Little cheer on the high street

Profit warnings from Debenhams and Mothercare are more evidence that traditional retailers are fighting a losing battle against nimbler online competitors, says Ben Judge.


Not too many Christmas smiles at Mothercare

Traditional retailers are fighting a losing battle against nimbler online competitors. Ben Judge reports.

The Christmas period was a mixed bag for retailers. Early cheer was provided by Next and John Lewis, which reported upbeat sales. Debenhams and Mothercare, however, reported poor performance, issued profit warnings, and saw their share prices plummet Debenhams by 15% and Mothercare by 27%. Chinese-owned House of Fraser, meanwhile, is writing begging letters to its landlords, asking for rent reductions.

At Debenhams, "shoppers blew an emphatic raspberry at the downmarket, unimaginative seasonal gift selection" which traditionally makes up 10% of festive sales, says Patrick Hosking in The Times. "Novelty hot-water bottles failed to fly off the shelvesthe pullovers for dogs were shunned" and, "inexplicably, the Battle of Britain jigsaw puzzles were not snapped up". The resulting profit warning prompted the share price to slide. "In hindsight", admitted Debenhams' chief executive, Sergio Bucher formerly vice-president of Amazon's European fashion arm "my gifting product line needed to be more premium and differentiated".

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There are some encouraging signs: online sales were up by 9.9%. But the chain is "still far too dependent on bricks-and-mortar sales and locked into expensive long leases", says Hosking. Quite, says Matthew Vincent in the Financial Times. Bucher may have made his name at Amazon, but that firm "didn't have to right-size' 176 provincial stores to keep its customers and investors coming back".

It's a different story at Next. Full-price sales rose by 1.5% in the eight weeks to Christmas Eve and the company lifted its profit forecast by 1% to £725m, report Mark Vandevelde and Nicholas Megaw in the FT. The share price rose, as did those of rivals Marks & Spencer and AB Foods (which owns Primark), amid hopes that they would outperform too. Yet, says the FT's Vandevelde, "the pessimists of the high street [hedge funds that are shorting retailers] are convinced that, for them at least, Christmas will come soon".

Yes, let's not overdo the cheer, says Nils Pratley in The Guardian. Next's "mildly upbeat" report may have been good for the retail sector's share prices overall, but Next "started early online and is a rule unto itself". Indeed, says Alistair Osborne in The Times. And even Next's flattering sales figures were caused in part by the chilly weather "lifting demand for jumpers and coats", while its sales makeup remains "unbalanced". Online it may be up by 13.6%, but high-street sales were down 6.1%. In the long term, Next still has "too many stores" and 2019 guidance implies a "third year of falling profits".

Micro Focus: gung-ho tech firm mugged by reality

In September 2016, Micro Focus's £6.6bn reverse takeover of Hewlett Packard Enterprise's "non-core" software business was hailed as "an assertion of post-Brexit confidence and a landmark deal for the UK tech sector" by William Turvill in City AM. The deal the latest in a long line by the Berkshire-based company transformed Micro Focus into the biggest software business in Britain.

For the last decade, executive chairman Kevin Loosemore "has pleased shareholders with a model promising profits, not revenue growth", says the FT's Lex column. But the HPE deal "struggles to please on both fronts". Monday's interim results fell short of hopes, with HPE's contribution at "the bottom of the range" of previous guidance. The share price slid by 18%, as the results seemed to confirm "previously voiced concerns that the acquisition was perhaps not a very good idea", says Camilla Canocchi on

There was certainly "something a bit gung-ho" about the purchase, says Patrick Hosking in The Times. Loosemore's assertion that the deal was merely "click and repeat" looks "premature at best, if not downright complacent". The Micro Focus boss "has proved doubters wrong before". But this time, the problems could be a warning to investors not just about problems with the integration of the HP deal, but about "diminishing returns from his entire strategy".

City talk

"This year begins much as the last one did for poor old Deutsche Bank," says the FT's Lex column, with weak results, a moribund share price and "much grumbling about management". There will be no help from the European Central Bank, which won't raise rates (thus boosting bank profits). There will be no merger with rival Commerzbank. And don't expect the leadership to improve matters either. CEO John Cryan has "demoralised staff by warning that robots could take their jobs and telling investment bankers they are overpaid".

Last year, roadside repair group AA sacked its CEO and chairman, Bob Mackenzie, for gross misconduct after what it describes as "a sustained and violent assault on another employee" in a hotel bar, captured on CCTV. The drama sent the share price to a record low. Now the AA is "astonished" that Mackenzie is taking the case to an employment tribunal, claiming that his sacking was "mishandled and contravened company procedures", says Iain Withers in The Daily Telegraph. The company says it will "robustly defend any action".

Last week saw "Fatcat Thursday" the day that marks the point at which the average FTSE 100 CEO has taken home as much pay as the average worker earns in a year. The government's attempt to fix this is by making companies publish pay ratios that compare the CEO's salary with that of their average worker. But "shaming bosses into behaving better" won't work, says James Moore in the i newspaper. They "think that the L'Oral ad because I'm worth it' is speaking directly to them". What might work is stronger trade unions. Far from being the bogeymen of "Thatcherite fairytales", unions "foster communication between boardroom and shop floor", driving the productivity gains that fund wage rises.

Ben Judge

Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website,, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.

Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. 

As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.