Morrisons' announcement of 2,600 job cuts among store managers may signal similar moves elsewhere, according to Shore Capital.
The move by Morrisons was first revealed by the Guardian and follows a period of tough trading for the big four supermarkets, given their loss of market share to the discounters such as Aldi and Lidl. Clive Black and Darren Shirley at Shore Capital, while repeating their sell advice of Morrisons, said:
Morrison's initiative on labour costs is not the first within the domestic supermarket industry and, we believe that it will not be the last. The reason that we assert this is due to seemingly structural changes that are taking place in the market which, in the main, depress demand and add to the cost of the industry; so compressing margins through negative operational gearing. Such changes include reduced in-house food waste, more small store shopping (so depleting large store footfall), growth online (with higher fulfilment costs) and increased consumption of food eaten out of the home. Additionally, there is growing evidence of gross margin investment as limited assortment discounters in particular make strong in-roads into the UK scene.
Indeed, Morrison's initiative follows on from Asda, which has, again, shown leadership. Whilst equally problematic for management, Asda announced in April that it was placing 4100 store managers on consultation, with a view to a material reduction in headcount. It is our central expectation that more jobs will go at the big supermarkets, with major initiatives expected to come with respect to head office headcount across the industry as well.
Whilst in no-way seeking to be a de-stabilising force elsewhere, we also believe that J Sainsbury (hold) and Tesco (sell), will also announce in due course material productivity programmes involving labour shedding. Indeed, in a market suffering weak demand and gross margin pressure, cutting the cost cloth accordingly is the key lever available to management to support margins and profits.
In the market, Morrisons is currently 0.8p lower at 191.8p, Sainsbury has slipped 1.7p to 320.2p but Tesco has added 2.95p to 293p.
