Accounting errors and unusual shape-sorters…it’s the Friday Blog!

Published on: 26th September 2014

It’s already getting tasty out in the toy retail market. After Smyths ran what I’m told was a highly successful ‘20% off everything’ promotion last week, other major retailers have waded in with strong offers of their own this week. Argos has instigated a major ‘3 for 2 on all toys’ promotion which runs until 3rd October, Toys R Us has unveiled a raft of ‘buy 2 get the 3rd free’ deals, Asda is apparently running a few high-profile loss-leaders and Smyths has placed a ‘£6 off a £25 spend’ voucher in The Sun. All this and we’re not even in October yet. Gulp.

Elsewhere, it’s been a week to forget for Tesco, which received a very public mauling after admitting it had over-stated its first-half profits by £250m. Four executives were suspended and an independent investigation was announced after the anomaly – which was apparently caused by suppliers’ payments being reported in the wrong time period – came to light.

Inevitably the national media went into overdrive, causing Tesco’s shares to plummet, wiping £2bn off the company’s stock market value. Tesco put the whole fiasco down to what it euphemistically referred to as “an accounting error”. Good try, but I’m not sure that really covers it. An accounting error is when we accidentally put VAT on a Polish invoice. This appears to be another matter entirely. Whether or not it was a deliberate attempt to massage the numbers and or simply an overly-optimistic estimation of suppliers contributions based on inaccurate turnover figures is up for debate. But either way, surely a company of Tesco’s stature should have been more thorough. Is Tesco the only supermarket to have been doing this? Time will tell, but some have suggested it is unlikely that the practice in question is limited to Tesco. And what now for Tesco’s reputation, which currently lies in tatters. ‘Drastic Dave’ Lewis certainly has his work cut out.

Now you might say that this has nothing directly to do with Tesco’s toy department, and on one level that argument has some merit. But Toy World regular contributor David Ripley – a former Tesco buyer himself lest we forget – has made an interesting observation in his latest column, which you’ll be able to read when our October issue arrives on desks early next week. Without wanting to spoil the surprise, it seems that Tesco may be making some in-store changes which will impact the toy aisles, and not in a good way. Taking this information in conjunction with the bigger picture, I’d say that toy suppliers for whom Tesco has been a significant account may want to keep a very close eye on the situation.

The media storm surrounding Tesco allowed Mothercare to quietly drop a bombshell of its own and almost get away with it. Almost. The retailer has announced a £100m rights issue, i.e. it has asked its shareholders to stump up an extra £100m. For what, you may ask? To open lots of lovely new stores which would hopefully boost turnover and increase profits? Er, no. The money has been ear-marked to assist with the closure of a further 50-75 branches of the chain’s stores, including almost all of the standalone Early Learning Centre stores. Okay, before anyone complains that I’m being unfair, I should probably point out it will also pay off debts and contribute towards IT investment. But still, £100m to close a load of stores seems a bold request. Fair play to CEO Mark Newton-Jones for investing £400k of his own money in the initiative, I genuinely hope it is a success. But as the Dragons would say, I won’t be investing. Shares have plunged by 11% since the request, so I guess I’m not the only mild sceptic.

Finally, it’s nice to see that the Good Toy Guide team has been hard at work this week. Based on the number of empty wine and beer bottles that featured in the make-your-own shape-sorter design which they featured on Twitter, I have come to the conclusion that it must be a pretty good place to work. Hic!