Danni Hewson, AJ Bell financial analyst, comments on the latest retail figures and CD&R’s improved offer for Morrisons:
RETAIL
“Given the choice, after months of restrictions, consumers have been spending their cash on fun rather than fripperies. Retail sales in July were down, pretty much across the board as life found it’s post lockdown level. The Olympics didn’t lend itself to snack laden party tables and unseasonable showers kept many motorists out of their vehicles and away from the petrol forecourt. Non-food saw the biggest drop, but after eighteen months of doing everything at home consumers have probably got all the computing and sporting equipment they need, and bargain hunters have picked over the cream of the second-hand crop. Online habits haven’t been broken and spend rose a touch in July; why waste time searching the shelves for that perfect outfit when you can get them at the touch of a button and you’re guaranteed your size will be in stock.
“But retailers should take heart. Spend is up considerably on this time last year and remains above levels seen in February 2020, particularly when it comes to food, and once summer gets finished with its last hurrah, consumers will have less competition for their time and money. The one big variable is supply. What will the shelves look like in that all important golden quarter? Will people be prepared to pay a little more for the things they want? And will any of our freedoms need to be curtailed once more?”
MORRISONS
“Supermarkets were one of retail’s big lockdown winners and the allure of those retail juggernauts has been clearly visible over the past weeks as the battle to takeover Morrisons has pulled no punches. In the dying minutes of what could be the final round, first bidder CDR got it’s second wind and delivered a £7bn knockdown offer. Will Fortress pick itself of the mat and find another level? It is a real possibility. Morrisons is unique, its production capabilities make it extremely attractive at a time supply is becoming a huge issue and the Japanese bank behind Fortress has deep pockets. Then there’s the Amazon factor. No one really expects they’ll table a bid, but even their position on the field is huge factor.
“However, Clayton, Dubilier and Rice always seemed like the more natural fit for the Yorkshire business. Its forecourt operation might require a few tweaks to please the UK’s competition watchdog but adding Morrisons’ to the portfolio will put them in a strong position to be at the forefront of the switch to electric. It won’t hurt shareholder sentiment that retail royalty Sir Terry Leahy is a senior advisor on this deal and he took the opportunity last night to play on emotions, spotlighting his relationship with the late Sir Ken Morrison. But ultimately this is a numbers game and in business sentiment often only goes so far.”
