1. Comment
December 13, 2018

Next looks nimble as property deals haunt M&S and Debenhams

There’s a good reason why Next, despite having over 500 UK stores, is considered a better bet to survive the mid-market shake-out than its rivals – it didn’t make foolhardy property deals tying itself to long-term leases.

By GlobalData Retail

There’s a good reason why Next, despite having over 500 UK stores, is considered a better bet to survive the mid-market shake-out than its rivals – it didn’t make foolhardy property deals tying itself to long-term leases.

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Walmart: Going Beyond Company Disclosures

Walmart has rounded out its fiscal year with a strong set of numbers that show it has taken supply chain disruption, rising costs, heavy inflation, and various other problems in its stride. There is comfortable growth on both the top and bottom lines, which is extremely respectable given tough prior year comparatives. Walmart hiring is slowing down as compared to hiring in the months of April and March in 2022. Walmart posted close to 40,000 vacancies in March and 30,000 in April, which has gone below 10,000 in June 2022. Walmart Company Filings has most of the mentions related to the ESG and COVID-19 themes in 2021. ESG has more than 300 mentions in the company’s 2021 filings which indicates the rising focus on ESG-related issues. Our report on Walmart: Going Beyond Company Disclosures, demonstrates GlobalData Explorer’s ability to:  
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Both Debenhams and Marks & Spencer (M&S) used sale and leaseback property deals when e-commerce was less developed. This enabled them to return cash to shareholders while committing the businesses to very long-term leases.

All well and good for the shareholders at the time, but they were predicated on an assumption that the retailers had no right to assume – that store sales would continue to grow to support the high rental payments they committed to.

Retail property deals: a consequence of e-commerce

Some of those deals were conducted when analysts were already forecasting rapid e-commerce growth, which would, in the long term, minimise the need for, or profitability of, many stores. It is clear now that short-term desires won out over long-term strategic thinking.

For example, Verdict (since acquired and rebranded as GlobalData) forecast in December 2004 that non-food online spending would grow at a CAGR of 32.6% between 2004 and 2009 to £15.3bn, which was a fairly accurate forecast, given that the actual 2009 total of £16.4bn represented a CAGR of 34.8%.

Verdict were not alone in forecasting such high growth rates for online, and yet in 2005 Debenhams sold 23 freeholds to British Land for £495m, saddling itself with onerous 35-year leases in the process. Incredibly, M&S continued opening stores despite online’s obvious potential – it opened 46 full-line stores in the 2000s and another 35 since 2010.

The chart above shows that Next’s longer-term lease commitments are a fraction of those of Debenhams and M&S. While M&S can cover its current commitments, it needs to arrest its store sales decline to do so in the future, or pay out a lot of money to exit further stores. Debenhams is in a precarious situation, with store sales on a seemingly irreversible slide, and, without recourse to a CVA, Debenhams lacks the resources to exit stores at the rate it needs to.

Next’s property leases are structured very differently. Not only does a greater proportion of its stores expire in the next five years allowing it to renegotiate or close stores where necessary, but its lower long-term commitments mean that even if the mid-market channel shift to online accelerates, it would outlast its rivals, and benefit from their demise.

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Walmart: Going Beyond Company Disclosures

Walmart has rounded out its fiscal year with a strong set of numbers that show it has taken supply chain disruption, rising costs, heavy inflation, and various other problems in its stride. There is comfortable growth on both the top and bottom lines, which is extremely respectable given tough prior year comparatives. Walmart hiring is slowing down as compared to hiring in the months of April and March in 2022. Walmart posted close to 40,000 vacancies in March and 30,000 in April, which has gone below 10,000 in June 2022. Walmart Company Filings has most of the mentions related to the ESG and COVID-19 themes in 2021. ESG has more than 300 mentions in the company’s 2021 filings which indicates the rising focus on ESG-related issues. Our report on Walmart: Going Beyond Company Disclosures, demonstrates GlobalData Explorer’s ability to:  
  • Track and monitor a company’s movements through alternative indicators to gain insights into the strategy before it is disclosed by the company
  • Gain insight into a company’s capital deployment strategy, by assessing historical deal volumes and specific transactions executed by the company, in addition to identifying sectors of focus
  • Go beyond basic financial information, to access key industry-relevant indicators for a company and how these have progressed over time
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.