The chief executive of convenience retailer Scotmid yesterday warned the success of upcoming rent reviews would determine the future for a string of the cooperative’s loss-making Semichem stores.
John Brodie said he would lock horns with landlords in an effort to secure the future of “a number” of the chain’s 140 stores, amid a consumer spending environment which remains challenging despite a welter of positive indicators.
He warned Scotmid’s customers in Scotland, Northern Ireland and the north of England would continue to suffer a squeeze on spending for some time yet, and revealed how the group booked a £4.3 million impairment on the value of its discount chemist business.
But he said the cooperative had “outperformed” in a difficult market as it reported operating profits of £4.5m for the year to January 25.
The figure marks a 25% fall on the same measure last year, but Mr Brodie said the business had traded ahead of figures recently announced by the Scottish Retail Consortium.
That did not prevent the organisation falling to a pre-tax loss of £3m following further exceptional charges, including the cost of Semichem and Fragrance House store closures announced earlier this year and the integration of the Penrith Cooperative Society following last year’s merger.
Mr Brodie said Scotmid had taken the “prudent view”, and downgrading the value of Semichem’s assets was “the right thing to do”.
“There are a number of Semichem branches which aren’t making money,” he said.
“We have honoured our lease commitments, but when there is an opportunity through a break or a renewal we will negotiate hard with landlords.
“Our priority is to try to keep these stores open, but landlords have to recognise that certain high streets are significantly different from where they were a few years ago.”
But he warned he would not shy away from closure decisions if they were in the group’s best interests, with things still “very, very difficult” away from the south east of England, and Northern Ireland’s high streets proving especially challenging.
“It was a few years after the technical economic recession hit in 2008 before we saw a real change to consumer habits, and our expectation is that while there are now positive economic indicators coming out, it will be a while before that translates into confidence and begin people spending again,” Mr Brodie said.
“For a good few years now, people’s disposable income has been reducing, with wage inflation below real inflation.”
Scotmid continues to refit stores as part of its segmentation plan, with investment in the estate and its ranges set to continue.
Mr Brodie also said returns had been hindered by a significant six-figure reduction in the dividend his organisation attracts through its wholesale custom of the scandal-hit Co-operative Group, which last week announced annual losses of £2.5bn.
The supply agreement had previously resulted in a profit-share payout running into “low seven figures”, he said.
January’s decision to close down the “extended trial” Fragrance House retail brand after four years, including units in Dundee and Falkirk, was a difficult one, said Mr Brodie. However, the experiment had reached the point where significant investment was required, and managers felt capital was better directed elsewhere.
Mr Brodie stressed the society, where assets total around £90m, still had a strong balance sheet despite an increase in debts, adding that its decision to purchase rental property in Edinburgh showed the organisation was still “investing for the long term”.