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22
Jun-18
Friday

Online sales tax update (US)

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The New York Post reported that the Supreme Court has ruled that US states can now force online sellers to collect sales taxes, irrespective of where their customers live.  This changes a 50-year rule that exempted sellers from collecting taxes on out-of-state transactions.  The ruling can affect hundreds of thousands of sellers, including those selling via Amazon (about US$32 billion last year).  We reported on the Supreme Court suit earlier this year, initiated by South Dakota,  which claimed it was being robbed of millions of dollars in sales tax because internet sellers shipping to the state were not collecting sales tax.  We are seeing a clear trend of states beginning to impose taxes on e-commerce transactions.  This is (in our view) a good structural phenomenon, as it removes sales/VAT tax distortions and also repairs the sales tax revenue, eroded when sales moved online.

Surprising findings about retail consumption

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The Harvard Business Review recently published an article about retail consumption. The research covered by the article signals that the way people shop actually hasn’t changed much in the digital age (“5 Surprising Findings About How People Actually Buy Clothes and Shoes”). Shoppers still prefer to buy clothing in person, and when they do, it’s usually to replace the staples in their wardrobes, not to purchase cheap new trends that are bound to fall apart after a few washes. Repeat purchases were made during 83% of shopping excursions (87% for sportswear). The study described in the article also challenged perceptions about online shopping versus brick-and-mortar consumption. US retail is hurting but not because Americans have abandoned brick-and-mortar for online merchants. The key problem is the glut of stores in the US. The US has 40% more shopping space per capita than Canada, five times more than the UK, and 10 times more than Germany. If you haven’t read it yet, we strongly recommend the article.

Beauty moving into brick and mortar

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Glossy in the US commented on an interesting trend: wholesale beauty brands launching their own stores centered on experiential elements, like meet-ups and training classes, aimed at reintroducing themselves to customers.  Another driver is to be better able to gather data about consumers.  One possible explanation would be the decline in department store traffic, an important channel for cosmetics.  Historically, beauty brands were wholesaling businesses that were distributed through pharmacies or department stores and they had little access to customers.
21
Jun-18
Thursday

Private label woes

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Inside Retail published an article about the proliferation of private label products.  What we found interesting was the statistic that 85% of retailers surveyed stated that their main driver behind the introduction of private label products is the need to improve margins.  This confirms our earlier observations that Coles’ claims that its ongoing shift towards private label is in response to customer demand doesn’t agree with facts.  There is no doubt that the rush to private labels undermines established brands and according to the article, discourages suppliers from innovation, jeopardises the livelihoods of smaller, independent suppliers, and ultimately results in less choice for customers.
20
Jun-18
Wednesday

Short-term thinking, long-term consequences

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The NRF has been so vocal in their criticism of tariffs being applied by the US Administration to high-tech Chinese imports that Retail Directions' Pulse needs to comment. NRF CEO Matthew Shay said that "These tariffs won't reduce or eliminate China's abusive trade practices, but they will strain the budgets of working families by raising consumer prices." He is definitely right that tariffs will lead to some price increases, but his assertions that the tariffs will be ineffective seem groundless. If the US didn’t take action, the Made in China 2025 strategic plan would challenge US technological leadership, with severe strategic and economic consequences.
19
Jun-18
Tuesday

Freight capacity crunch in the US

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The Australian reprinted an article from The Wall Street Journal about the freight capacity crunch in the US, resulting in rising prices and causing shipping delays. US trucking and rail spending went up by over 17% since last year.  This is now impacting the profits of retailers such as Costco and Dollar General, as well as manufacturers.  We warned a few weeks ago that the saturation of the delivery system will start acting as a break on the continuing expansion of online sales that need to be delivered.

Amazon launches Prime down under

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Inside Retail reported that Amazon.com launched its Prime membership program in Australia today, offering free two-day delivery to 90% of the country for an annual membership fee of $59. Amazon Prime in the US costs $119 annually. Prime members in Australia will also have access to the four million products on Amazon in the US, which Amazon decided to make available through the Australian site, with free international delivery on orders over $49.  In our view, this still doesn’t compensate for their recent decision to stop shipping orders from its US site to Australian addresses in order to protest against the now more level GST rules in Australia.

Defending the un-defendable

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The AFR reported Coles’ claim that it intends to expand its private label range because “customers are demanding” this.  It’s easy to see how it works: Coles removes branded stock from the shelf and its sales drop to zero.  The customers then have no choice but to buy the only ‘brand’ available, i.e. Coles, which is then definitely in higher demand.  The real reason behind the rush to cheap home brand stems from Coles’ inability to reduce its operating costs.  So, the only option left to keep the business profitable is to buy cheaper stock and sell it for less, but with a higher margin.  The bad news: even this won’t make Coles competitive when compared to Aldi.  In the meantime, Coles must have started to realise that some of the local suppliers have disappeared because they now intend to look for branded merchandise overseas.
18
Jun-18
Monday

UK retail solid growth

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US retail is not alone in experiencing boom times.  Reuters reported that UK sales in May went up 3.9% year on year.  We were again disappointed by Reuters – we had to dig deep into their article to find this data.  Most of it was focused on the analysis of meaningless month-on-month sales rate change (1.3%, which means literally NOTHING).  The May results could be a sign of recovery in the UK, but it is worth remembering that the UK economy is still suffering from the uncertainty caused by the approaching Brexit and the re-alignments in international trade driven by the US.
15
Jun-18
Friday

Mission impossible at Godfreys?

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In the infancy of a business takeover and restructure by Godfrey’s co-founder John Johnson, the situation has gone from bad to worse with sales slipping by 15% in June compared to the corresponding period last year – triggering a significant profit downgrade. The business had warned earlier this month of a serious cash flow squeeze looming in July and the need for emergency finance. The retailer has failed to adapt to structural shifts in the market and fierce competition from both traditional and pureplay rivals. Saving the business is starting to look a lot like mission impossible.

Coles’ long-term strategic blinkers

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The AFR reported further details about Coles’ plan to increase private label brands to 40% of sales within five years. Outgoing Coles MD John Durkan said the grocer wants to be an “own brand powerhouse” by 2023. This just reinforces our prior comments that Coles is operating with long-term strategic blinkers. The initiative may push revenue up in the short-term, but over time it will punish local suppliers (destroying many), increase the business’s cost of operations, and progressively degrade the brand – all without materially enhancing the customer offer or making the business more competitive on price.