Warehouses full of bad news for high streets

City & Business
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The Independent Online
FIRST Rumbelows, then Dillons and Ryman, now Dewhurst. Some of the most familiar names on the high street are facing closure or radical surgery. Dewhurst, the Vestey family butcher's shop chain, the largest in the country, is not yet at the knacker's yard. The receivers Ernst & Young will continue to operate the 350 shops in the short term in the hope of finding a buyer. Indeed, they have received 50 approaches from potential buyers for chunks of the business.

But it is highly unlikely Dewhurst will survive in anything like its current shape or size. Ernst & Young, fresh from its success in finding new owners for Barings, would have more chance of breathing life back into a filet mignon.

Traditional high-street butchers, like traditional high-street bakers and greengrocers, have been decimated by the all-conquering out-of-town superstores. In the last 10 years specialist butchers' sales have fallen by 12 per cent by value and much more by volume. Other specialist food retailers have a similar tale to tell. Superstores took less than a quarter of all grocery sales a decade ago; they now account for more than 60 per cent.

However much we may in theory prefer small, personal, food shops, when the crunch comes we pile into our cars and head for cavernous, impersonal sheds. The convenience, speed and choice of superstores are irresistible for most people.

But large sheds, per se, are not enough, as Nurdin & Peacock, the cash- and-carry operator, has found to its cost. Last week it gave up on its fledgling Cargo Club business, selling the three super-stores to Sainsbury. Cargo Club was based on the American "warehouse club" format. Customers pay an annual fee to become members. Products - food, clothing and consumer durables - are stacked in spartan conditions but the prices are very low. The experiment has been a disaster for N&P, costing at least £16m.

The warehouse club format was supposed to be the future. Other retailing formats imported from America have quickly cleaned up here. So-called "category killer" stores like Toys R Us have grabbed market share from more conventional retailers. Analysts expected similar success for warehouse clubs.

Cargo Club seems to have gone wrong by marketing itself to ordinary consumers rather than small businesses. The average spend was fine, but customers weren't coming back frequently enough.

CostCo, the American-owned rival to Cargo Club, seems to have fared better. It has wooed small businesses - restaurants, hotels and corner shops - and is beating its targets. It is still too early to write off the warehouse clubs.

Reeling out the cable

NEXT time you hear someone complaining about the short-termism of the City and how investment institutions are too demanding about immediate profits and dividends, show them a prospectus from any cable television company.

General Cable is the latest to announce its flotation, which it aborted last May. The French-owned company, which has operations in Middlesex, Yorkshire and Birmingham, is planning to raise around £200m in a London float that will value the company at around £600m.

Its prospectus is hardly enticing to the impatient investor: the group "has experienced significant operating losses since inception" - £77m all told. "Further losses . . . are expected and there can be no assurance that the group will become profitable in the future."

There's more. The company warns that it cannot be sure it will raise the £644m necessary to complete its cable networks. It could have its licences revoked if it fails to meet minimum-build milestones set by the regulator Oftel. And there is no guarantee it will be able to buy programming at acceptable prices in future.

Despite the warnings, there is every chance that General Cable will find new investors. TeleWest, a rival operator, successfully floated last year. Two other American-owned companies, Nynex Cable Communications and Bell Cablemedia, are scheduled to raise new money from London listings over the next few weeks. Videotron, the London cable company, is currently floating on the fast-growing NASDAQ exchange in New York. UK institutions have learnt much of the cable industry in the last six months. They like the potential of the telephony - much more important than the television side - and they are getting less uncomfortable with the discounted cash flow techniques required to put any kind of value on loss-making businesses. Even so, three cable company floats in short order risks a bout of indigestion.

Making of a monster

THESE are interesting times for Camelot, the company that runs the National Lottery. As we report on page 3, public opinion may be about to turn against it. It has been seen as a nice company that makes millionaires out of ordinary folk and channels millions to good causes. But its metamorphosis into a monster gobbling excess profits could be swift.

Where public opinion leads, politicians and regulators are bound to follow. Labour backbenchers are already talking about a windfall tax on Camelot. Oflot, the lottery watchdog, hasn't shown any teeth yet, indeed it did not fine Camelot when it failed to meet all its launch promises last November. But it has frightening powers.

It is too early to measure Camelot's likely profitability. It only launched its scratchcard service last week. It won't be up to full strength on its terminals network till December 1996. Assessment is further clouded by the complexity of its licence agreement. There are no less than 48 different percentages governing how much it pays to good causes, and revenue bands are subject to adjustment for inflation.

The biggest profits will come in the final years of its seven-year licence. So by the time we are ready to judge its true profitability, Camelot will probably be wound down, its dividends long since distributed. Its first set of results are due out in the summer, but the true value of Camelot to its shareholders won't show up in the figures. Much of its operating costs are for goods and services supplied by its five owners. Camelot can therefore chalk up high operating costs - and therefore acceptably modest profits - while keeping shareholders more than happy.

If Camelot wants credibility with the sceptics, it will have to publish full details of its contracts with its five shareholders. The odds on that are about the same as my chances of winning the lottery.