The Retail Week – February 1, 2008

M&B, owner of such Friday night staples as All Bar One and Harvester, has been flung into play after complicated plans to split the business into operating and property companies went horrendously awry.

The proposed creation of the propco was shafted by the credit crunch and, this week, it emerged that the closure of hedge positions associated with the real estate deal had cost M&B£274 million. Exit M&B's finance director, although the chief executive's resignation offer was rejected – he must stay to clean up the mess.

Events, unpredictable as always, conspired to lay waste the best laid plans. What only last summer looked like a clever way of realising value now looks too clever-clever by half. And who was the mastermind of the grandiose idea that M&B should take an opco-propco route? Take a bow investor Robert Tchenguiz, also a shareholder in Sainsbury's and a prominent propagandist for a similar approach at the supermarket group in the event of a takeover.

You can't blame Tchenguiz for failing to see the credit crunch bearing down, though – few did. But what has happened since illustrates the dangers of overlooking a company's core business in favour of financial conjuring tricks.

As the downturn bit and retailers' valuations slumped, the capitalisations of some, such as Kingfisher, sank below their paper property values. That's because a property is only worth the business that trades from it. If a retailer isn't making the hoped-for returns from its core business, then the value of its locations becomes academic.

Rather than poring over property portfolios seeking supposed hidden value, the attention of investors and retail managements alike should be focused on shopkeeping. Skilful retailing, rather than spreadsheet alchemy, should be what matters – credit crunch or no credit crunch.

Crunch-time for Cheshire

In an interview in today’s edition of Retail Week, new Kingfisher chief executive Ian Cheshire pledges that, despite being at the business in one role or another for 10 years, he is determined to drive rapid change post-promotion.

That’s good news. Despite its problems of the past few years, Kingfisher is a British retail success story. It is not on its knees and has the opportunity to regain and exceed past glories.

There’s been some griping that Kingfisher opted for an internal rather than an external appointment, but there was no better candidate. In some ways, Cheshire will feel under even greater pressure than an outsider to deliver and prove his doubters wrong. Having promised transformation, he knows that investors will be quick to agitate for leadership change if they feel he’s coming up short.