Trading is “extremely volatile”, says Next, a description that also applies to the share price. When chief executive Lord Wolfson sounded mildly cheerful (for him) about sales in September, Next’s shares jumped 10%. Now he has joined the rest of the retail brigade in grumbling about the warm October, they fell 9%.
Up to a point, blaming temperatures is fair. It’s no longer true that “weather is for wimps”, as a former boss of Marks & Spencer used to say. Internet shopping, coupled with overnight deliveries, has changed behaviour. Fewer people buy clothes ahead of time. Retailers more directly compete with other attractions, like going out.
But let’s not overdo the excuses. Two other points seem reasonably clear. First, the dire October probably only exaggerated trends that look worrying for retailers. Real incomes are being squeezed, confidence in house prices in falling and credit card debt is too high. Maybe the lost October sales will be recouped in the Christmas run-in, but there’s no guarantee.
The second point relates directly to Next. Its weak sales were entirely concentrated in its stores, as opposed to the online operation. The Directory business was up 13.2% in the quarter. The shops, by contrast, turned in minus 7.7%, which is their average for the year so far. Given that Next is still adding space, the stores’ like-for-like decline will be about 10%.
In the round, that is not an immediate problem for Next. The principle of swings and roundabouts applies. Online progress meant the group could stick to its profit forecast for the year of £717m-ish.
Yet a 10% drop-off in the stores is an astonishing figure, even by industry standards. Back in March, when Wolfson was explaining that Next’s short leases gave valuable flexibility and protection, he was talking about 6% like-for-like declines in the stores as being a gloomy long-term assumption. The current rate is faster – much faster. Maybe Next’s shops are just more than averagely dull these days. It’s one more worry to add to a lengthening list.
FRC register may persuade sceptics about watchdog’s independence
The Financial Reporting Council, the accountancy watchdog, resents suggestions it is a cosy club of former auditors that lacks the independence to make tough judgments against big firms. The FRC has been hearing such complaints a lot lately, especially after it declared there was nothing wrong with KPMG’s 2007 audit of the failed HBOS.
In the interests of greater transparency, FRC chairman Sir Win Bischoff announced in September that a register of its top officials’ interests would be published. “Such a register is important for the FRC to retain confidence in how it reaches decisions, particularly on enforcement matters,” he said.
And what does the register reveal? It turns out that FRC chief executive Stephen Haddrill is married to the senior civil servant, Kate Marshall, who has responsibility for managing the Department for Business, Energy and Industrial Strategy’s relationship with the FRC.
No conflicts of interest have arisen in practice, say both the FRC and BEIS, and the proper internal disclosures were made promptly. What’s more, as Bishcoff argued in September, board members like Haddrill do not take enforcement decisions; a separate panel takes on investigations like the KPMG/HBOS one.
All the same, the set-up looks uncomfortable. The board of the FRC appoints the chief executive, but both the chairman and deputy chairman of the watchdog are appointed directly by the secretary of state, presumably with the help of advice from the relevant civil servant.
The FRC and BEIS may see no problem. But, if you’re trying to persuade sceptical outsiders that you’re running a robust shop with independent oversight, this news is not ideal.
Bank deputy governor’s sounds urgent warning from City frontline
Would 10,000 jobs leaving the City on “day one” of Brexit count as a lot? If you’re so minded, it’s possible to shrug your shoulders. The figure represents about 2% of the total number of people employed in bank and insurance roles in the City. Yet breezy disregard is surely the wrong stance.
First, as Bank of England deputy governor Sam Woods explained to peers on Wednesday, a “plausible” grand total may be nearer 75,000 once the dust settles. That number assumes there is no transition deal between the UK and the EU and includes knock-on job losses outside the City. If it also implies £10bn less in tax revenues, as lobbyists contend, that’s a heavy whack that will be felt by everybody.
Second, merely counting jobs and taxes doesn’t tell the full story. The Bank’s direct worry is about disruption. It is responsible for the safety and soundness of the UK’s financial system and there are 150 EU banks and financial services firms that needed to be authorised to operate here after Brexit. That work requires more than ticking boxes.
Woods has been saying for months that a transition deal – agreed soon – is vital to make the Brexit process orderly. The clock is ticking and his warnings from the frontline sound increasingly urgent.
