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21
Mar-18
Wednesday

Reinventing the internet

18
AFR published commentary about the need to reinvent the web and it included an interesting idea: governments need to reclassify social platforms as publishers, making them responsible for the content they host such as newspapers and broadcasters.  Given the level of disinformation, unbalanced opinions and vulgarity published by these networks, this would be a smart move.  Long overdue.

Social networks are reaching a plateau

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We just became aware that a few days ago, Campaign US reported that 34% of Generation Z in the US are quitting social media for good, 64% are putting their use on hold, and 41% report that social platforms make them feel depressed, anxious or sad.  This aligns with our doubts about the validity of Citi Research predictions about the expected growth in online sales – the social network space is becoming saturated.

Amazon coming down to earth

18
Bloomberg reported that Amazon has considered acquiring some soon-to-be-empty Toys R Us stores, to expand its own brick-and-mortar retail concepts, sources said. The company's physical retail operations include bookstores, a convenience store concept and the 450 Whole Foods Market locations it acquired last year. Good to see Amazon getting into the real world of retail.  It will be interesting to see how far they need to go before the stock market starts seeing them as yet another large retailer, rather than something truly special.  A more sober market valuation will no doubt follow.

IGA shrinking, as expected

22
We keep repeating our prediction of the gradual demise of IGA supermarkets as a consequence of Aldi and Costco expanding their network. According to Citi Research, in 2012 Aldi’s size was around 30% of Metcash’s IGA.  Five years later, Aldi has grown to 60% of IGA, in line with our expectations.  At this rate their market share will be roughly the same around 2020.  The question arises at what point does IGA’s supermarket business model begins to break.  Note that in the process Coles and Woolworth will also suffer.

Retail space growth still too fast

14
In their quarterly update, Citi Research observed that over the next three years the expansion of Australian retail space will exceed population growth. According to Citi, online sales are expected to grow at 10%, although we question this prediction.  Statistics about smartphones and social media penetration as well as the usage of social media indicate that we are entering a plateau phase.  Therefore, we expect online sales growth to slow down.  Citi commented that retailers have become reluctant to open new stores, but successful retailers don’t seem to have such concerns.
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

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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

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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.