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16
Mar-18
Friday

Retail is retail…

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The NRF published its annual State of Retail Report and according to HomeWorld Business, the report shows more than ever that retail is retail regardless of where a sale is made or how the product is delivered. “Products ordered online are increasingly picked up in-store or shipped from a nearby store, and digital technology being used at bricks-and-mortar locations lets retailers help customers find what they want or make the sale even if the product is out of stock. Traditional retailers have seen the opportunities of online selling for years now, and those selling online increasingly see that stores are part of the key to success.”  This confirms our key message to retailers: Digital Path to Purchase must be accepted as the standard way of doing business, and ‘purchase’ means any purchase, not just online.  Therefore, retailers such as Nordstrom need to be applauded for ending the practice of reporting online sales separately to store sales.  Channel management needs to be about either over-the-counter pickup or home delivery - not about the way the customer asked for the stock.
15
Mar-18
Thursday

Looming Chinese banking crisis?

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Deutsche Welle reported that the IMF estimates China's overall debt figure to be about 234% of gross domestic product (GDP) and predicts that it will rise to 300% by 2022. Corporate debt currently stands at around 165% of GDP, and household debt is also spiraling upward at a rapid pace.  As a result, China is seen as one of the economies most vulnerable to a banking crisis.  The remedy would be to slow down the pace of infrastructure investment, but this would undermine overall growth in the economy – something the Chinese government is unlikely to endorse.

The end of Toys 'R' Us

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FoxBusiness reported that Toys ‘R’ Us has informed its employees that it will close or sell all of its more than 700 US stores amid mounting debt and years of declining sales.  The impending liquidation could result in as many as 33,000 layoffs, according to the Wall Street Journal.

Aldi’s expansion efforts intensify

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The Daily Mail in the UK commented on Aldi’s efforts in Australia to strengthen its regional management team, by attracting high caliber graduates.  Vastly elevated salaries are available to successful applicants.  But, as one of the graduates said: “The salary also truly reflects the hard work and high standard of what is expected from you in the role.”  Aldi’s program confirms that Operational Excellence doesn’t necessarily mean low wages.

How to turn good news into bad

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Bloomberg reported that US retail sales dipped 0.1% in February from the previous month. Other media channels immediately repeated this message, making us wonder, how does this reconcile with the overall boom in the US economy?  It turns out that Bloomberg doesn’t understand retail, therefore its false assumption that sales in January and February ought to be the same.  The real metric: sales in February were up 4% from last year! Most Australian retailers can only dream about such results.
14
Mar-18
Wednesday

The perils of an open returns policy

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There seems to be a general consensus that good customer service requires practically an unlimited returns acceptance policy.  We have never subscribed to such a view, advocating for service consistency instead, with generous, but clear rules for returns acceptance.  Now Wall Street Journal published an article which shows where unrestricted returns policies can take retailers.  The article talks about Best Buy, who use Retail Equation to score customers’ behaviour.  As a consequence, customers can be banned... for a year from returning any stock.  How is that for inconsistent customer service?  Stores have long used generous return guidelines to lure more customers, but such policies invite abuse. US retailers estimate 11% of their sales are returned, and of those, at least 10% are likely to be fraudulent returns, according to the National Retail Federation.

US growth set to accelerate

24
The Wall Street Journal reported that the US Business Roundtable CEO Economic Outlook Index reached its highest level in the survey’s history. The index is a composite of companies’ plans for capital spending and hiring and projections for sales over the next six months.  Small-business owners, in a separate report released in February, noted their highest optimism in 35 years. Inflation cooled slightly for American consumers last month, keeping the Federal Reserve on track to raise short-term interest rates next week, but relieving it of pressure to take more dramatic action to prevent the economy from overheating.

Updated OECD forecast

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OECD increased their economic growth forecast for Australia by 0.2% for 2018 and by 0.3% for 2019.  The same annual figures for the US economy were in excess of 1.5%.  We have commented before that Australia’s ever higher minimum wages, excessive regulation and growing taxation seem to correlate negatively with GDP per capita.  Our politicians are obviously unable to reverse such trends and boost the nation’s prosperity.

Kaufland will cause more pain for IGA, Woolworths and Coles

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A few days ago we commented about Kaufland opening their first stores in Australia.  Today news.com.au reported comments from DGC Advisory that the Australian market wasn’t large enough to support another major supermarket player.  On the surface, we couldn’t agree more, but DGC has made a mistake assuming that markets remain static.  We have no doubt that Kaufland will carve out a solid slice of the Australian supermarket pie and the core questions will need to be redefined: for how long will IGA survive in its present form and how badly will Coles and Woolworths be hurt? Both chains have been trying to emulate Aldi, but that’s a pipe dream if your cost of doing business is 50% higher than your competition.
13
Mar-18
Tuesday

Australia leads the world

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Numerous media outlets reported that Unions have requested a $50-a-week increase to the minimum wage.  This is apparently need-driven, to compensate for the increase in the cost of living.  We could understand if this yardstick was applied to social benefits, but all the people ACTU is fighting for are actually employed.  Just for the record: Australia’s minimum wage is the highest in the world already (over $13 per hour).  Germany and the UK hover around $10.  Japan, US, and Canada sit in the $6-$8 range.  Interestingly, all these countries have GDP per capita higher than Australia.  A coincidence?

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.