Short-sellers target Sainsbury's on Tesco fears

News in The Telegraph that short-sellers in the stock-market are betting that Sainsbury's share-price will fall as a result of Dave Lewis sacrificing Tesco margins to regain market share, offers a valuable insight-tool for NAMs wishing to anticipate additional pressures on the retail-buyer in the supplier-retailer relationship i.e. buyers are increasingly remunerated by share-options in their own company.

In short-selling Sainsbury's shares, the market believes that Tesco has more scope for cutting prices than Sainsbury's bottom line would allow.

As you know, short-selling is a process whereby stock-market traders bet that the share-price will fall by borrowing shares of a company, then selling  them 'short' at the current price. They then hope to buy them in the market at a lower price when it is time to fulfill the contract, thus making a profit on the deal...

The percentage of a company's shares 'on loan' in this way can be tracked (see Short Tracker) and the greater the percentage, the more shorting of the stock is going on, meaning that the market believes that the share-price will fall.

For instance, Short Tracker's details this morning on the top most-shorted retailers are as follows: (the % is the amount of a company's shares currently 'borrowed')
-  WH Smith        11.4%
-  HMV                 8.1%
-  Sainsbury's         8.0%
-  Ocado               5.6%
-  Morrisons          4.72%
-  Debenhams        3.13%

Another NAM tool to add to your repertoire!

Thanks to Richard for his persistence re this short-sell pointer.

NB. Should you be tempted to try some short-selling, it must be emphasised that the bet is on the price going down. If, for whatever reason (i.e. a sudden takeover bid) the share price rises, and the rise can be infinite, the short-seller is still legally liable for fulfillment of the contract, thereby losing the difference between the latest purchase price and the selling-price on the sell-contract.....!

NB. We wish to stress that we are in no way recommending dealing in shares, we are simply making observations re market activity in retail and other stocks in which our readers may be interested as part of the supplier-customer trading relationship.

HMV: Grocery Lessons in Survival?

News that Hilco is set to rescue HMV from 3-months administration added to the belief that music companies and film studios have agreed new supply terms with HMV and are backing the deal, means that the company has gained some breathing space…

As suppliers will be unable to offer unilateral support that not also available to other retailers, including grocery, the aim of music companies and film studios should be to reward HMV for any in-store activity that improves and delivers category performance. This support could also be offered to the grocers and mass retail.

However, given that online has possibly made the home entertainment format redundant, survival could depend on HMV being run more like a grocery shop, a format that manages to survive against impossible odds…

Leaving the ‘romance’ of home entertainment retailing aside for a moment, there are a number of grocery measures that could be adapted to the new HMV finance-based model, ideally with the support of suppliers…

Overall, the aim should be to make HMV home entertainment retailing comparable with leading edge major multiples as follows:

• Retail pricing: Suppliers need to set shelf pricing within an omni-channel strategy that will optimise the store model, and reduce unplanned leakage via other routes to consumer
• Net Margin: From its current net losses of 13%, HMV needs to achieve net margins of 5%+. This should start with average Gross Margins of 25%, allowing for 15% to run the shop, and 10% to cover central overheads and net profit.
• Sale-or-return: should not be offered, given that it can remove the incentive to sell and maintain the range and condition of in-store stock
• Stockturn: the grocers manage average turns of 20+, with individual SKUs  varying in response to demand. This can mean suppliers delivering some titles several times per day, if necessary (good practice for dealing with the grocery guys)
• Space Management: Again, leading grocers achieve £1,000 per sq. ft.  per annum on their store areas, with footprint of their fixtures/gondolas over-performing to 'carry' the non-selling space in the aisles. Given the near-vertical merchandising of CDs and DVDs i.e. minimum foot-print, this should be a no-brainer KPI for HMV
• Credit period: In the short term, credit should be limited to 30 days to encourage financial discipline in what is a cash business at point-of-sale.  The current 45-90 days enjoyed by some retailers is a ‘temporary’ aberration that will be corrected as soon as a government begins to fully appreciate the damage being done throughout the demand-supply chain
• NAM/KAM involvement: Acting as leading-edge retail business consultants to the store, with 50% of the NAM/KAMs‘  costs covered by the supplier’s advertising budget, if necessary, given their contribution to brand-building in the aisle

Having covered the above basics of good shop-keeping, HMV will then be in a position to apply all the ‘romance’ of the entertainment category (within a category management & shopper-marketing envelope), and really show the grocers how to optimise home entertainment retailing …

Meanwhile, have a really romantic weekend, from the NamNews Team!

Best prices ever, but still 'just browsing'....

                       pic:Brian Moore, Moorgate 25th February 2013

An e-pic closure tells the story.......