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6
Sep-18
Thursday

New lease accounting standards will hit some retailers hard

23
The AFR commented on the new lease accounting standards that will come into effect in January 2019, noting that Myer and Woolies will be hit the hardest by the changes. For example, Myer, which has seen underlying net profit fall by half in the past five years, could slump into the red when it is forced to move almost $3 billion of leases (present value $1.9 billion) on to its balance sheet under the new accounting standard AASB 16. Retailers with long-tail leases are likely to be worse affected.

How wrong can you be?

19
RetailBiz reported on online retailer Shoes of Prey's recent decision to halt orders while it considers its future options, saying that "e-commerce retailers are not immune to the tough market".  Contrary to the article's premise, Shoes of Prey has never been subjected to market forces. It was a venture based on capital, which was burnt, with a hope that the concern would get traction with customers. However, the concept failed, i.e. no money was made.  The market had nothing to do with it; unfortunately for the retailer, the concept was flawed.
5
Sep-18
Wednesday

Tech companies prepare to face US Senate grilling

8
The Wall Street Journal reported that lawmakers in the US are set to start tech industry hearings. Already accused of neglecting to patrol spurious political content during the 2016 election, the tech industry faces continuing allegations of taking too little responsibility for content published on their platforms in general. Representatives from Facebook, Twitter, and Alphabet are scheduled to appear before the Senate Intelligence Committee today to discuss efforts to stamp out foreign election interference. Another hearing, scheduled for early October by a Senate Judiciary subcommittee, will focus on antitrust concerns.

Woolworths drops $562 million on new distribution centre

13
The AFR reports that Woolworths is banking on a "quantum leap" in productivity after investing $562 million in a new automated distribution centre. According to the article, the most valuable feature of the new distribution centre is its ability to pick cartons off shelves and assemble pallets for specific aisles in supermarkets and load pallets on to trucks in the right sequence to meet the specific needs of stores. It all sounds impressive, however here's the kicker: they didn't have to spend half a billion dollars to get these (pretty basic) stock flow improvements.

Walmart to buy Coles?

6
The AFR reported on a trend in the past 12-months, which is big companies doing big transactions. Most of Australia's top-20 companies have investment bankers working on deals, while offshore swoopers have landed with mega bids for Westfield Group, APA Group, and Santos. M&A is a confidence game and confidence is growing. It means we haven't seen the last of the activity and the big question is where the next big bid lands? On that note, when Wesfarmers announced the demerger from Coles in February, it caught the attention of some powerful offshore retailers. As a $20 billion business, Coles is big, which limits the field of potential buyers. Sources are pointing to US-based Walmart as one company with the firepower, the willpower and maybe even the need to consider such a deal.

Reserve Bank holds rates despite risks

14
The AFR reported that the Reserve Bank of Australia has extended its record run of policy inaction, holding rates steady at 1.5% and remaining unmoved by concerns about higher mortgage rates and emerging market turmoil. In our assessment, the economy has started to slow down. As this continues, the worry is that with the very low rates the Reserve Bank doesn't have much in its arsenal to counter a downturn.
4
Sep-18
Tuesday

UK shoppers headed to the pub not the shops this summer

14
Reuters reported that British retailers posted sluggish sales growth last month as potential shoppers chose to make the most of this summer’s record hot weather and spend money at the pub instead. A British Retail Consortium report noted total spending was up just 1.3% on a year earlier, the weakest growth since November last year, apart from a big dip in April due to the timing of the Easter holiday. Contrasting the retail data, a broader measure of consumer spending by Barclaycard shows a 4.5% increase in August, boosted by an 11.9% year-on-year jump in spending at pubs. 2018 was the joint-hottest summer on record since records began in 1910, which benefited supermarkets, pubs, and restaurants.

Retail spending growth figures misrepresented again

21
The Australian Financial Review reported that retail spending growth was flat in July against a 0.4% gain in the prior month, which suggests consumers may have become less willing to open their wallets amid falling house prices and weak wages growth. Additionally, the Australian dollar dipped a fifth of a US cent in response to the disappointing data. As usual, we had to dig for meaningful comparison data, turning to the ABS to find year-on-year figures (YoY). Viewed through the YoY lense, retail spending grew approximately 3.5% against July 2017. Quite a different story, isn't it?

Steinhoff AP homewares sales fall

9
The AFR reported that furniture and general merchandise retailer Steinhoff International has indicated that consumer and supplier uncertainty triggered by a global accounting scandal is responsible for weak sales in the majority of the markets it operates in, including Australia. Down Under, sales at Freedom, Fantastic and Snooze, as well as department stores Best & Less and Harris Scarfe rose 1% to A$1.55 billion in the nine months ending June as new stores offset weak same-store sales. In household goods, total sales rose 7%, buoyed by a full nine months contribution from Fantastic Furniture, which was acquired in December 2016. Excluding the Fantastic acquisition and sales from new stores, same-store sales fell 5%. In general merchandise, total sales fell 3% but same-store sales rose 2% despite intense competition from Kmart, Target, Myer and online rivals. Steinhoff Asia Pacific plans to change its name to Greenlit Holdings to distance itself from its parent's troubles.
3
Sep-18
Monday

Luxury retail set for impressive growth

11
A report by professional services firm Deloitte indicates that luxury retail sales will increase by 6-8% annually through 2024, compared to the expected 3% annual growth in the broader retail sector. According to the report, an acceleration of new brands entering the Australian market, current players expanding their position, strong online performance and high-spending tourists are the emerging trends driving the predicted growth.

Dyson accelerates electric vehicle project

13
Product engineering company, Dyson, most famous for vacuums, has joined Volkswagen AG, Daimler AG, and General Motors in the race for electric-car market share. According to a post in The Hustle, the company has unveiled plans to turn the old Hullavington Airfield in England into its vehicle testing site. Dyson has said that it expects to be on the road around 2021. As a wildcard entrant to the electric vehicle space, it will be interesting to see what kind of impact Dyson will make.

Coca-Cola takes plunge into coffee

19
Reuters reports that Coca-Cola Co will purchase coffee chain Costa for U$5.1 billion from Britain’s Whitbread. The deal, which will cost Coke about U$1.3 billion more than some analysts had expected, forms part of a bid to extend the soda company's reach into healthier drinks and take on the likes of Starbucks and Nestle in the booming global coffee market. Coke will acquire Costa's 4,000 outlets and plans to use its distribution network to supercharge Costa’s expansion as it chases market leader Starbucks (29,000 stores across 77 markets). Beyond coffee shops, Coke has said that Costa will provide an important growth platform ranging from beans to bottled drinks. With the deal expected to close in the first half of 2019, this is a major shake-up for the coffee category, which is growing by around 6% a year.