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4
May-18
Friday

Esprit loses its spirit

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Multiple media sources commented on the just announced exit of Esprit from Australia.  Sales of the Australian branch progressively evaporated from over $140 million pa in 2010 to a mere $50 million in 2017.  According to AFR, Esprit has been losing market share to global chains which entered Australia, such as Zara, Uniqlo and H&M.  Myer’s decline didn’t help either, as Esprit operated 38 concessions within Myer.  Australia is proving to be a difficult market for overseas retailers: Brooks Brothers, The Gap, TopShop and even H&M find it challenging.

Super Retail Group trading update

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The Super Retail Group released a trading update, confirming that it is on target to deliver profit forecast for the financial year.  Some of its brands are under pressure from new competitors, so Super Retail has been working hard to stay its course.  The Group’s strategy includes expansion of its private label range to 50%, which carries the risk of alienating or even wiping out some suppliers.  It was interesting to note that omni-channel has been left in the Group’s strategy until 2020-22...
3
May-18
Thursday

Retales

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The Australian featured a set of articles covering the latest updates published by major Australian retailers. Wesfarmers kept plodding along, handicapped by their UK Bunnings venture and a struggling Target. Wesfarmers CEO made some enthusiastic comments about Flybuys, but after 24 years of operation, we are yet to see real benefits in terms of smart customer engagement, based on the tons of data collected so far.  Woolworths enjoyed solid growth, as a 4%+ like-for-like revenue increase is impressive within the very competitive market, particularly when compared to Coles' sub-percent growth results.  Finally, JB HiFi shares have been punished (10% slump), due to lukewarm performance, impacted by poor results in the home appliances category. We never did see much value in adding appliances to the range of electronic retailers.  There is little money to be made in a category where margins are barely above 10%.

Rebalancing physical stores and e-commerce

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Bloomberg View published an interesting article pointing out that brick-and-mortar retailers may be gaining an advantage over e-commerce players, as retail rents dip and online advertising and shipping rates rise, quite substantially. Facebook's ad rates soared last year, and higher shipping costs lead Amazon to raise its Prime membership fee.
2
May-18
Wednesday

Could Walmart buy Coles?

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The Australians Financial Review posed an interesting question, whether Walmart will use the proceeds from the Asda sales to Sainsburys to acquire the demerged Coles supermarkets.  Apparently, some analysts have suggested that this as a possibility.  We don’t think so, for three reasons: 60% of the sale price will be covered by Sainsburys’ stock, Coles Supermarkets are too similar to Asda, and Walmart have their own impressive store format anyway – why not use it and grab a part of the market, without spending billions on an acquisition?

The other side of static interest rates

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The Reserve Bank of Australia has left interest rates unchanged at 1.5%.  Most commentators viewed it as a positive sign and attributed it to a relatively steady economic environment – in terms of unemployment, inflation, and moderate housing market activity.  We see it a bit differently: low interest rates also reflect the general lack of positive economic expectations about the medium to long-term future.  Businesses are reluctant to borrow, because they don’t see opportunites for solid returns.  Every coin has two sides…
1
May-18
Tuesday

Walmart sells Asda to Sainsbury in the UK

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Walmart has announced the details of the deal which will create Britain’s largest grocer with revenue of around $70 billion.  Walmart will sell Asda to Sainsbury for $10 billion, of which close to 60% will be paid in stock, making Walmart a major shareholder in Sainsbury.  The newly merged business will surpass Tesco as the largest grocery chain in the UK, as Tesco turns over around $50 billion.  The Australian Financial Review commented that Sainsbury will gain more clout with suppliers, which is true, but to make matters substantially worse for some of the suppliers, Sainsbury will now go to every supplier that ever gave better deals to Asda and will apply pressure to reclaim the differential.

'Buy Local' an unrealised ideal

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The Wall Street Journal pointed out an interesting trend in international shipping.  Refrigerated containers currently make up about 7% of total container volumes and the demand has been growing in excess of 5% per annum over the last five years, well ahead of shipping in general (around 2%).  Fresh produce, orange juice, pharmaceuticals and confectionery shipments are on the rise due to the growing affluence of the global population, especially in Asia.  The ‘Buy Local’ slogan doesn’t seem to be working that well.
30
Apr-18
Monday

The UK grocery wars

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Reuters reported that Sainsbury and Walmart, the world’s largest retailer, were in advanced discussions regarding a combination of Sainsbury’s and Asda, the UK’s No. 2 and 3 UK grocers. Asda is owned by Walmart.  Tesco occupies the number one position in the UK market.  Britain’s big grocers, including No. 4 player Morrisons, have been losing share to German discounters Aldi and Lidl, reminiscent of the Australian grocery market shifts.  The structure of the deal remains a mystery, but it looks like a new holding company will be created, partially owned by Walmart.

GNC store closures in 2018

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According to CNBC, GNC (vitamins/supplements chain) intends to close 200 stores in 2018.  GNC operates more than 8,000 locations globally, about 3,300 of which are corporately held. The business is not doing that well, but it remains profitable, with the first quarter of fiscal 2018 delivering net income of $6.2 million, or 7 cents per share, compared with $24.7 million, or 36 cents a share, a year ago. The company is negotiating an external investment and wants to improve its lease terms. In our assessment, the formula of GNC is a bit too clinical and rigid, making it difficult for international franchisees to adjust to local market requirements.
27
Apr-18
Friday

Coles uninspiring results

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Inside Retail reported that Coles’ top line revenue grew by 0.3% to $9.04 billion for the three months ending 31 March.  Coles’ managing director commented that both comparable sales and sales per square metre were on an improving trend.  Given its destruction of branded groceries and attempts to compete with ALDI on price, our view is that these results need to be viewed quite soberly - Coles will likely struggle to maintain any revenue growth in the long-term without serious structural changes. 

How smart retailers are redefining the c-store

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The Wall Street Journal reported that some US convenience store operators are redefining the retail niche by combining c-store staples with fresh food options. Stores such as Denver's Choice Market and Chicago's Foxtrot are catering to growing consumer demand for fast-casual quality in a grab-and-go setting.  Apparently, they generate 8% of sales from fresh produce.  This is possibly something Coles should look at, given that their convenience segment has declined by 8% during the last quarter.