Morrisons Deal Won't Affect Waitrose, Says Ocado

Food delivery business Ocado has insisted that a deal to supply Morrisons groceries to customers will not affect its existing deal with Waitrose.

The deal will be 'complimentary' to Ocado's agreement with Waitrose and the operation would be run separately, it said.

'Ocado customers would continue to buy exclusively from the existing Ocado, Waitrose and branded ranges,' Ocado said this morning ahead of its Annual General Meeting. Former Marks & Spencer chief executive Sir Stuart Rose will take over as chairman at Ocado from Michael Grade at today's meeting.

Ocado also said discussions with Morrisons do not involve the supermarket taking a stake or buying the business outright. It added there was 'no certainty' of a supply deal.

However, the negotiations appear to be hard fought despite investor expectations that it will benefit Ocado. 

Morrisons' new finance director Trevor Stain told the Guardian newspaper: 'We are not dependent on Ocado to go online. What we've said is were talking with Ocado but we may or may not work with them.'

Retail analyst Nick Bubb said the 'continuing delay' is getting 'tiresome'. Shares in Ocado have soared by about 25 per cent since the beginning of the month on expectations over the deal. They closed at £2.09 yesterday valuing the business at £1.28 billion. 

Marks & Spencer Says Online Supply 'Too Slow'

Marks & Spencer has complained that previous management teams have failed to invest in the chain and that its supply chain is 'too slow'.

Speaking to the Independent newspaper at the opening of its giant e-commerce delivery centre in Castle Donnington, Leicester, the firm said the new warehouse will improve service and delivery times.

The retailer's chief executive Marc Bolland is trying to stem a decline in clothing and homewares. His finance director Alan Stewart said the chain had 'underinvested' in systems and infrastructure for two decades. 

'Overall, we have  a slow and expensive supply chain with poor availability and this represents a big opportunity for us,' Stewart told the Independent. 

In previous articles we have estimated that M&S's online sales were about £650 million last year compared to £1 billion at rival department store John Lewis which is a similar size by total sales. 

The 900,000 sq ft centre will be able to process £1 million items a day when it is fully operations.

Sainsbury's: Click & Collect Won't Work For Us

Sainsbury's chief executive Justin King said yesterday that a 'click & collect' service wouldn't work for the chain because of the size and accessibility of its stores.

The observation appears to be at odds with other retailers that have pushed the strategy as a way to get shoppers addicted to online shopping back into shops.

King said Sainsbury's stores were on average smaller than those of rivals like Asda and Tesco and mostly in more accessible areas nearer towns. He said that made journeys more easy and made setting up a click and collect service for shoppers less attractive.

King said yesterday online food delivery sales nearly reached £1 billion in the year to March. He also said the service was profitable and made shoppers more loyal, despite concerns that profit margins are thin and supermarket struggle to make it profitable.

Analyst Clive Black at stockbroker Shore Capital said in a report last year that the cost of the service could be as much as £20 per visit. He said that meant shoppers making the effort to visit supermarkets were subsidising the service. 

Expectation High Over Morrisons' Ocado Deal

Supermarket Morrisons said this morning it will announce plans for its online delivery service in September that will aim to bring it in line with its three bigger rivals.

The supermarket is expected to outline a deal with delivery firm Ocado which distributes Waitrose products as well as its own brand. It said it will launch the service by January.

Although some investors have feted the deal as the dawn of a new era for Ocado - the shares rocketed yesterday in the hope that Morrisons would say more - others fear it could leave the deal with Waitrose in jeopardy.

Ocado shares rose 11.5 per cent yesterday to £2.10, the highest price for nearly 2 years. That values it at £1.3 billion even though it still make little profit. Some investors believe that Morrisons may try to buy Ocado, although it seems more likely that it will use the firm's services as a fast track to try to catch rivals. 

Sainsbury's said yesterday that its online food service had almost reached £1 billion in sales. Asda is believed to have a similarly-sized business while Tesco's is at least twice that size. 

Morrisons said this morning that same-store sales in the 13 weeks to May 5 fell 1.8 per cent which some analysts have blamed in part on its lack of a grocery delivery arm.

Sainsbury's chief executive Justin King outlined yesterday that using online delivery made customers more loyal even though many analysts fear that it is a drain on profit. 

Next Gets 8.9% Boost From Directory

Sales at Next have increased 2.2 per cent after the company received a boost from its online and catalogue business.

Next Directory sales rose 8.9 per cent in the 14 weeks to May 4 while stores sales, including new openings, fell 1.9 per cent. It said it expects profit for the year to be between £615 million and £665 million.

Next published a graph with its statement this morning (showing sales variance rather than total sales) to show how volatile total trading has been for the past three months:

The Company said in its statement: 'It is apparent that the poor March figures were down to an abnormally cold spring, equally the good weeks since mid April have been boosted by pent up demand from the previous month. We believe that neither period is indicative of any significant change in the underlying economy.'

'We remain cautious about the consumer environment. We anticipate that the continuing decline in real earnings will depress discretionary spending for at least the next eighteen months, if not longer,' the company said. Last month chief executive Simon Wolfson gave part of his bonus to staff.

Online Sales Rise 8.3%, Says BRC

The British Retail Consortium said this morning that online sales rose 8.3 per cent in April in what was a very slow month for retailers. 

The rise compares to a 0.6 per cent decline in total UK retail sales last month and a 9 per cent rise in online sales in the same period last year. 

Total sales figures for April, adjusted for 0.4 per cent inflation, fell 1 per cent and over the three months, which irons out the impact of a shifting Easter, growth was 1.6 per cent.

Last month the BRC, which includes all non store sales including phone and mail order, said online sales increased by just 6.6 per cent. That compared to an 11.5 per cent increase reported by the Office of National Statistics. Both figures represent non-grocery spending.

Comment: it is worth mentioning that the BRC figures are beginning to look a little low compared to other sources. Two other measures for March, both of which track a wider spend than just store sales, showed even higher figures. 

Firstly, Barclaycard said the increase in spending it tracked, about half of all online sales, said the rise was 12 per cent. Secondly, the internet retailing association the IMRG said the increase was 13 per cent. We'll keep you updated when these other figures are released for April. 

We're tempted to say that the ONS figure is the best measure of pure 'online' retailing. The reality is that all the figures tell us something (the IMRG includes holiday and flight spending in its figures, for example, as we suspect does Barclaycard) and over the coming weeks we'll try to dissect exactly what we can and cannot see from each of the figures.. 

US Online Tax Rules A Step Closer

The US Senate last night voted overwhelmingly in favour of new tax rules for online purchases.

The Democratic-controlled Senate voted 69 to 27 to support the measures. However, it is expected to face greater resistance in the House of Representatives. 

The rules would enforce state tax laws on spending at US and overseas web sites. It will mean that any retailer selling to US citizens, including online firms in the UK, will be expected to collect tax on the purchase and send it to the state where the purchase was made. 

It has been identified as a potentially 'significant burden' for smaller UK retailers, according to London-based fashion web site Asos at the weekend.  

Republican politicians have raised the issue as a banner against increased taxes and it has also met resistance from online retailers including Ebay. Traditional retailers including Wal-Mart are supporting the change which they say has long since favoured online-only retailers such as Amazon. 

Amazon has resisted the plan until recently when it has begun to open warehouses in individual states to improve delivery speeds. It has now become an unlikely supporter.

At present, shoppers are expected to fill in returns to pay state sales taxes but none do. The legislation will put that obligation on the retailer. Asos said it will add a function onto its site to allow it to add individual taxes on at the checkout stage. 

However, it said the process will have 'many complexities.' Not only do sales tax rates differ from state to state but rules can also vary in cities and state counties. That means UK firms could be faced with completing dozens of returns a month to prevent clashing with the US tax authorities. 

The rules will encompass all retailers will online sales of $1 million or more. Groups such as Ebay and Etsy say that should be increased to $10 million.

Amazon's Domain Claim Contested

Amazon's bid to register its name as a key domain name in a massive overhaul of internet addresses has been been hit by a major snag. The Brazilian government, arguably the real owner of the 'Amazon', doesn't like the idea. 

A successful attempt would mean Amazon would be able to use its name in place of .com and .co.uk at the end of domain names. It has applied to register the name, alongside scores of others, as a so-called Generic Top Level Domain that would mean it would rank alongside 22 existing categories (.com, .gov etc) and 250 country categories. 

That would mean it could use .amazon and others such as .shop, .song, .book and .kindle. But the Brazilian government is, perhaps understandably, appealing the attempt and has asked for Amazon to withdraw the registration. 

Each domain application costs around $185,000 and must be made to The Internet Corporation for Assigned Names and Numbers (Icann), a not-for-profit organisation organisation based in the US which plays a key role in governance of the internet.

Both Brazil and Peru say a private company should not be given the right to assign a name that relates to such an important geographic area. Brazil says it has the support of other members of the Amazon Co-operation treaty which include Bolivia, Colombia, Ecuador, Guyana, Suriname and Venezuela. 

'Allowing private companies to register geographic names as gTLDs to reinforce their brand strategy or to profit from the meaning of these names does not serve, in our view, the public interest,' the Brazilian government said in a statement.

Amazon's rival in the US Barnes & Noble has objected to Amazon's applications for .book and .author - although not .amazon. 

Icann appears to have acknowledged the complications that have arisen in its plan to widen the use of domain names. It has put the approval of disputed names on hold and also suggested that the holders of new names will be placed under greater restrictions that existing ones. 

Meanwhile, Argentina has lobbied against US outdoor retailer Patagonia's application for its name as a gTLD and China has complained over hotel chain Shangrila's application. 

However, The Guardian newspaper has pointed out that Shangri-la in Yunnan province was only named so in 2001 which was well after the establishment of the hotel chain. 

The first approved names should be in use by the end of the year. Disputed names will be further debated by Icann in July.  

Comment: US Online Tax Row Hits Britain

News of the political tax row over online shopping in the US has finally hit the UK.

Fast growing internet fashion site Asos has confirmed concerns we have raised on the site that the ripples would reach here sooner or later. It has said today it was already preparing for a change in the law by re-engineering its site to stay ahead of US tax laws.

Tomorrow the Senate is expected to pass a law that could ultimately force UK firms to collect taxes on behalf of US states. From the Senate, the legislation will pass to the US House of Representatives where it will be further debated later this year.

At present, state sales taxes on internet shopping are supposed to be declared and paid for by consumers on individual tax returns directly to the state in which they live. The Marketplace Fairness Act will shift the burden onto online retailers. If the obligation were made monthly then it would potentially require dozens of tax returns a month sent over to the US. 

Senior British e-commerce sources we have spoken to believe it could take some time to implement the tax proposals. They say the earlier the problem is dealt with the better.  

Asos has clearly concluded that, although the row is politically far from decided, it does not want to be caught out if legislation is passed though quickly. When this kind of thing has happened in the past, US law enforcement agencies generally don't give much quarter. See the changes to online gambling laws that came in overnight in 2006 and the arrests of UK-based executives that followed. 

Apparently, our sources say, some other large retailers in the UK with reasonably sized US customer bases are taking a more relaxed approach and have done very little about it. The issue has barely hit their radars, in fact. No fingers pointed but but they include a number of large high street names.

An Asos spokesman told The Mail on Sunday's business pages: ‘I can see this having many complexities. For smaller retailers the cost could be significant. There will also be a compliance burden that might mean a small company doing a tax return every month to fifty different US states.’

Asos is going to add a facility onto its US sites that will enable it to collect the tax if and when the change comes into force.

The paper says that other firms with sizable or growing US sales revenues are Marks & Spencer, John Lewis, Next, Burberry, Boden,  Net-A-Porter, Jack Wills and Ted Baker. 

The new rules will require any retailer with online sales in the US over $1 million (£642,508) to comply. That could mean businesses operating through marketplace sites like Amazon and Ebay. 

Each state charges different sales tax rates and US customers are used to seeing the addition on their receipts when they arrive at checkouts so it is not clear how the change would affect their shopping habits, the piece says. Some areas have a zero rating while New York, the highest, charges around 12 per cent. Cities and counties within states charge different taxes and different product also have different rates. 

To complicate matters further, rates on products often don't kick in straight away. New York does not charge tax on clothing spend of less than $55.

For Asos most of the expertise to deal with this will already be in the company while for smaller firms it will not. The burden on them will, relatively speaking, be significantly higher. 

The Marketplace Fairness Act is expected to face significant opposition from Republican anti-tax lobbies as it heads for the House of Representatives. But supporters include President Obama, Wal-Mart and that other retail giant Target. Amazon, as we have discussed elsewhere and for its own reasons, is also a supporter. 

Other lobby groups and firms such as Ebay and Etsy have argued the revenue threshold should be higher at $10 million. 

Either way, the sooner firms come up with solutions - even if its just to consolidate the issue in their plan for now - the more likely they are to deal with it when and it happens.

Food Store Iceland Tests Online

Frozen food chain Iceland has launched an online delivery service trial to be available at 25 stores from this week. 

It began last month in two stores and the system will be tested before being extended to as many as 650 stores.

The value retailer has more than 800 stores and already offers a delivery service for shoppers who do not want, or are unable, to carry their bags home with them.

The existing service was launched in 1997 and is free for orders over £25 and makes around 180,000 deliveries a week. The lower socio-demographic of many Iceland customers means they do not have a car and the delivery service is seen as an alternative is carrying bags home on the bus.

The initial online test has already exceeded expectations, the company said. Because some stores are larger than others the selection available to customers is tailored to the product range at individual outlets. 

The delivery service was originally extended to telephone and online shopping in 1999. But the online service was small and was later scrapped during a financial and operational reorganisation of the of Iceland business when founder Malcolm Walker returned in 2005. It was held back in part because so many of its shoppers did not have access to a computer and the launch was before the era of broadband internet provision. 

The existing delivery business serves 791 stores and uses 1,300 vans. The chain has also signed a five-year deal with Mercedes-Benz to replace its entire fleet of vans.

Iceland chairman and chief executive Malcolm Walker said: 'It was not a priority when I was faced with the challenge of turning around a near bankrupt company on my return to the business in 2005. Now the time is right to re-launch the service, building on our well-established and smoothly running home delivery infrastructure with an easy-to-use website that sets new standards for customer friendliness.'