Over the past 18 months, several large UK-based retail chains have been making huge moves to revitalise their dwindling businesses. Officers at the very top of their organisations are being knocked from their perches and, in a move designed to place blame and rid the firm of the perceived problem, these companies hope that a new face with novel ideas will be enough to mend relationships with customers, suppliers and shareholders. Having enormous influence on the organisation’s structure and strategy, the chief executive’s vision is instrumental to the firm’s performance. Succession events, such as the ones initiated by these retailers, are of critical importance to investors.
Kingfisher
Europe’s largest retailer of DIY home improvement products, Kingfisher (LSE: KGF) has struggled with weak demand in the French market, loss-making stores and uncooperative divisions. While former CEO Ian Cheshire held his title during a time when the company’s share price more than doubled, like-for-like sales were disappointing and the business had not been able to fully exploit huge opportunities in the UK housing market.
Significant changes were needed. Castorama chief executive Véronique Laury replaced Cheshire as group CEO this year, and the firm has put forth several initiatives in an effort to cut costs and spur demand. Inventory management is currently under scrutiny. Only 7,000 of its nearly 400,000 stock-keeping units (SKUs) are being sold at more than one of Kingfisher’s top five operating companies. This substantial inefficiency, Laury says, stems from a silo structure that breeds poor inter-company co-ordination. By restructuring its divisions, unifying corporate activities and standardising shared processes, the company hopes to leverage the company’s underutilised scale.
Kingfisher believes its customers are too limited in their shopping experiences. Instead of solely offering a traditional in-store format, the company is investing heavily to provide additional channels – web and catalogue sales – through which customers can conveniently make their purchases. If successful, Kingfisher can stimulate sales growth, curtail its fixed expenses and improve its margins.
Morrisons
Britain’s fourth-largest supermarket chain Morrisons (LSE: MRW) sacked its CEO in February. During Dalton Philips’ five-year tenure as chief executive, Morrisons’ performance has been truly dreadful. Like-for-like sales have plummeted, return on capital employed has deteriorated and market share has waned.
Morrisons has relentlessly pointed to outdated IT systems and difficult economic conditions as reasons for its misfortune. In a bid to stem the exodus of patrons, the company began providing additional channels – online and convenience sales – through which customers could shop. Both initiatives resulted in disastrous performance. With its managers’ negligible experience in the online grocery marketplace, Morrisons chose to acquire a company that perhaps knew a bit more. In 2011, Morrisons bought a nursery supplies retailer for £70m; of the acquisition price, £24m related to goodwill, which Morrisons claimed was an amount worth paying to educate senior managers about the e-commerce business. Morrisons sold this business in 2014 for £2m.
For the past half-decade, each of Morrisons’ annual reports describe largely the same corporate goals – to capture growth through e-commerce and convenience stores; to fuel sales volume by cutting prices; and to expand the scope of vertical integration by sourcing and processing food through Morrisons’ own facilities. Three months into his role, CEO David Potts has yet to announce any significant deviation from these strategies. And that presents an interesting opportunity for investors – with low expectations and a share price beaten down by the market, some new idea – any new idea – could be a catalyst of resurgence.
Tesco
Tesco (LSE: TSCO) shareholders have had to endure a wild ride over the past few years. During a calamitous period that included falling turnover, tumbling like-for-like sales performance and an accounting scandal that led to the suspension of four senior executives, shares have been bid down to levels not seen in more than a decade. Tesco sacked its chief executive last July and, since taking the reins in September, Dave Lewis has been trying desperately to steer the juggernaut away from further troubles. Under his direction, Tesco’s major strategic initiatives include downsizing the product ranges, boosting the availability of the most popular products and prioritising the UK business. So far, so good. While the credit may not be solely due to these initiatives, the decline in like-for-like sales is slowing and investors are becoming increasingly optimistic about the company’s outlook: shares have rallied 20% since hitting a decade-long bottom last December.
