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13
Mar-18
Tuesday

Oroton rescue

15
AFR reported that Oroton is getting close to getting its Deed of Arrangements agreed to.  The company went through a difficult round of negotiations with its landlords, with most coming to the party.  Once the DOCA is approved, the company will be taken private.  In our assessment, this will be essential – long-term projects don’t thread well at public companies…

Bunnings' UK woes continue

29
According to the AFR, Bunnings is reviewing its strategy in relation the UK arm of the business.  AFR reported that the review has been complicated by the recent spate of freezing weather, costing Wesfarmers precious time.  In our experience, when retailers start complaining about the weather, this signals a deeper problem…  The weather is usually the same for everyone.

Looming banking crisis?

13
According to Geopolitical Futures, The Bank for International Settlements, which has made accurate predictions in the past, published some ominous analyses in its quarterly review. BIS “Early Warning Indicators” identify a few countries that look particularly vulnerable to a banking crisis right now. At the top of the list are Canada, China, and Hong Kong.  Having Canada on the list surprised us.  China and Hong Kong did not.

Australia swims against the tax tide

24
Governments in most developed countries are hard at work to alter their tax systems to attract more investment and to boost their economies.  However, according to AFR, Australia seems to be going against this trend, with Labor Opposition proposing to extract approximately $60 billion out of taxpayers' pockets over the next decade through changes to the dividend imputation scheme.  Looks like they are following Willie Sutton’s advice: if you need money, you go where the money is.
12
Mar-18
Monday

Drone fiction

16
The media keep talking up drone deliveries.  The Wall Street Journal reported that the US federal government will allow Amazon and other companies to begin limited package delivery via drones in the US in the coming months. According to WSJ, other countries (including Australia!) have taken the lead on drone delivery, while the US has held back over concerns about privacy, security, and safety.  We have no doubt that these concerns will remain valid. Other than for supply in remote areas, drones will remain popular only in the media. Remember ‘flying cars’, which have been right around the corner for decades?  We have had the technology since 1945 (aka helicopters), but how many people ended up using one?
10
Mar-18
Saturday

Toys R Us preparing for liquidation

8
The NRF reported that it has obtained information about Toys R Us preparing for liquidation, after management has been unable to reach a financial deal with lenders or find a buyer, making it likely the chain will have to shut down its US stores. The brand's UK division has already been placed in bankruptcy.  Toys R Us has been in business for 70 years and it used to dominate the toy market vertical.  It has been declining since 2000 due to the competition from Walmart, Target and more recently, Amazon.  At some stage, the business was worth over US$6 billion.

NRF misguided?

16
We have high respect for National Retail Federation (NRF), but even they occasionally get it wrong.  The NRF reported that retailers and other groups have expressed concerns that the Trump administration's new tariffs on steel and aluminium will raise prices for consumers and launch a trade war. NRF President said that, "A tariff is a tax, plain and simple. In this case, it's an unnecessary tax on every American family and a self-inflicted wound on the nation's economy."  He completely ignored the fact that China has been massively subsidising steel manufacturers, suppressing and destroying steel producers around the world.  The NRF didn’t have any issues with the European Union imposing an even higher tariff (28.5%) on Chinese steel imports in August 2017.

New Look in trouble

7
The Telegraph in the UK reported that New Look will close 60 stores, reducing its store portfolio by 10%.  The fast fashion retailer has instigated a company voluntary arrangement and is seeking approval from its lenders for a restructuring plan.  Alistair McGeorge, New Look's Chairman, said that New Look had "wrongly moved to become younger and edgier".  New Look has been a great success story in the past and their current woes confirm how difficult it is to run a successful fashion business.
9
Mar-18
Friday

Myer shares in trouble

16
The AFR reported that Myer is poised to drop off the S&P/ASX 200 Index. This would force index funds to sell their Myer stock.  Myers stock has fallen by 60% over the last 12 months, reaching a low of $370 million this week.  Considering that Myer spent around $500 million on IT over the last decade, it makes us wonder … what would have happened if they purchased normal rather than gold-plated systems and kept most of the money.  According to AFR, Myer is close to breaching debt covenants. Should this happen it will inevitably lead to board, management, and debt restructuring.

Costco never disappoints

25
The NRF reported that Costco's sales and membership fees rose 10.8% in the second quarter. The retailer also said it will use savings from the recent US Federal Tax Cut to lower prices and boost employee pay. In 1995, we came across a book titled ‘The Discipline of Market Leaders’, covering the concept of Value Disciplines.  According to the authors, great businesses focus on one of the disciplines and become leaders in the chosen space.  Costco purse the Operational Excellence discipline and they are exceptionally good at it.

Interesting stats about work shoes

16
The Washington Post commented that American women are increasingly trading their high-heeled shoes for flats and sneakers. As the workplace grows more casual people are finding ways to work more steps into their days. Women's' sneaker sales soared 37% last year, while sales of high-heeled shoes dipped 12%, according to NPD Group.  Something to note for Australian shoe retailers.