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16
Apr-18
Monday

Artificial Pseudo-Intelligence

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Inside Retail published an article written by Retail Directions, which dispels the myths surrounding ‘Artificial Intelligence’ and its purported massive impact on retail in the future.   We have stressed the point that technologies which have been available for quite a few years are now promoted as revolutionary, mainly because they have been combined with voice recognition, voice synthesisers, and made mobile.  This means that we now have access to increasingly smarter animated matter, but it has NO intelligence – it just gives the appearance of intelligence.  This realisation redefines the expectations we should have about the likely future of ‘AI’ in retail.

Thermomix mea culpa

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The Australian published an advertisement, which we found quite surprising.  Not because of its apologetic tone and acknowledgment of the $4.5 million fine imposed by ACCC.  It was the numbers which we were able to distill from the ad - it looks like Thermomix Australia turns over around $90 million per year.  Hardly the mother-and-daughter business it claims to be in the ad.  It proves that there is a third way to success in retail - it doesn't have to be online or bricks and mortar - "Tupperware" parties remain very effective.
13
Apr-18
Friday

Afterpay running out of steam?

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The AFR commented about Afterpay's share price drop - the business lost 30% of its market value since its March high, due to concerns about approaching market saturation - it now has 1.8 million customers.  We found other statistics mentioned by the AFR quite fascinating: 25% of all online apparel transactions in Australia are paid for via Afterpay, which translates into 8% of total online retail.  Given that a solid portion of new sales are brought in by Afterpay, we can understand why retailers accept their relatively high merchant fees.

Gap's multi-brand synergy

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CNBC published an article about The Gap, mentioning a 24% increase in share value over the last 12 months and recently announced earnings in excess of market expectations.  The Gap's CEO was quoted, saying "We know a lot about our customers. We can see their lifetime value.  Structurally, because we have multiple brands and multi-channels, we've got something not a lot of other apparel companies have."  The Gap owns brands such as Old Navy, Banana Republic, and Athleta.  What we found particularly interesting was the CEO's comment that "the difference between a customer who's casually engaged and one who is really deeply engaged in our brands across channels, it's at least 10 times the value of that [first] customer."

Online can be overshadowed by brick and mortar

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In their article about The Gap CNBC mentioned Athleta, the company's sportswear brand, which has grown to 140 stores from only selling online.  "Most retail came from physical and went online. Athleta came from online and catalog and is going physical. And we're very focused on making sure that we're building the retailer of the future,"  said The Gap's CEO.  Athleta's business is now half online and half brick and mortar, with plans to expand its physical store base.  Clearly, claims that online will replace traditional brick and mortar stores are not valid.
12
Apr-18
Thursday

Toys 'R' Us receives multiple $1b bids for its Asian business

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According to Reuters, Toys 'R' Us has received multiple bids of more than U$1 billion for an 85 percent stake in its Asian business as the bankrupt company moves ahead with plans to sell some non-US operations.  Apparently, there is also serious interest to purchase its Central European operations.  In the meantime, the US and UK operations are being liquidated.  Running a big business has its challenges, but shutting it down is not an easy task either.

Mr. Zuckerberg goes to Washington

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According to the Wall Street Journal, US lawmakers gave Facebook CEO Mark Zuckerberg a (mostly gentle) grilling over the company’s handling of user privacy while signaling they are considering embarking on a new era of regulation for big tech companies. Investors reacted positively to Mr. Zuckerberg’s performance — the first of two days on Capitol Hill — sending Facebook shares up 4.5%. While the senators showed little consensus on how to force the protection of user data, Tuesday’s unusual joint hearing probably marked the beginning of a long deliberation on regulating the tech industry.  We too think that it’s about time.
11
Apr-18
Wednesday

Amazon vision or delusion?

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The AFR reported that Amazon's VP in charge of international consumer business spoke at a conference in Sydney.  The VP said that Amazon plans over a five-to-seven year horizon, justifying underwhelming and patchy performance post its Australian launch. We appreciate the difficulties in starting a business in Australia, but one thing is certain: most predictions and related plans in digital and e-commerce will be rendered obsolete in much less than five years.
10
Apr-18
Tuesday

US tax reforms: the big picture

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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?

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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

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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.