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10
Apr-18
Tuesday

US tax reforms: the big picture

25
Stratfor expects that the recent US tax reforms will boost the US economy for years to come, especially as US corporations repatriate many of the funds they hold overseas.  Currently about a trillion USD are held overseas by US companies - over 60% of the savings belong to technology companies and close to 20% to pharmaceutical companies.  Tax cuts provided as a part of the reform will also boost the economy, but this will lead to the Federal deficit growing from 77% to 85% of GDP by 2021, resulting in a (modest) increase in interest rates.  An 85% debt-to-GDP ratio will be high by historical US standards, but compared to some other advanced economies, it remains fairly low.  Over the next few years, Stratfor expects the US economy to grow at an accelerated rate (possibly event at 4% pa) due to the US leadership in the field of ‘Artificial Intelligence’ technologies, which we prefer to refer to as Animated Smart Matter.
9
Apr-18
Monday

Adidas: digital path to nowhere?

26
Reuters reported that Adidas expects to close down stores in the coming years as part of a shift towards selling more online. Adidas has 2,500 stores globally and 13,000 additional mono-branded franchise stores, according to the Financial Times.  The FT quoted Adidas’ CEO as saying that “Our website is the most important store we have in the world.”  It looks to us that Adidas still thinks in 2015 terms, which are now obsolete.  Retailers’ websites must become their main portal facilitating the Digital Path to Purchase, with an option to accept an order if the customer so desires – not a mere headline store.  Over the counter sales or in-store pickup need to be the primary objectives.  Adidas turns over about 20 billion Euro pa and about 8% of it is sold online.  The CEO would like to lift this up to 20%.  Adidas’ EBIT is around 3-4%, so this doesn’t sound like a good idea to us, as online sales are usually less profitable.

Grocery woes could be worse than first thought

33
The AFR reported that Metcash is facing staunch opposition to its attempts to change its engagement model with retailers.  Having lost more than half of its market share over the last 10 years, Metcash is looking for a solution, but (in our assessment) what they are planning to do will only make matters worse.  Coles and Woolworths progressive destruction of branded groceries and the narrowing of their range has taken them to a dark alley, where they have to compete on price with Aldi and this is a war they cannot win due to their high-cost structure.  Metcash wants to go there too, by reducing their range.  It also wants to charge a fee for stock bought by retailers directly from suppliers and replace rebates with a promotional allowance that will apply only to stock sold during a promotion.  We have no doubt that this will make the larger chains operating under the IGA banner consider walking away from Metcash.
7
Apr-18
Saturday

Retailers smarten up

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We have advocated for a long time the amalgamation of traditional marketing departments and e-commerce teams within retail enterprises. As such, we were pleased to learn that Sephora combined its in-store and digital teams last fall under Executive Vice President Mary Beth Laughton, to - according to the NRF - give the beauty retailer access to all sources of customer data and improve its omnichannel efforts. "My new team brings loyalty to the forefront since we're better positioned to understand customers across channels," Laughton said.  We have an even broader view in this space: the new style marketing departments must be focused on managing the Digital Path to Purchase, for the entire enterprise.

Nine West bankrupt in the US

15
According to Reuters, US footwear and apparel company Nine West filed for Chapter 11 protection and said it would sell its Nine West and Bandolino footwear and handbag business to the Authentic Brands Group.  Nine West owns brands such as Anne Klein and Gloria Vanderbilt.  Apparently, the company has a debt of about $1.5 billion and assets in the range of $500 million to $1 billion.   Nine West has changed hands before and this confirms our long-held belief that as businesses change owners, their ethos progressively evaporates.
6
Apr-18
Friday

Amazon's easy ride to meet increasing friction

22
Technology giants are finally being singled out for increased public and regulatory scrutiny.  Privacy violations, massive power to manipulate public opinions and disruptive market influence are now in the open.  Reuters reported that the US President said that he would take a serious look at policies to address what he says are the unfair business advantages of online retailer Amazon.  We too have a problem with large US technology corporations that use capital from the markets to subsidise their loss-making operations.  This distorts the economic environment – big time.

Retail apocalypse debunked

33
Matthew Shay, the CEO of the NRF commented on the so-called “retail apocalypse”, which made seemingly endless headlines over the past year, despite reams of evidence to the contrary. Media and various ‘experts’ declared retail dead, dying or totally disrupted by e-commerce.  Shay pointed out that once one considers accurate, complete data on retail overall, it becomes evident that the industry is doing quite well. True, there have been store closings and bankruptcies — that’s inevitable in business. But there are also new entrants and store openings. Retailers are changing, adapting and transforming to compete and better meet customers’ needs. That’s a sign of a healthy, growing and evolving industry. Not a dying one.

Deceptive voice?

25
The NRF commented about a recent study showing that consumers want personalised voice experiences, but are wary of brands being more present on their voice devices. The report states that families are the biggest users of voice-enabled technology and, while more consumers are attempting to shop using voice, a lack of visual confirmation, high potential for mis-ordering and the inability to easily compare prices and availability are key barriers.
5
Apr-18
Thursday

Fast fashion woes

19
The Australian Financial Review published interesting statistics about the fast fashion segment in Australia.  Three global fast fashion chains (H&M, Uniqlo and Zara) generate about $1 billion annually in Australia, but pre-store sales in the segment have dropped dramatically.  If the AFR figures are to be believed, H&M per store sales dropped by about 25% (6% total sales drop while store numbers grew from 23 to 32).  AFR also mentioned Dotti pre-store sales dropped by around 9% and store closures by Forever 21, GAP and Top Shop.  Clearly, the market is undergoing a major reshuffle.  Some try to blame it on e-commerce, but it looks more like just a simple case of market overcrowding.

AfterPay questions?

24
The Australian reported that AfterPay shares slumped nearly 6%, seemingly in reaction to claims that its services could be easily used by minors and even people with a fake identity.  We think that the share movement had more to do with speculation whether the original owners will start selling their escrow holdings (23%) when the escrow expires on 8 May.

NBN fiasco continues

23
Mainstream media reported the departure of the NBN CEO, focusing on his remuneration package and progress in NBN rollout.  The NBN-killer, 5G networks have been barely mentioned.  We warned repetitively that this White Elephant Network will cause grief for all involved and will make Australia about $50 billion poorer. Pity to see our predictions come true.
4
Apr-18
Wednesday

Blue jean revival?

21
Bloomberg commented that some of the leading brands are hoping for a blue jean revival.  The jean making industry has been distressed in the recent years as jeans have struggled to beat back more comfortable styles such as leggings and yoga wear. Last year, imports of elastic knit pants surpassed those of jeans for the first time, according to the US Census Bureau.  However, there are signs of a rebound. The jeans maker Levi Strauss posted an 8 percent increase in revenue in 2017, thanks to a significant revamp of its women’s range - its strongest annual growth since 2011.  Ralph Lauren reported similar increases and other leading jeans brands also commented on encouraging results.