Retailers warned: Brace yourself for financial meltdown
A different approach to selling – and ownership: John Lewis has 27 UK stores, three of them in Scotland … in Edinburgh (above), Glasgow and Aberdeen, employing more than 2,000 staff, or ‘partners’
Published Date: 10 January 2009ONE of Scotland's best-known retailers has warned that the loss of high-profile banking jobs will have a devastating impact on the high street.
Andrew Murphy, the general manager of John Lewis in Edinburgh, said the flagship store would fall from one of the company's star performers to among the worst.
He said this was because the city would suffer disproportionately from the economic downturn, amid concerns over huge job losses in the financial sector.
There are fears that thousands of posts could go at HBOS after the takeover by Lloyds TSB – and Mr Murphy's stark warning indicates the potential range of the impact of the crisis in the financial sector, the cornerstone of the Scottish economy. In an exclusive interview with The Scotsman, he predicted a "huge decrease" in business at John Lewis in 2009.
The retail bellwether's Edinburgh store is expected to be ranked third or fourth of the company's 27 UK outlets for 2008, but to fall to 26th in 2009.
Mr Murphy said he had to factor in a projected fall in sales to his budget for this year because of expected job cuts in the financial sector.
He added: "I am expecting Edinburgh to experience the second biggest decrease of all of our shops over the coming financial year, due to the job issues in the city and its reliance on the financial services sector. Figures for the week we are in right now show Edinburgh's sales are likely to be flat, while Glasgow and Aberdeen are going to see double-digit growth again. That will continue over the next year."
With the takeover of HBOS and the weakening of RBS, his comments underline fears that Edinburgh's reliance on the financial sector will leave the city particularly exposed to the downturn. Retail is seen as a key barometer to the state of the economy as a whole, and other high-end chains are taking into account possible job losses at major financial institutions next year.
Gordon Drummond, the manager of Harvey Nichols in Edinburgh, said he would have to make up market share from areas such as tourism to compensate for a drop in income from people working in the financial sector.
He said: "We are expecting to keep sales steady next year, despite a tough climate. However, we will have to work harder to get market share from elsewhere as our financial-worker customers have less disposable income.
"We are expecting a rise in sales from tourism, due to the falling pound making people more likely to holiday in the UK and the Homecoming event."
Analyst Niall Macdonald, director of retail at Jones Lang LaSalle in Edinburgh, said: "With the financial sector being such a big employer in Edinburgh, I don't think there's any doubt that significant job losses will have a major knock-on effect.
"Businesses are already tightening their belts in Edinburgh because of the economic downturn and there is generally less money around for things like wining and dining, which is clearly already having an impact on the likes of hoteliers and restaurant owners. One thing we shouldn't forget, though, is that Edinburgh is a major tourism destination and visitors are clearly going to be spending their money in shops."
Senior figures at Edinburgh council have spent the past few months warning of the city's vulnerability to the economic downturn.
Officials responsible for the capital's economic development have made clear their concerns about "significant repercussions" from major changes in the financial sector. It employs 30,000 people in Edinburgh – one in ten of the workforce – and the council believes it supports a further 53,000 jobs.
It has been predicted there could be as many as 40,000 job losses as HBOS's takeover by Lloyds TSB progresses. Many of the jobs are expected to go in Edinburgh, where the two companies employ more than 12,000 staff.
The future of the financial sector in the capital is seen as key to the delivery of some £7.5 billion worth of expected developments, including the regeneration of the city's waterfront, an overhaul of Princes Street and the expansion of Edinburgh Airport.
Last month, the council declared that some £600 million of new investment was needed over the next three years to help Edinburgh withstand the economic downturn. Officials delivered their gravest warnings yet about the potential impact of the financial crisis on the capital, stressing that urgent action was needed to tackle a host of previously "unimaginable" challenges.
Mr Murphy's warning yesterday came as John Lewis revealed surprisingly strong trading in the seven days to 3 January.
The group described the 27 per cent year-on-year increase in sales as a "truly inspirational result".
In Edinburgh, sales rose by 10.2 per cent – the second-worst performing store in the UK after London branch Peter Jones – although Mr Murphy claimed the result had been slightly skewed by it losing out on its late opening night, Thursday, because of the holiday closure on New Year's Day.
In Glasgow and Aberdeen, the increase was higher – with sales at both growing by about 20 per cent.
Mr Murphy said the current week was likely to see flat sales for the Edinburgh store, while Glasgow and Aberdeen were on track for another week of double-digit growth.
Ron Hewitt, the chief executive of the Edinburgh Chamber of Commerce, warned that the scale of cuts in the financial sector was still to be revealed. "We are really sitting in a climate in which the real job cuts have not yet happened," he said. "It is very difficult for anyone to know how that is going to pan out, partly because banks themselves do not appear to know exactly where they are going to trim staff."
He went on: "Edinburgh is obviously more exposed to job cuts than if it did not have a large financial services sector, and it is inevitable that there are knock-on consequences.
"However, in the financial sector generally, there are skilled people who are eminently employable and, although we may see job losses initially, these people may find it easier to find other jobs or set up on their own."
Richard Perks, director of retail at the analyst Mintel, said: "The financial sector is certainly the first to have been hit by the economic downturn and it is likely that there is a lot more pain to come."
Jane Wood, who chairs Essential Edinburgh, the company charged by businesses with revitalising the city centre, said:
"It's absolutely critical that Edinburgh takes steps now to try to weather problems which lie ahead.
"We must have much better marketing of the city centre as a retail destination than we have at the moment and ensure that everything possible is done to support retailers in the city."
The chain with 69,000 'owners'
JOHN Lewis can trace its history back more than 140 years.
In 1864, its eponymous founder opened his first shop in London's Oxford Street.
Two decades after the small drapers' shop was opened, the architect of the present-day partnership, and elder son of John Lewis, Spedan Lewis, was born.
In 1929, Spedan began transferring ownership to staff.
The firm has since gone on to become one of the stalwarts of traditional British department stores. Its famous promise of "never knowingly undersold" – a pledge to customers that the price of any item sold will always be as low as the lowest price in the neighbourhood – has been in use for more than 75 years.
John Lewis is effectively owned by its staff, who are known as "partners". It currently boasts more than 69,000 employees, runs 27 department stores, and also has some 198 Waitrose-branded food stores.
The company has a current turnover exceeding £6.8 billion a year.
Scotland's first John Lewis store was opened in Edinburgh's Frederick Street in 1943.
These days in Scotland, the company operates three department stores – in Edinburgh, Glasgow and Aberdeen, employing 1,000, 635 and 490 staff respectively.
The capital also has two successful branches of Waitrose, in Morningside and Stockbridge.
IN NUMBERS
30,000
people are directly employed by financial sector in Edinburgh
53,000
are in firms supported by the financial sector, including accountancy, law and IT
7
Number of Scotland's top 20 performing companies based in Edinburgh
6
Edinburgh's rating in Europe's league table of financial centres
43
Percentage of Edinburgh's population with degree-level or professional qualification
50,000
Number of people studying in Edinburgh
£7.5 billion
Value of major developments due in Edinburgh by 2028
£600 million
Level of investment council officials believe capital needs to secure in next three years
He said this was because the city would suffer disproportionately from the economic downturn, amid concerns over huge job losses in the financial sector.
There are fears that thousands of posts could go at HBOS after the takeover by Lloyds TSB – and Mr Murphy's stark warning indicates the potential range of the impact of the crisis in the financial sector, the cornerstone of the Scottish economy. In an exclusive interview with The Scotsman, he predicted a "huge decrease" in business at John Lewis in 2009.
The retail bellwether's Edinburgh store is expected to be ranked third or fourth of the company's 27 UK outlets for 2008, but to fall to 26th in 2009.
Mr Murphy said he had to factor in a projected fall in sales to his budget for this year because of expected job cuts in the financial sector.
He added: "I am expecting Edinburgh to experience the second biggest decrease of all of our shops over the coming financial year, due to the job issues in the city and its reliance on the financial services sector. Figures for the week we are in right now show Edinburgh's sales are likely to be flat, while Glasgow and Aberdeen are going to see double-digit growth again. That will continue over the next year."
With the takeover of HBOS and the weakening of RBS, his comments underline fears that Edinburgh's reliance on the financial sector will leave the city particularly exposed to the downturn. Retail is seen as a key barometer to the state of the economy as a whole, and other high-end chains are taking into account possible job losses at major financial institutions next year.
Gordon Drummond, the manager of Harvey Nichols in Edinburgh, said he would have to make up market share from areas such as tourism to compensate for a drop in income from people working in the financial sector.
He said: "We are expecting to keep sales steady next year, despite a tough climate. However, we will have to work harder to get market share from elsewhere as our financial-worker customers have less disposable income.
"We are expecting a rise in sales from tourism, due to the falling pound making people more likely to holiday in the UK and the Homecoming event."
Analyst Niall Macdonald, director of retail at Jones Lang LaSalle in Edinburgh, said: "With the financial sector being such a big employer in Edinburgh, I don't think there's any doubt that significant job losses will have a major knock-on effect.
"Businesses are already tightening their belts in Edinburgh because of the economic downturn and there is generally less money around for things like wining and dining, which is clearly already having an impact on the likes of hoteliers and restaurant owners. One thing we shouldn't forget, though, is that Edinburgh is a major tourism destination and visitors are clearly going to be spending their money in shops."
Senior figures at Edinburgh council have spent the past few months warning of the city's vulnerability to the economic downturn.
Officials responsible for the capital's economic development have made clear their concerns about "significant repercussions" from major changes in the financial sector. It employs 30,000 people in Edinburgh – one in ten of the workforce – and the council believes it supports a further 53,000 jobs.
It has been predicted there could be as many as 40,000 job losses as HBOS's takeover by Lloyds TSB progresses. Many of the jobs are expected to go in Edinburgh, where the two companies employ more than 12,000 staff.
The future of the financial sector in the capital is seen as key to the delivery of some £7.5 billion worth of expected developments, including the regeneration of the city's waterfront, an overhaul of Princes Street and the expansion of Edinburgh Airport.
Last month, the council declared that some £600 million of new investment was needed over the next three years to help Edinburgh withstand the economic downturn. Officials delivered their gravest warnings yet about the potential impact of the financial crisis on the capital, stressing that urgent action was needed to tackle a host of previously "unimaginable" challenges.
Mr Murphy's warning yesterday came as John Lewis revealed surprisingly strong trading in the seven days to 3 January.
The group described the 27 per cent year-on-year increase in sales as a "truly inspirational result".
In Edinburgh, sales rose by 10.2 per cent – the second-worst performing store in the UK after London branch Peter Jones – although Mr Murphy claimed the result had been slightly skewed by it losing out on its late opening night, Thursday, because of the holiday closure on New Year's Day.
In Glasgow and Aberdeen, the increase was higher – with sales at both growing by about 20 per cent.
Mr Murphy said the current week was likely to see flat sales for the Edinburgh store, while Glasgow and Aberdeen were on track for another week of double-digit growth.
Ron Hewitt, the chief executive of the Edinburgh Chamber of Commerce, warned that the scale of cuts in the financial sector was still to be revealed. "We are really sitting in a climate in which the real job cuts have not yet happened," he said. "It is very difficult for anyone to know how that is going to pan out, partly because banks themselves do not appear to know exactly where they are going to trim staff."
He went on: "Edinburgh is obviously more exposed to job cuts than if it did not have a large financial services sector, and it is inevitable that there are knock-on consequences.
"However, in the financial sector generally, there are skilled people who are eminently employable and, although we may see job losses initially, these people may find it easier to find other jobs or set up on their own."
Richard Perks, director of retail at the analyst Mintel, said: "The financial sector is certainly the first to have been hit by the economic downturn and it is likely that there is a lot more pain to come."
Jane Wood, who chairs Essential Edinburgh, the company charged by businesses with revitalising the city centre, said:
"It's absolutely critical that Edinburgh takes steps now to try to weather problems which lie ahead.
"We must have much better marketing of the city centre as a retail destination than we have at the moment and ensure that everything possible is done to support retailers in the city."
The chain with 69,000 'owners'
JOHN Lewis can trace its history back more than 140 years.
In 1864, its eponymous founder opened his first shop in London's Oxford Street.
Two decades after the small drapers' shop was opened, the architect of the present-day partnership, and elder son of John Lewis, Spedan Lewis, was born.
In 1929, Spedan began transferring ownership to staff.
The firm has since gone on to become one of the stalwarts of traditional British department stores. Its famous promise of "never knowingly undersold" – a pledge to customers that the price of any item sold will always be as low as the lowest price in the neighbourhood – has been in use for more than 75 years.
John Lewis is effectively owned by its staff, who are known as "partners". It currently boasts more than 69,000 employees, runs 27 department stores, and also has some 198 Waitrose-branded food stores.
The company has a current turnover exceeding £6.8 billion a year.
Scotland's first John Lewis store was opened in Edinburgh's Frederick Street in 1943.
These days in Scotland, the company operates three department stores – in Edinburgh, Glasgow and Aberdeen, employing 1,000, 635 and 490 staff respectively.
The capital also has two successful branches of Waitrose, in Morningside and Stockbridge.
IN NUMBERS
30,000
people are directly employed by financial sector in Edinburgh
53,000
are in firms supported by the financial sector, including accountancy, law and IT
7
Number of Scotland's top 20 performing companies based in Edinburgh
6
Edinburgh's rating in Europe's league table of financial centres
43
Percentage of Edinburgh's population with degree-level or professional qualification
50,000
Number of people studying in Edinburgh
£7.5 billion
Value of major developments due in Edinburgh by 2028
£600 million
Level of investment council officials believe capital needs to secure in next three years
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