MORRISONS sealed its place as one of the best-performing retail stocks in Europe yesterday. Morrisons? The supermarket that bought Safeway and became known for its serial profit warnings, for foisting the lardy pies of the North on the mange-tout lovers of the South and for a boardroom soap opera that would be best enjoyed while tucking into a Tesco’s TV dinner? The very same.
William Morrison Supermarkets returned to profit and was cheered by the markets: the share price is now up 30 per cent on the beginning of the year. Nearly four years after Sir Ken Morrison first attempted to go national with a £2.9 billion bid for Safeway, he has finally completed the merger.
Morrisons’ figures, of course, were flattered by the failures of the past. It was losing customers at such a clip just over a year ago that the like-for-like recovery is exaggerated. But the group has outperformed the expectations of analysts who were primed for good news.
But the fundamental question at Morrisons still looks a long way from being addressed. What does the brand mean? Marc Bolland, who joined from Heineken three weeks ago, knows better than most that the power of a product lies in its public perception. He has given himself six months to come up with a strategy for the future, a strategy for what he wants the name Morrisons to mean for its customers.
At last, Morrisons is one company with one store format, one headquarters and one management team. The group is back to a decent profit and a three-year target to restore margins has been achieved in one. Sir Ken has finally won yesterday’s battle. Mr Bolland has to prepare for tomorrow’s.
Morrisons has yet to work out how to apply its spacehungry street market layout to the remaining smaller Safeway supermarkets. It has yet to decide whether to push non-food lines that are already a growth leader in bigger Tesco and Asda stores. J Sainsbury and Tesco left Morrisons standing as they rushed back to the high street to post their names on convenience stores, a big feature in London and other cities.
Morrisons is moving fast to stock more organic lines, currently at about 100. It is spreading the top-quality range it inherited from Safeway, now 500 lines. It is making itself a leader in recycling, but few know.
As Kate Moss’s appointment to design her own clothing line at Topshop shows, the boundaries between the rich and refined retailers and the cheap and cheerful ones have been blurred. People want haute couture at low cost, organic foods at everyday prices. The challenge for Morrisons is showing that they are part of an industry offering millions of ordinary people the facility to lead more elegant, more discriminating or just healthier lives.
A generation ago, Tesco sent that pint-sized pin-up Dudley Moore round the French countryside to buy free-range fowl. The message to British shoppers was that Tesco’s motto was no longer “pile it high, sell it cheap”. Mr Bolland may want to put in a call to Hugh Grant.
Tough call
AS INCONCEIVABLE as it may sound, getting a mobile phone in the US is even more frustrating than it is in the UK. The choice is more limited, the flexibility more restricted, the fees more pointlessly punitive. The news that Carphone Warehouse is looking to expand into the US is, therefore, good news for the American consumer.
Retailers bloodied from their experiences on Main Street USA will, no doubt, say that it is bad news for Carphone Warehouse. After all, the New World has claimed plenty of British high street scalps: Sock Shop’s greatest mistake was its move into the US; Laura Ashley regretted it; even the mighty Marks & Spencer, after its miserable experience with Brooks Brothers, now forswears it.
Carphone’s plans clearly raise an issue about scale. They are, so far, understood to be looking only at a trial in the New York area. This means that the pressure that an intermediary can put on the big incumbents — T-Mobile, Verizon Wireless, Cingular and Sprint — is extremely limited. True, they have found a formidable partner in Best Buy, which has transformed the retail experience for electronics shoppers in the US. But Best Buy’s model is very different from the one that has made Carphone Warehouse such a success in the UK. Best Buy operates giant electronics superstores that sit on the edges of suburban malls; they do not have a presence in the heart of towns and cities where customers can easily pop in and switch cellphone contracts. Finally, the regulatory regime in the US has consistently mollycoddled incumbent telecoms operators.
All that said, Carphone Warehouse’s stock in trade is challenging the status quo. In America, the preconditions of success are there: a market dominated by a few dominant players, where customers are hungry for more competition.
Dot-com fad
LIKE other 22-year-olds, Mark Zuckerberg likes to sleep in late. In fact, the founder and chief executive of Facebook likes a lie-in so much that when Microsoft scheduled an 8am conference call as part of exploratory discussions about the purchase of his company for hundreds of millions of dollars, they were told to rearrange. Mr Zuckerberg would still be in bed. The lazy mornings seem to have done the value of Facebook no harm. Yahoo! is now reported to be exploring a bid for Facebook which could value the online flirting and friendship business at $1 billion (£526 million).
The social-networking site enables students to hook up electronically, and then romantically: members can “poke” each other with flirtatious messages. It was started by Mr Zuckerberg, then a Harvard undergraduate, in February 2004. By early 2005 it had more than one million users; last month it had nearly nine million. As Facebook has grown, so has the value of social-networking sites: News Corporation, parent company of The Times, bought the MySpace portal last year for $650 million.
Yahoo! seems to think Facebook is worth nearly double that but it is hard to see why. The student site has yet to generate as much as $100 million in online ad sales, meaning Yahoo! is considering a purchase at ten times revenues. Facebook’s growth also threatens its appeal: so far, its model has been the college campus yearbook, working best in small self-contained communities. And dot-com properties are notoriously faddish. Friendster, one of the original social- networking sites, was then eclipsed by MySpace. Now, all the buzz is around YouTube.
Yahoo! has some form when it comes to overpaying for online offerings. It bought GeoCities for $3.6 billion in 1999. Now in the midst of the second dot-com boom, the rumoured Facebook deal has worrying echoes of the first.
Then again, it is a mistake to write off Harvard dropouts. Bill Gates was one and he tops today’s Forbes Rich List with a net worth of $53 billion. This year everyone in the top 400 is a billionaire — and nearly all of them get up in the morning.
