Rose trying to flower again at Ocado
Bad companies will always beat good management – that’s how one analyst reluctantly summed up the chances of Sir Stuart Rose succeeding at Ocado as it was revealed that he is to become chairman of the struggling online grocery retailer.
The surprise appointment of Rose, former boss of Marks Spencer and one of Britain’s best-known retailers, is a real coup for the company, and swiftly sent its shares 6 per cent higher, taking them back above the 100p level.
However, this is still little more than half the 180p a share price at which the business was floated to a sceptical stock market in 2010.
Funded in 2000 by three former Goldman Sachs bankers, Ocado has yet to turn a profit and many retail analysts believe it never will: hence the comment about bad companies and good management.
The charismatic Rose is widely respected in the City for his retail expertise, and analysts are delighted to see him return to the stock market arena in a high-profile role.
Colourful and quotable, the 64 year-old clearly believes in the Ocado story despite the doubters, and no doubt feels presiding over a transformation of the struggling business would be a fitting final job to cap his glittering retail career.
Although Rose never really got to grips with MS’s lacklustre online offering during his time at Britain’s biggest clothing retailer, he is judged to have done an excellent job in reviving the group.
He has no doubt polished up his online expertise since leaving MS two years ago. Let’s hope so as the key thing about the Ocado is that, unlike its grocery delivery rivals, it has no stores.
Instead orders are filled from a dedicated warehouse, a business model many retail analysts fear is fundamentally flawed.
Ocado has been dragged down by the costs of constructing a huge second distribution centre that will see its capacity double to 300,000 orders a week.
After that, or so the Ocado team have been assuring the City, the profits will start to flow.
But the business faces serious challenges, not least the huge efforts rivals such as Tesco and Sainsbury’s are making to beef up their online operations.
And Waitrose, whose products Ocado delivers, is rapidly building up its own home-delivery service.
Not having a store chain does have its advantages, particularly in terms of costs, but there are significant disadvantages, not least of which is the lack of cash flow that the stores provide, as well as the absence of cross-marketing opportunities between the “brick” and “click” operations.
Without stores Ocado is also unable to take advantage of the growing trend for shoppers to “click and collect”, ie, order online for collection in-store.
Rose’s arrival certainly gives the Ocado doubters something to think about, but there is a feeling that it’s not just his retail expertise that the company might need.
Rose also has a track record of successful sales of businesses – in 1997 he defended Argos against a hostile offer from GUS before eventually squeezed out an excellent price for the business.
He later executed the merger of cash-and-carry operator Booker with the Iceland stores chain and, in the early 2000s, oversaw the sale of Arcadia to Sir Philip Green.
Ocado could be attractive to a stores chain without an online operation – Bradford-based Morrison’s, for example.
If he gets the timing right, Rose’s deal-making expertise could prove far more useful than his retail know-how.
How much longer will Britain retain its coveted triple-A credit rating? It could be only a matter of weeks, with the latest government borrowing figures showing the deficit stubbornly refusing to fall despite Chancellor George Osborne’s austerity drive.
As well as concerns about the deficit, credit ratings agencies are keenly interested in Britain’s sluggish recovery, or lack of. On Friday we’ll have a better idea of whether the nation is heading for an unprecedented triple-dip recession. Forecasts for the first estimate of fourth quarter economic growth range from a contraction in GDP of between 0.1 per cent and 0.4 per cent.
A second three months of decline will be needed to confirm the slide back into recession and, so far, the omens for the first quarter of 2013 are not looking good.
The heavy snow of the past week will have hit the service sector hard, and widespread school closures and transport chaos have kept many workers at home, with a knock-on effect on production.
So it looks like out with the triple-A and in with the triple dip.
Fiona Walsh writes for the Guardian newspaper in London