Sharon White's radicalism at John Lewis is sorely needed

Department stores have been in decline for years; the rise of online retailing is relentless; and the pandemic is accelerating shopping trends. Even so, John Lewis’s plan to close a supposedly flagship store in the centre of Birmingham – opened as recently as 2015 – was a shocker on another bleak day for retailing jobs. If the UK’s best operator of department stores can’t see a way to make money from modern premises in the country’s second largest city, where can it?

There was also an intriguing subplot to the tale. The Birmingham opening was a proud venture of Andy Street, managing director of the John Lewis chain at the time but these days mayor of the West Midlands. Closure “risks being a dreadful mistake”, said Street, implicitly criticising his successors at the partnership.

For its part, John Lewis said the store, along with seven others (mainly smaller) earmarked to close, was “already financially challenged”. Perhaps it meant that Street should never have opened it in the first place. After all, John Lewis also has a similar-sized store down the road in Solihull.

That little quarrel can run, but Sharon White, chair of John Lewis since the start of the year, has signalled (again) her determination to be radical. She must be, of course, if there’s a chance that 60% to 70% of department store sales will be conducted online even after Covid-19 has passed. But the Birmingham decision suggests her full strategic review will go further than thought. How many of the remaining 34 department stores will be long-term survivors?

Meanwhile, shares in Hammerson, John Lewis’s landlord in Birmingham, fell another 9% and one can understand why. The group will have offered its tenant every possible enticement to stay, but couldn’t keep a prime client. If the outlook is weak for John Lewis, it is bearish in the extreme for landlords. Retail rents are down, but clearly have further to fall.

Rolls should not delay inevitable rights issue for too long

“The Covid-19 pandemic has created a historic shock in civil aviation, which will take several years to recover,” said Warren East, Rolls-Royce chief executive. You bet. Financial headaches for the engine-maker are compounding.

The initial whack was known – only 250 engines will be built this year, rather than the intended 450, as Airbus and Boeing slash production. But then there’s the collapse in actual flying to consider. The critical metric, which determines revenues from servicing, is “engine flying hours”. Minus 55% is on the cards for this year, but even 2021 levels are still seen 30% below 2019’s.

Then comes currency hedging, a fact of life for a civil aerospace division that gets paid in dollars but clocks up many of its costs in sterling. If the unit will shrink by a third, the same adjustment must be made to hedges. That will cost a thumping £1.45bn between now and 2026.

The good news, of a sort, is that Rolls has £8.1bn of liquidity after adding another £2bn borrowing facility. So, even with an astonishing cash outflow of £4bn this year, it can duck and weave for a while, assuming a prediction of a return to positive cash generation of £750m in 2022 remains solid.

Ultimately, though, borrowings are too high, which is why Rolls’ debt is now rated as junk. Shareholders expect a £2bn-ish rights issue. East should not delay the inevitable for too long.

Outrage is overdone, but one objection to Ofgem plan is fair

Jonathan Brearley “flunked” his first test as chief executive of the energy regulator Ofgem, grumbled Keith Anderson, boss of Scottish Power. A “half-baked” plan to halve returns for energy network companies is “gravely at odds” with the government’s ambition to boost green investment and create jobs.

Well, yes and no. Ofgem was mugged in the last price review five years ago. The companies made sky-high returns when interest rates fell. The losers, via their energy bills, were consumers. The regulator was bound to be stricter this time.

Besides, a real annual investment return of 3.95% – which is what is proposed from next April – ain’t so bad when you think about 10-year government gilts yielding roughly zero. The complaining bosses (and Anderson was merely one of many) have overdone the outrage.

But one objection is fair. The UK is competing with other countries for capital and cannot afford to be too far out of line with the international market given the need to accelerate energy transition. Thursday’s proposal was a draft. A fudged compromise ought to be possible.