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Zip narrows losses and is ready for more regulation

The AFR reported that listed credit card disrupter Zip says it is ready for any potential changes coming to the buy-now, pay-later sector, including more regulation and stricter responsible lending requirements. The Senate committee inquiring into the sector is due to hand down its final report after the market closes today. On Wednesday the share price of Zip and its rivals Afterpay and FlexiGroup dropped sharply, prompting the corporate regulator to look into the trading. ASX-listed Zip reported on Thursday it had narrowed its net loss to $6.8 million for the six months ended December 31, 2018, compared with a $14.6 million loss in the year earlier period. Its revenue more than doubled to $34.2 million in the same period after signing up major retailers including Bunnings, Targets and Officeworks. On Thursday Zip shares closed at $1.39, up 8%. As in the previous year, Zip has declared no dividend.

Profit woes continue at David Jones

The AFR reported that profits at David Jones plunged 39% to $36 million in the December half after its South African owner, Woolworths Holdings, cut prices and spent another $56 million improving stores and building a new food business. The poor result followed a 30% drop in department store profits in the December-half last year, when Woolworths spent about $36 million fixing up stores and systems. It means profits at David Jones, have more than halved in two years, falling from $110 million in 2016 to $36 million. Total sales rose 1% to $1.12 billion and same-store sales by 0.9% in the six months ending December 23, with growth from new stores and online sales growth of 46% offsetting loss of sales from the closure of half the flagship Elizabeth Street store in Sydney's CBD for a $400 million renovation. David Jones plans to "aggressively" reduce retail space by 20.7% by 2026, boost private label sales and cut costs.

Treasury gets Amazon bonus from new GST laws

The AFR reported that governments have collected $81 million, or more than four times what was anticipated, from tough new laws that force overseas retailers such as Amazon to pay GST on cheap products they sell into Australia. The laws which aimed to level the playing field with local retailers saw $81 million collected in the first quarter of implementation, according to figures from the Australian Tax Office. It was anticipated to raise $17.5 million per quarter. We joined many retailers in campaigning for the changes, which force overseas retailers to pay GST on low value imported goods under $1000. Treasurer Josh Frydenberg said the collection of GST on low value imported goods as well as the GST collection on imported digital products and services now amounted to $423 million as a result of laws introduced under the Coalition government.  

CAPEX out of control

The AFR reported that Woolworths chief executive Brad Banducci says Australia's largest retailer needs to turn sales growth into profit growth to deliver better returns to shareholders. But he has defended heavy CAPEX spending, saying Woolworths needed to invest to respond to changing consumer shopping habits and improve productivity. Woolworths has been playing catch-up on capital expenditure over the past few years, spending between $1.7 billion and $1.8 billion net a year, but the investments have yet to translate to material earnings growth and investors are wondering when they will reap rewards (probably never will). Mr Banducci also dismissed analyst suggestions CAPEX was "out of control". Net profit from continuing operations, excluding petrol, rose 2.1% to $920 million, while earnings before interest and tax rose 1% to $1.4 billion (less than inflation). We've continually warned that Woolworths and Coles trade with dangerously bloated costs of operation.    

What Woolies and Coles can learn from Lidl in the UK

The BBC reported that Lidl, along with its fellow German discounter Aldi, might be growing strongly in the UK right now but it wasn't always that way. In the early years, the discounters were considered really small players. But things began to change around the time of the financial crisis in 2009. People were looking at how they could save money, but more importantly, the discounters made their offering more attractive for the British shopper, rather than taking the German model and copying it like for like. Lidl now has more than 700 stores in the UK and is opening a new one on average every week. It plans to invest £1.45bn in the next two years. An interesting angle when you apply it locally. When the next crisis hits, retailers like Coles and Woolworths, which are under stress due to costly methods of operation will suffer badly, creating a ripe environment for businesses such as Aldi and Costco to expand further, and for businesses like Lidl to consider entry into the Australian market.    

The truth about the retail apocalypse

An article in Inside Retail provided an interesting analysis of the media-hyped "physical retail apocalypse" at the hands of online retail. Digging into the facts available for the US and UK markets, the piece notes that in 2018, broadly speaking, two shops closed for every one that opened in the US and UK. To put this in perspective, we’re talking about 5524 retail shops out of 3.8 million physical retail shops in the US. We also see this trend flattening out when we look at 2017, when there were 8139 closures in the US. Australian retail appears to be in a similar pattern, with evidence that flattening of the store closure trend is occurring. Essentially, mid-market to lower-value retail (notably mid-market apparel) is bearing the brunt of the physical store closures globally. This isn't all caused by online retail per se, but rather simply the growth of competition from other physical retailers. The media often forgets that omni-channel retailing is only viable with physical shops as the centrepiece. This fuels brand growth, extension, and fierce competition.  

Lovisa finds profit abroad

The AFR reported that affordable jewellery chain Lovisa has emerged relatively unscathed from the rocky global retail environment, delivering "pleasing" profits courtesy of its aggressive push into overseas markets. Lovisa opened 36 stores overseas in the six months to December 31, which helped lift interim sales 12.3%. On Wednesday the retailer said it planned more store openings in the United States and France this financial year to add to the 12 opened there during the period. Investors sent Lovisa's share price rocketing up 26.6% to $9.80 by midmorning following its interim results. Lovisa's share price has flip-flopped in the past year, hitting a high of $12.53 in June but dropping 1.3% overall in the past year. It has relied heavily on retail expansion to drive profits, with comparable sales down 1.8% for the period because of difficulties in the Australian retail environment and strong sales growth in the same period a year ago.

Coles resets after profit drops 29pc

The AFR reports that, in a frank assessment of Coles' prospects, new CEO, Steven Cain, says the food and liquor retailer faces multiple challenges, including costs rising faster than sales, fast-changing consumer shopping habits and margin dilution from the shift to online shopping. An observation that comes a little late given they just sold the business to the public. We have repeatedly warned that Coles (and Woolworths) have structural problems. This recent announcement confirms our observations.

Visa and Mastercard plan to raise fees in the US

The Wall Street Journal reported that credit card companies are increasing a range of fees that US merchants will pay to process transactions, putting new strain on retail. Some of the changes relate to so-called interchange fees. Card networks set the price of these fees, which merchants pay to banks when consumers shop with the cards they issue. Merchants often increase prices following such fee increases, in an attempt to protect their own profits. It's a vicious cycle. US merchants paid an estimated US$64 billion in Visa and Mastercard credit and debit interchange fees last year, according to the Nilson Report - up 12% from a year earlier and up 77% from 2012. The big question is when will the fee increases filter through to us Down Under?

New Zealand to target online giants with digital tax

Reuters reported that New Zealand plans to update its laws so it can tax revenue earned by multinational digital firms such as Google, Facebook, and Amazon, extending a global effort to bring global tech giants into the tax net. Highly digitalised companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax, the government said in a statement released after the announcement. The revenue estimate for a digital services tax is between NZ$30 million and NZ$80 million. A number of countries including the U.K, Spain, Italy, France, Austria and India have enacted or announced plans for a DST. The EU and Australia are also consulting on a DST.

Beacon Lighting downgrades full-year guidance

The AFR reported that Beacon Lighting has downgraded profit guidance and now expects to deliver flat profits in 2019 because of "unpredictable" trading conditions triggered by the housing slump and tighter credit conditions. The lighting retailer's net profit rose 3.2% to $11.6 million in the 26 weeks ended December 23, falling short of consensus forecasts of about $12 million. This followed a 20% rise in net profit to $11.3 million in the first half of 2018. Group sales rose 4.8% to $128.3 million, buoyed by emerging businesses and three new stores. But same-store sales fell 0.6% and were down again in January. Beacon Lighting chief executive Glen Robinson now expects profit this year to be in line with that last year.

Amazon gives Catch Group a nice boost

The AFR reported that Catch Group says record sales growth in the December half is partly due to the arrival of Amazon. Catch Group's gross transaction value rose 62% to $254 million in the six months ending December, buoyed by the launch of a new online marketing place in June 2017. This followed a 72.9% increase in GTV to $99.4 million in the first quarter of 2019. Sales from's core in-stock offering rose 20% to $163 million, while marketplace GTV soared to $90 million from $20 million in the year-ago period. An IPO still seems imminent despite postponing plans to list last November, after rival Kogan reported weaker than expected first-quarter sales and margins, and as the market for new floats dried up amid weak discretionary spending.