbs' managing director David Scott explained to suppliers: “H Plumb, like so many other retailers, each year relies heavily on a busy seasonal trading period between October and December to turn a negative profit situation year-to-date into a positive one.” Sadly the season's sales at Plumbs were “very poor”. With a rental base of over ten thousand customers, the company had been protected more than most, but three years of losses had taken their toll.
The last figures published (to March 2005) reveal a loss before tax of £619,000, with no sign of any positive movement in interest charges or debt. Expensive shop leases, rental terminations and an unsuccessful dalliance with Internet trading had added to its woes. Like other mixed retail/rental businesses, up to a couple of years or so ago Plumbs could have bought time by raising a substantial sum from the sale of its rental base. Now with few interested in buying such accounts, prices have tumbled and that rescue route must have appeared less attractive compared with cutting back investment and enjoying the cash flow.
That the rental base was not sold when it was worth real money will doubtless please the administrators. Normally, as with the likes of PowerHouse or Miller Brothers, two earlier clients, BDO has to scratch around selling off stock to raise revenue to cover ongoing costs and fees. With rental the money continues to pour in. Nice work, if you can get it.
Shares tumble
DSG and Jessops too suffered, to a lesser extent, as a result of seasonal under-performance. Millions were wiped off their values as share prices fell after disappointing trading updates.
Jessops had taken a cautious view about the prospects for Christmas, but a 7% like-for-like decline over the key six weeks was not on its agenda. SLR supply problems were partly to blame.
At DSG, in the eight weeks to 6 January, like-for-like sales at its Currys chain increased by just 1%. That was due to a slow start to the Christmas period. A late boost and a strong opening to the winter sales saw that like-for-like performance improve to 8% in the three weeks to 13 January. PC World did better with a 6% gain over the eight weeks.
But to make matters worse for DSG's standing in the City, it also announced flat underlying profit-before-tax for the six months to 11 November, with its Italian chain having “a very disappointing year” after a switch to centralised buying, merchandising and warehousing caused problems. That news hit hard and DSG's share price is currently nearly a quarter off its November position.
Argos delivered flat like-for-like sales in the fourteen weeks to 6 January, but with the benefit of new space, it expects full-year profits to be at the top of expectations. Electronics grew overall, with gains in televisions and video games systems offsetting weaker sales in other categories.
John Lewis's 20%
In contrast, Comet had a good season with like-for-like growth of 7.5% in the period from 1 November to 8 January. Flat screen TVs, laptops and white goods led the way.
But John Lewis did even better. The Partnership has enjoyed an excellent year and produced the best seasonal performance too – with 'electricals and home technology' sales increasing by around 15% over the key seven weeks. It is making real progress. In fact, for its half-year to January 27, such sales grew by just over 20%.
All the leading players agree that 'challenging' best describes prospects, with any negative impact of higher interest rates and taxes on consumers' discretionary spending and confidence offset by excitement about the new product pipeline and ever-decreasing prices.
