Retail remains in focus as Sainsbury and Home Retail report

The problems in the retail sector have been well documented over the past few weeks as the woes of both BHS and Austin Reed get played out across the news wires.

The problems in the retail sector have been well documented over the past few weeks as the woes of both BHS and Austin Reed get played out across the news wires.

Higher costs as a result of business rates and the implementation of the “living wage” has been cited as the main drags on retail profit margins as some business struggle to adapt to the changing habits of UK consumers.

Footfall on the High Street has been in decline for some time now and it is the retailers who are slow to adapt that appear to be suffering the most.

The problems ailing Marks and Spencer over the past five years is a good arbiter as to the problems facing the retail sector as a whole as companies with large stores struggle to compete with on-line retailers with lower cost bases. 

Later this week attention will turn to the food retailer sector when Sainsbury’s announces its latest Q1 trading update, after last week’s snapshot from Kantar Worldpanel showed that sales slowed 1.2% in the 12 weeks to 24 May.

Aldi and Lidl continue to grow their market share opening new stores and expanding existing floor space, continuing to erode the market share of Tesco, Sainsbury’s and Asda.   

We’re also likely to see the wisdom of the recent decision by Sainsbury’s management to acquire Home Retail Group later this week as the Argos owner also reveals its first trading update for the fiscal year ending in March 2017.

Sainsbury’s management have consistently pointed to the better online delivery capability that the acquisition of Argos will add to its own business model. The biggest unknown remains around the level of costs savings the company will need to embark upon when and if the deal is approved. This is likely to lead to further job losses as well as disposals of overlapping floor space as management looks to cut down on costs to make the mathematics of the deal work.

There is some doubt about the deal after recent news that the Competition and Markets Authority announced it would be investigating the takeover, undermining the prospect that the deal would be completed in the next couple of months.

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