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Published on March 15, 2021 by Holly Porter

What’s been happening in the commercial world this week? Read on to find out!

John Lewis & Partners Struggles

British department store John Lewis & Partners has announced further store closures in the coming months. There are reportedly 8 more at risk, for which a final decision will be made at the end of March. The news comes after the retailer closed 8 stores in July 2020, at a cost of 1300 jobs. Across the year, John Lewis reported a pre-tax £517m loss, marking the first annual loss in history and, for the first time in 67 years, staff will not be paid a bonus. For reference, in 2019, the company saw profits of £146m.

The annual loss comes largely from the write-down in value of John Lewis’ 42 stores, estimated to have depreciated by as much as £470m, as well as restructuring and redundancy costs. Interestingly, sales remained rather flat, only slipping 4%, due to an increase in technology sales, which largely offset the reduction in clothing and beauty products. The retailer was also able to capitalise on the pronounced move to online shopping. The department store credits the £190m it has received as government business support relief for facilitating this. Before the pandemic, 42% of the store’s trade took place online. This has risen to 75% in March 2021.  In response to predictions that 70% of John Lewis’ sales will be online from 2025, even when stores are open, Chairman Sharon White has committed to an £800m turnaround plan over 2021-22. A large part of this will fund online infrastructure. Accordingly, John Lewis expects next year’s cash levels and profit to be worse than 2020 before improving in 2022.

John Lewis subsidiary grocer Waitrose has had a vastly different pandemic experience. In 2020, trading operating profit (a company’s earnings after all expenses are taken out, bar the cost of debt and taxes) grew 8% to £1.1bn. Sales in 2020 were up 10% year-on-year, with the website taking 240,000 orders a week at times. There has also been a notable increase in demand from August 2020, when Waitrose’s partnership with online grocer Ocado ended. Despite this strong performance, grocery sales were not able to offset the problems at the group’s department stores. As such, the partnership will continue to claim business rates relief between April and June this year. This differs from competitors Tesco, Morrisons and Asda who have all claimed they will return, collectively, £1.7bn in rates relief, after strong 2020 performances.

Talking point: What will the closure of more John Lewis stores mean for British highstreets?

A Look at Serco

The British company has been criticised in the headlines this year over its controversial ‘Test and Trace’ service.  But, what exactly is Serco? It is an outsourcing company that specialises in public sector work, handling over 500 contracts worldwide. It derives its income as a contractor from the provision of government services. At least 40% of its revenue comes from UK operations, but the company also operates in Continental Europe, the Middle East, North America and the Asia Pacific region (APAC).

In the UK, Serco operates in the public service provision for Health, Transport, Justice, Immigration, Defence and Citizens Services. A few examples of Serco’s work include operating the London Cycle Hire Scheme, or more popularly known ‘Boris Bikes’ for Transport for London (TfL). Serco also operated the Northern Rail franchise from December 2004-March 2016. Serco managed the UK’s National Physical Laboratory (NPL) in Teddington, and provided IT Services, Industrial Support and Cryogenic Operations Support at CERN.

Servo is no stranger to controversy, having been embroiled in an overcharging scandal in 2013. The Ministry of Justice entrusted Serco with a contract for monitoring electronic tagging. Subsidiary Serco Georgrafix overcharged the government, electronically monitoring people who were dead, in jail or had left the country. As a result, the company was forced to pay £68.5m compensation to the government in 2013, and fined a further £19.2m in 2019.

Test and Trace

So what was Serco’s involvement in the government’s COVID-19 Test and Trace programme? Serco was appointed by the government to employ contract tracers. The company was paid £108m for the first phase of their work, up to late August. Criticisms include the fact that the scheme has been relatively unsuccessful. For example, in the week to 7th October 2020, NHS Test and Trace had only reached 62.6% of those who had been in contact with someone who had tested positive for the virus. In contrast, local public health teams were able to reach 97.7% of contacts in the same period.

Others are concerned about the involvement of the private sector in the pandemic response – there is no information about the payment Serco is receiving for their work. Chief Executive Rupert Soames reports that COVID-19-related work amounts to only 1% of the company’s profits. In 2020, Serco reported pre-tax profits of £153.3m, soaring from £80.7m in 2019. In February 2021, Serco resumed dividend payments to shareholders. Unison, the UK’s biggest union, has been critical of this arguing that no-one should be profiting from Test and Trace, particularly when the system has failed.

Talking points: What are the pros and cons of private sector involvement in the pandemic response? What is profiteering? Do you think this is relevant for Serco’s awarding of coronavirus contracts?

End of UK-US tariffs

In 2004, European aeroplane manufacturer Airbus overtook its US rival Boeing as the world’s largest aeroplane manufacturer by deliveries. Soon after, the US launched a complaint with the World Trade Organisation (WTO) that European governments unfairly subsidised Airbus with illegal funding of $22bn. Since then, both parties have engaged in a series of retaliatory trade measures including subsidies and tariffs which have damaged their respective economies:

  • The US was awarded $7.5bn of retaliatory trade measures by the WTO, which it used by adding a 24% tariff to Scotch malt whisky, UK cashmere sweaters and biscuits exported to the states. This led to a £200m fall in whisky exports to the US.
  • In November, the WTO allowed for the EU to enforce duties of up to 25% on £3bn worth of US goods. This includes US imports of tractors, ketchup and orange juice.

However, as of the 1st January 2021, tariffs were suspended in the UK. Brussels has since disputed that the UK had the right to act unilaterally in a trade dispute between the EU and the US when it left the bloc. In response, last week, the Biden administration announced the US would temporarily lift punitive tariffs on £550m worth of UK exports as the two parties seek a longer-term solution. The rapprochement will positively affect UK exports such as Scotch whisky and stilton cheese.

However, the antecedent problem of aeroplane manufacturer subsidies is still concerning. Both Brussels and Washington are under pressure to resolve their dispute. In 2017, the International Air Transport Association predicted China would become the world’s biggest aviation market by 2024. The pandemic has accelerated this, with China now leading the global recovery of aviation activity. Whilst Boeing and Airbus are keen to maintain their market position with their B737 and A320 planes respectively, China’s COMAC C919 is now at the stage of flight testing.

Talking points: What does the Biden Administration mean for the US-UK and US-EU trading relationships? Can China break the global duopoly of aeroplane manufacturers?


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General Electric Invests in Teeside

US conglomerate General Electric plans to build an offshore wind blade manufacturing facility in Teesside, North England, creating 750 direct renewable-energy jobs and up to 1,500 indirect jobs in the area. General Electric’s Denmark-based subsidiary LM Wind will set-up and operate the plant. The factory is planned to open in 2023 and will be part of the Dogger Bank Wind Farm project. This is a three-phase project comprised of Dogger Bank A, B and C in the North East of England which will create the world’s largest offshore windfarm, capable of powering 5% of UK demand. This equates to around 6 million British homes. The contract has been lauded as a success both for the government’s environmental agenda, as well as a boost for ‘levelling-up’, providing new job opportunities in the North East.

Talking point: How does the UK compare globally with respect to offshore windfarms?

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