Monday News

There were a couple of apparently unrelated items that caught my eye this morning.

Firstly, the news reported in The Times that "supermarkets and discount retailers are expected to enter the race to buy BHS".

Despite the fact that many of these stores have planning to allow the sale of food I doubt that the location, size and tenure of the BHS stores will make more than a handful of them attractive for convenience food stores without substantial investment.

I would expect Aldi and Lidl to show most interest. Tesco and Sainsbury less so as they will already be represented in many of the towns where BHS trade. Morrisons may show interest in some if the price is right.

However, in my view a trade sale is the more likely outcome.

The second item was the Q3 IMS from LondonMetric with Chief Executive Andrew Jones highlighting the "greater alignment to the growth of eCommerce through retail led distribution assets and the convenience of click and collect...."

Click and Collect is still strongly preferred by many customers and existing retail locations, close to transport links or houses themselves will continue to benefit from that.

Andrew is right to highlight the benefit of Click and Collect, but the question remains open about how to value that, both for occupiers and for landlords.

If there is an eCommerce value in the BHS trading locations then perhaps these two items are not as unrelated as they first appear.

Aldi and Lidl - Widening the Moat

We have heard much in the media about the threat posed to Tesco, Sainsbury and Morrisons by the rise of the discount retailers.

It is obvious that the annual sales growth that we have seen of 22.6% (Aldi) and 15.1% (Lidl) cannot be sustained without opening a very significant number of new stores. Both businesses have ambitious plans in that regard but opening 30, 50 or 100 new stores per year in the UK will be very challenging.

What strikes me most however is the manner in which both companies talk about the future. Without the pressure of a stock exchange listing and a daily judgement from the market Aldi and Lidl each look to the longer term. Aldi aims to move from 550 to 1,000 stores in the UK by 2022. Ronny Gottschlich of Lidl talks of there being room for up to 1,500 Lidl stores but refuses to be drawn on a time-scale.

That is not to say that Tesco and the other grocers do not have longer term plans, indeed the focus on internet and convenience suggests that they do but the market's focus on quarterly trading performance reduces the scope for true longer term investment.

I am reminded of Warren Buffett's thoughts

"We always, of course, hope to earn more money in the short-term. But when short-term and long-term conflict, widening the moat must take precedence. If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted."

Perhaps the listed grocers' inability to widen the moat explains Mr Buffett's recent decision to sell his stake in Tesco and suggests also that the rise of Aldi and Lidl in the UK is set to continue.