BusinessCorporate FinanceRetail FDs seek better sales climate abroad

Retail FDs seek better sales climate abroad

Retail chains are looking abroad to generate growth, as UK spending levels drop

For the rest of the year, retail FDs can expect to spend plenty of time at
airport check-in desks and on long-haul flights as UK retail chains look abroad
to generate growth.

UK consumers have had to deal with high energy costs, spiralling council tax
and above-inflation transport price rises. These factors have squeezed the
amount of disposable income available for retail spending. At the same times
costs for retailers have also increased.

One of the main strategies that retail executives have introduced to battle
the combination of lower spending and rising costs has been international
expansion, particularly in the emerging markets of China, India and the Middle
East.

Tim Sleep, director of retail at Ernst & Young, said that retailers were
eyeing overseas markets because growth in the UK through acquisition or opening
new space had become more difficult.

‘UK-to-UK acquisitions are now very difficult due to the Competition
Commission becoming very strict. It’s also very difficult to secure prime retail
real estate either as a freehold or as a leasehold,’ Sleep said.

‘So in continuing efforts to return growth, retailers are looking overseas
again and considering more and more the franchisee route, which of course is a
lower investment way to get overseas expansion.’

UK retailers have already made attempts to expand overseas. In the early
1990s, a number of groups were unsuccessful when pushing into foreign markets.

Sleep, however, said that a great deal had been learnt from these experiences
and that UK companies were much better prepared this time.

‘A lot of retailers got burnt in the 1990s by going into fairly developed
markets, such as the United States, France and Germany. We’ve seen since then
the likes of Tesco and Kingfisher expand very successfully overseas via the
acquisition route,’ Sleep said.

He added that more recently Next, Marks & Spencer, Debenhams and
Mothercare had also enjoyed success abroad, paving the way for other UK
retailers to tap into the rapidly growing markets in overseas territories.

‘This is much lower investment and it’s a nice way to quietly grow your
business without investing too much money. So that’s what I think we’re going to
be seeing more and more of.

‘It’s not a knee-jerk reaction, it’s just something which will quietly be
done in a way which doesn’t detract too much from the main UK business,’ Sleep
said.

COMPANY REPORTS

FTSE 100
Supermarket group Wm Morrison wants to extend executive contracts from one to
two years, even though it is in breach of the coporate governance code. The
company believes it is essential for new FD Richard Pennycook to have the
security of a two-year deal. Pennycook replaced Martin Ackroyd, who was forced
to resign last year after a string of profit warnings. In October, chief
executive Bob Stott announced he would leave this summer. Stott’s successor has
yet to be named and Pennycook wants security in case the new chief executive
seeks to replace him.

Martin Weigold is to become UK plc’s highest paid FD after earning $8.6m
(£4.8m) last year as the CFO of the world’s largest online gaming company
PartyGaming. Shareholders are expected to approve Weigold’s remuneration package
at the AGM on the 4 May. Weigold’s pay package will see him surpass Peter
Clarke, the finance head at Man Group, who, according to the Financial Director
salary survey, is on a total package of £2.3m. The bulk of Weigold’s earnings
are as a result of PartyGaming’s £4.64bn float on the London Stock Exchange last
year.

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