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20
Mar-18
Tuesday

Hi Tech regulations on their way?

26
Reuters reported that Facebook shares dropped nearly 7%, wiping out around $40 billion from the company’s value.  Other high tech stocks followed, but not as dramatically as Facebook (e.g. Apple shares dipped 1.5%).  This was attributed to growing concerns about regulations that will sooner rather than later be imposed on the industry, to trim down its growing customer data monopoly and market power.  A few days earlier we mentioned The Sherman Act.  Changes in the legal and regulatory framework to put serious constraints on the large technology companies are badly overdue.

Important battery trend to watch

20
The Wall Street Journal reported that the next generation of batteries is approaching commercialisation, delivering up to 30% more capacity at a lower cost.  This will substantially boost the usability of mobile phones, cellular-connected wearables, electric cars and home storage batteries. The new technology is referred to as lithium-silicon batteries and the first devices using the new batteries should appear on the market within 2 years.  This will no doubt stimulate retail, the automotive vertical included.
19
Mar-18
Monday

Coles and Woolworths held the door open for Aldi

23
Inside Retail quoted Gary Mortimer, professor in Marketing and International Business from QIT, deliberating the future of Coles once it leaves the Wesfarmers stable: “the supermarket sector has changed dramatically in the past decade in relation to intense competition, with the growth of discounters like Aldi and the emergence of price-conscious shoppers who shop across multiple brands of supermarket each week.” We see it somewhat differently. The sector didn’t change by itself. On the contrary, it has been primed for change by Coles and Woolworths, who failed to develop discount brands (such as Bi-Lo or Jack-the-Slasher/Food For Less) and at the same time created expensive head office bureaucracies and infrastructure.  This, in turn, led to the rush towards private labels, to improve poor margins.  This allowed Aldi to enter the Australian market not as a competitor, but as a chain that simply stepped into the void.  As an operationally excellent, low-cost business Aldi doesn't have to do any discounting.  It just sells good quality products for less and is still more profitable than Coles and Woolworths.  If the duopoly still wants to ‘compete’, our advice would be to drift away from the discount part of the market - it has been taken.

Retail squeezed from all sides

23
The Weekend Australian reported that Mark McInnes, who heads Premier Retail, criticised landlords for charging excessive rents.  “We continue to seek rents in line with centre performance.”  Premier warned that if landlords don’t provide rent relief, it will have no choice but to start closing stores.  We have repetitively complained about the high underlying cost of doing business in retail: not just unreasonable rents (with unreal, 5% annual rent growth clauses), but also the minimumn wage (the highest in the world, about to go up again), excessive regulation, and the cost of utilities such as electricity, growing much faster than inflation.  Some retailers complain about market pressures, but the pressure comes from both sides of the equation.
16
Mar-18
Friday

Another Australian fashion chain on the market

27
The Australian reported that the sales process of the Sussan fashion business has started. The sale seems to be driven by lacklustre business performance, with the current owners unable to see any blue sky. Analysts expect the sale price to be between $200 and $400 million, for the chain composed of about 500 stores. We compared this to the recent sale of Brett Blundy’s Bras ‘N Things, which yielded $500 million for 180 stores - much more impressive. This makes us wonder: could the difference be caused by Bras ‘N Things using our software platform and Sussan not?

Premier shines again

30
Premier Investments has reported a 9.4% increase in half-year net profit to $78.6 million on the back of strong sales at Smiggle and Peter Alexander.  Most of their other brands also performed well. The actual EBIT increased by 10.2 per cent to $102.5 million. We are pleased to be a part of Premier’s journey, providing store systems for The Just Group.

Supermarket reshuffle continues

20
The Canberra Times reports that Wesfarmers announced their intention to spin Coles off into a separate company. This would create a new top-30 company listed on the Australian Securities Exchange.  Wesfarmers, with a market value over $45 billion, said the move would allow it to focus on growing its other divisions, which include Bunnings, Kmart, Target and Officeworks, and look for opportunities to buy new businesses.  The Coles Group, bought by Wesfarmers in 2007, accounts for about 60 per cent of the conglomerate's tied-up capital but generates only 34 per cent of its earnings.  Post the announcement Wesfarmers shares went up by 5%.  This says a lot about market’s view of Coles’ long-term prospects.

US retail sales increase 4.4%

23
Unlike the mainstream media, which yesterday publicised the decline in US retail sales, the NRF (obviously) understands the industry. According to NRF Chief Economist, retail sales during February increased 4.4% over last year, excluding automobiles, gasoline stations and restaurants. The NRF said, "economic fundamentals are favourable for spending to expand in the coming months."  We are glad we pointed this out yesterday.
 

Toys ‘R' Us to disappear

12
So, it’s official.  The question now arises about winners and losers.  30,000 people will lose their jobs in the US alone and more job losses will occur in other markets, such as the UK (where Toys ‘R Us had 100 stores, of which 25 have already been shut).  Customers will lose too, as will toy suppliers.  However, department stores such as Kmart, Big W and Target, as well as specialty toy retailers, will see a spike in sales, but not until Toys ‘R Us liquidate their stock through a fire sale.  According to AFR, the Australian arm of the business lost over $7 million on sales around $275 million.  Amazon and Walmart have been blamed for the toy giant's demise, but we think that it all started with the leveraged buyout 12 years ago.  Such financial tricks are hardly ever good for business.

Willy Sutton still at large

28
“I rob the banks because this where the money is,” said the ill-famed American bank robber Willy Sutton.  According to Financial Times, the European Union wants to impose a turnover tax on large technology companies (such as Google, Facebook and Apple), aiming to collect about $8 billion per annum.  Willi Sutton’s criteria will be applied: a business must be turning over 750 million globally and over 50 million in the EU.  We are not big fans of the technology giants, as they harm competition, but this looks to us like a mere money grab.  Someone will have to pay for this in the end, i.e. Google’s, Apple’s and Facebook’s customers.

Unusual shopping malls keep growing

11
The Wall Street Journal published an article about the rise of airport shopping precincts.  Major airports around the world, from Singapore to Dubai, London to Beijing, have increasingly become shopping malls, albeit with gates. According to the article, airport retail businesses still see solid growth, despite the competition from online.  Dufry AG, the largest duty-free airport retailer, posted same-store revenue growth at about 8% in the first nine months of 2017 compared with the same period in 2016. This tells us that with all the ‘digital disruption’ around, the brick and mortar segment is not necessarily shrinking – it is just being redefined.