As online sales exploded over the Christmas period, some of the UK and Ireland’s biggest ‘brick-and-mortar’ retailers are reeling from lower than expected sales. In particular, Britain’s fourth largest supermarket chain, Wm. Morrison Supermarkets plc (LON:MRW), has been hit hard, pulling forward their trading announcement for the festive season to reveal profits much lower than what shareholders were expecting.
Online retailers trading slashes share price
Over the six most important weeks of the year for supermarkets, Wm. Morrison Supermarkets plc (LON:MRW)’s sales fell 5.6% from last year. Subsequently, the stock fell 8%, wiping £430m off the company’s market value, and analysts slashed annual profit forecasts by 15%.
‘The step up in footfall we had anticipated didn’t materialize,’ said Dalton Phillips, the Irish born chief executive of Morrisons. ‘The step up in spending we had expected didn’t materialism either.’
Morrisons wasn’t the only big retailer to feel the pinch. Over at Marks & Spencer and Debenhams Plc (OTCMKTS:DBHSY) (LON:DEB), things were equally bad, with Debenhams suffering particularly poor clothes sales. Meanwhile, supermarkets, Tesco PLC (ADR) (OTCMKTS:TSCDY) (LON:TSCO) and J Sainsbury plc (LON:SBRY) (OTCMKTS:JSAIY)’s saw their lowest growth in sales in years.
Phillips admits that the shift to doing the Christmas shop online at Christmas has been coming a while but this year it really kicked in.
‘This was the first year people felt they could trust their big Christmas shop to an online delivery.’
It didn’t help that Wm. Morrison Supermarkets plc (LON:MRW) only just begun selling online in the New Year – way too late for the Christmas rush.
A Christmas bonus for online retailers
Statistics from analysts Kantar Worldpanel confirmed that both online clothes and food sales exploded 22% in the 12 weeks to the 5th January, compared to the previous year.
But analysts also believe there is something fundamentally wrong with the Morrisons brand. Clive Black, head of research at broker, Shore Capital, said:
‘It has a long heritage as a value focused retailer, with good fresh food. It has been trying to compete with Waitrose and J Sainsbury plc (LON:SBRY) (OTCMKTS:JSAIY). In doing that, it has started to ostracise the core customers. The people it is chasing will never become Morrisons customers.’
From humble beginnings as a market stall in the north west of England in 1899, Wm. Morrison Supermarkets plc (LON:MRW) grew to become a top pick on the FTSE 100 (INDEXFTSE:UKX), completing a £3bn deal to buy rival supermarket, Safeway, in 2004. That’s when the trouble began. There were problems integrating the IT systems of the two companies and Morrisons lost Safeway customers, who were generally in a more affluent demographic, as a result. Morrisons has adapted since. The company owns its own farms and abattoirs and now focuses on its own fresh produce delivered by in-store bakeries, butchers and fishmongers.
Aldi and Lidl step up the pressure for online retailers
Customers are still doing the bulk of their food shop at ‘brick and mortar’ retailer stores for convenience and freshness, however, it has been discounters, Lidl and Aldi, that have been the winners there. Both saw sales soar 20% and, despite being a budget brand, Lidl did well with a luxury range that included lobster tails and champagne. Even as the economy improves, it’s unlikely that the likes of Wm. Morrison Supermarkets plc (LON:MRW) will win back that market share.
That won’t stop Phillips from trying. He says that Morrisons is planning to fight back with a new brand of convenience stores and expects to have 200 outlets by January 2015. And many analysts still see the Morrisons shares as a ‘buy’, understandable when you consider the firm owns 90% of the freeholds of its stores.
However, HSBC Holdings plc (ADR) (NYSE:HSBC) warned that Wm. Morrison Supermarkets plc (LON:MRW)’ new venture could be too little too late:
‘This will take a long time before contributing significantly to the sales growth and offsetting the decline in the core estate.
Phillips will be praying the venture pays off, but it’s doubtful he can win back customers in the short-term and investors in Morrisons may not be willing to wait.