morrisons

It’s been a big week for Morrisons, with the confirmation of their convenience estate disposal to a firm led by Mike Greene, followed by their interim results.

Opinions on the sale and Morrisons’ future prospects are decidedly mixed. 

“Although Potts is doing everything in his powers to turn it around, Morrisons’ problems are almost certainly too deep-seated,” says John Ibbotson  of Retail Vision.  “Selling 130 convenience stores to a venture capitalist might give Potts some breathing space, but why sell the only growing part of the business and the bit with the most market potential?

“Morrisons has consistently been behind the game. Late to online and with a high cost operation, late to convenience and then selling out, late expansion in the rich south and now under threat from the discounters in its northern heartland.

“Morrisons says in its latest results that the turnaround will take time, but how much time has it got? This is a retailer that is ripe for takeover.”

Phil Dorrell, a partner at Retail Remedy, is more upbeat. “Now that the leaky bucket that was M Local stores has been sold to a team led by retail entrepreneur Mike Greene, we should expect that Morrison’s profit future will look healthier.

“Morrisons approach was not considered not only in terms of location and rent but also in terms of proposition and format. Space was limited, ranges were more extensive that needed and overall the impression of the stores was poor.

“The disappointment for Potts will be that the sale of M Local didn’t raise more cash and actually leaves the retailer £30m down.

“Potts still has a long to-do list which just continues to get longer rather than shorter. With every trading update comes more pressure to turn the retailer’s fate and deliver some good news.

“We would like to see Morrisons invest in advertising, identifying its core audience and reconnecting by leveraging existing assets.”

“Today’s disappointing results from Morrisons signal something of a baptism of fire for new CEO David Potts on his market debut,” says Julie Palmer of Begbies Traynor,”as he looks to refocus the supermarket group towards greater product availability and improved customer service at checkouts.

“Despite the severe 35% slump in profits, the market should give Potts some time before criticising him too harshly as there is hope he can continue to improve trading momentum in the core stores despite his ‘back to basics’ strategy hurting earnings in the short term.”

Jon Copestake, chief retail analyst at The Economist Intelligence Unit, worries about what the M Local sale says about the wider Morrisons business. “The failure of Morrisons to turn its convenience offering into a valuable going concern highlights the structural problems faced by the retailer. For other mid-market retailers such as Tesco and Sainsbury’s, convenience stores have been a saving grace in a tough overall market.

“There has also been an underlying trend toward smaller stores as big box offering become increasingly undermined by discounters and online retail. However, like Dave Lewis at Tesco, Morrisons CEO David Potts is no doubt looking for quick and easy wins to shore up his balance sheet and simplify Morrisons’ structure.

”For Dave Lewis, offloading foreign units is the chosen path but Morrisons has no international operations so is refocusing on the store formats which are responsible for its previous successes.

“While critics of the move will see Morrisons exiting a fast-growing retail format as being short sighted, other may point to the fact that a consolidated supply chain which saw large stores supporting butchers and fishmongers were considered to be among Morrisons core strengths a decade ago.”

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