As I write this at the start of July, the U.K. is still in the grip of partial lockdown. Although everything but nightclubs and indoor entertainment is open, social distancing measures and masks are still in place, limiting numbers and making it both uncomfortable and uninspiring to shop. The much vaunted requirement for “experiential” retail will have to wait until the U.K. is able to achieve a “post-COVID normal.”
Saying this, we are still very much an island. A traffic light system may control the countries we can go to without quarantining, but they may not let us in without restrictions at the other end. The same applies to visitors into the U.K. and with the much talked about “staycation boom,” Cornwall, Norfolk and the English Lake District are now more popular than London, Paris or Amsterdam. In preparation for those staycation essentials, we have all been shopping online.
However, the disruption to global shipping in the last six months, coupled with rising commodity prices and shortages, mean that goods are in short supply and expensive. The average cost of a 40-foot shipping container from China to the U.K. was $2,800. Now prices for goods being delivered in time for Black Friday are $25,000 per container — if you can get a booking. With Chinese New Year exceptionally early on February 1, 2022, these prices may well continue right through to peak. The price rises have been triggered by a long-running period of intense disruption in the container shipping industry, initially provoked by the COVID outbreak. A collapse in demand during the early stages of the pandemic was followed by a period of frenzied activity as people were forced to stay at home rather than travel or socialize and ordered large quantities of consumer goods. This provoked a raft of problems, including acute congestion around seaports and a shortage of containers for new consignments because many of them were sitting on quaysides around the world.
The Suez Canal blockage, twice by the Ever Given, closed some of the world’s busiest shipping lanes for nearly a week on each occasion, making matters worse as it played havoc with the schedules and exacerbated congestion at ports when the delayed vessels finally began arriving.
Most recently, an outbreak of COVID-19 in China’s Guangdong province had a significant impact on the Yantian International Container Terminal, one of China’s busiest ports, triggering yet more hold-ups and prompting warnings from experts that the knock-on effects could last for months. This has led to accusations of collusion between the 12 major shipping lines ex China, whose combined profit in the first three months of 2021 have been significantly more than that generated across the entire second half of 2020. Perhaps collusion is a little harsh, but it is certainly opportunistic, with carriers taking advantage of the capacity crunch.
The knock-on effect to retail, already forced to reduce stock to safeguard working capital and cash flow through COVID, means that many are now struggling to meet summer demand. Camping, outdoor and hiking equipment has been particularly hard hit, together with outdoor toys, games and picnic baskets. But the key components of cycles, mattresses and furniture are also in short supply, as are steel and carton cardboard. This has also made warehousing hot property as the need to buffer stock surpasses the mantra of “just-in-time” delivery. So, as everyone competes to make the very best of our second Northern Hemisphere summer in lockdown, we may all need to think out of the box.
Which is just what the very largest private equity (PE) companies have been doing to recover from a period of sparse deals but cheap money. It has led to their thinking even bigger and targeting some of the U.K.’s trophy assets in the department store space and food retail.
In mid-June an anonymous bidder was said to have approached Selfridges to buy it. Nothing has materialized at the time of this writing, but who is the mysterious bidder? Was it Bernard Arnault, the billionaire tycoon who controls the worlds biggest luxury company, LVMH, and spent 15 years and €750 million renovating La Samaritaine, a grand department store in Paris which finally opened its doors in late June to be the Art Nouveau temple for commerce on the banks of the Seine?
Elsewhere, the U.K. grocery market, dominated by the Big 5, (Tesco, J Sainsbury, Asda, Morrisons and Co-op) has been shaken by two major public to private takeovers. Asda, purchased by the EG group and TDR, received approval at the end of June. Now, the U.S. Fortress Group has had a bid accepted by Morrisons, but clearly subject to regulatory approvals. A PE/PLC mix will certainly change the shape of U.K. grocery retail in the 2020s as much as the assault of the German discounters did in the 1990s.
Our changing world, where anything is possible and nothing surprises!
Christine Cross is an MMR correspondent based in London. She can be reached at christinecross.com.