Tesco’s plan this week to create 16,000 jobs was a reminder that not every retail employer is shrinking its workforce, but the broader picture is unmistakable. Job cuts in the sector are happening at the fastest rate since 2009, according to the CBI’s monthly survey of “distributive trades”, and worse is expected in September.
In one small respect, the CBI’s finding is surprising. For all the sound and fury, the retail sector had a half-decent end to the summer. Retail sales rose above pre-pandemic levels in July, according to last week’s data from the Office for National Statistics, as pent-up demand was released with the end of lockdown. August’s numbers may also be reasonable since some of the “eat out to help out” punters will have visited a shop or two on their way to the restaurant.
Retailers’ gloom, however, is easy to understand. The pent-up demand factor is a one-off; the eating-out scheme closes next Monday; the furlough wage support scheme is being tapered, to finish at the end of October. The gap will be filled by worries over consumers’ disposable incomes and, possibly, local lockdowns. Christmas will feel a long way off for those retailers not enjoying Tesco-style growth online.
Therein lies one of many challenges for the chancellor, Rishi Sunak: not all jobs can be saved, but a sudden crunch of layoffs would have multiplying effects. The end of the furlough scheme is a big moment for consumer-related parts of the economy.
VAT cuts and an extension of relief on business rates would help, but the most directly useful policy may be a 12-month cut to employers’ national insurance contributions for the most affected sectors. For many employers, it would move the dial more than a £1,000 bonus next January for taking a furloughed worker back on to the payroll. The bottom line is that something needs to follow furlough. Putting no new employment-support measures in place looks riskier by the day.
We have too many Avivas and too few Avevas
Here’s a rarity in Covid times: a $5bn (£3.8bn) acquisition by a FTSE 100 firm. The buyer is Aveva, one of the lowest profile members of the index for two reasons. First, it operates in the dry (but booming) world of industrial software. Second, it is 60%-owned by French partner Schneider Electric, albeit it is managed independently from Cambridge, where it started life 50 years ago as a government-funded research institute.
Aveva deserves more attention. It has been a spectacular investment for its shareholders. At the start of 2016, the shares were £10; now they are £46.46. The reverse takeover of Schneider’s industrial software business delivered a shot in the arm in 2018, and the latest deal aims to do the same.
The purchase is of OSIsoft, a Californian-based firm backed for the last few years by Japan’s SoftBank (a better investment for it than the WeWork silliness). The commercial logic is easy to understand. Aveva sells software that helps to design and run large facilities – everything from oil platforms to food processing factories; OSIsoft is more slanted towards the analysis of data in real time. Both are part of the big trend for industrial firms to seek productivity gains through clever tech.
The takeover price – 33 times top-line earnings – looks hideously expensive but most companies in this field come with hefty ratings. Certainly, Aveva’s investors saw little to fear. The shares rose 7%, despite the imminent arrival of a $3.5bn rights issue to part-fund the deal.
Add the value of soon-to-be-issued shares to Aveva’s current market capitalisation and you get £10bn. That is only £1bn shy of the value of near-namesake, Aviva, the giant insurer whose shares have fallen as consistently over 20 years as Aveva’s have risen.
Indeed, the relative progress of the two companies can be read as a parable. The UK economy would be in better shape if more expertise had been directed over the decades at smart software firms rather than tired financial services outfits. We have too many Avivas and too few Avevas.