It’s that time of the year when the world’s financial and business “elite” gather in an expensive Swiss ski resort to drink champagne and declare that they are terribly worried about global inequality. This parody-defying event is the World Economic Forum in Davos and, to create the correct veneer of earnest contemplation, the organisers publish an assessment of the risks they think the world faces.
This year they have noticed “the growing mood of anti-establishment populism” and judge that reviving economic growth, which has been their cure-all for as long as anyone can remember, may no longer be enough to “remedy fractures in society.” That is why “reforming market capitalism must also be added to the agenda”.
Great, so what’s the big idea? Well, it’s really just a list of objectives. Try number one: “Fostering greater solidarity and long-term thinking in market capitalism.” You can’t beat a bit of fostering of solidarity, of course, but how, precisely, do you think this might achieved? You’ll scan the 70-page document in vain if you’re hoping for details. Chief executive pay – a burning issue not only in the UK – gets a passing reference, but only in the context of noting that it has increased “as firms have become larger”.
It’s easy to sneer, of course. Some people return from Davos claiming to have been stimulated, and not just by the hospitality of the 120 (count ’em) sponsors, mostly multinational companies. But can anyone recall any vaguely memorable – or even heretical – pronouncements from last year’s event? The only lasting impression is of how unfractured is the society of millionaire bosses enjoying each other’s company at shareholders’ expense. Please, one of you, use next week’s forum to point out the absurdity of Davos.
Profit woes expose how far Foxtons has fallen
A traditional view of Foxtons says the London-focused estate agent is utterly charmless, but the brilliance of its hard-charging, high-fee business model should be acknowledged. Perhaps it is time to revisit this thesis – not the charmless part, naturally, but the idea that Foxtons is as slick as supposed.
The latest profit warning on Wednesday revealed how far Foxtons has fallen in these “subdued” times for the London property market. Top-line profits for 2016 are forecast to be £25m on revenues of £133m. A profit margin of 18.8% doesn’t sound too painful but consider Foxtons’ recent history.
Between 2010 and 2016, it converted at least 30p in every pound of revenue into profit. The highest profit margin was 35.7% (2013) and the lowest was 30.7% (2015). In that context, a fall to 18.8% counts as a spectacular end to more than half a decade of stability.
That’s just how life goes sometimes, say Foxtons loyalists. In the jargon, the business is merely operationally geared – it has slow periods, as now, but then it coins it when the London market revs up. As long as the company doesn’t take on silly levels of debt (a lesson learned the hard way by one-time private equity owner BC Partners), it’s just a question of waiting. In the meantime, there’s a tidy living to be made from reliable lettings, now half the business.
Well, maybe. But Foxtons has 50% more branches than it did at flotation in 2013 (65 v 42) yet revenues were lower in 2016 than then (£133m v £139m). Can that all be explained by normal market volatility? Or is Foxtons also having to travel further into outer London to find house sellers willing to pay its “premium” – call it princely – commission rate on sales of 2.5%? Are cut-price agents like Purplebricks, charging substantially lower fees on a flat structure, changing sellers’ perceptions of a fair commission?
For now, Foxtons, even as its shares hit 96p, against a float price of 230p, seems unflustered and confident that its profit margins will recover one day. Maybe it will be proved right. But the supermarkets were also confident until discounters Aldi and Lidl showed that the game had changed.
Argos deal gives Sainsbury’s reasons to be cheerful
Christmas at Sainsbury’s was a comfortable snore. Like-for-like sales in the supermarkets advanced at the mighty rate of 0.1% in the quarter and like-for-like volumes were dead flat. One is obliged to say this performance was marginally better than the City had expected – and better than Sainsbury’s had achieved in recent quarters – but the real interest was in newly acquired Argos. That was lively: like-for-like sales up 4%.
It’s still early days – and profit figures are awaited – but it’s probably time to concede that the Argos purchase is looking like a smart piece of business. Selling food has become hard graft, and progress may continue to be measured in fractions of percentage points for some time yet. Argos, on the other hand, offers the chance of a fizz of excitement as Sainsbury’s opens stores-within-stores and cross-sells between two sets of customers.
There are risks in merging two big supply chains and securing the promised cost-savings from closing redundant Argos high-street outlets – but there were also risks in doing nothing in the age of Amazon.