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11
Oct-18
Thursday

PM confident that company tax cut laws will get across the line

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Australia Associated Press reported that Prime Minister Scott Morrison has expressed confidence that his government can pass laws next week to bring forward tax cuts for small and medium-sized businesses by five years at a cost of about $3 billion. Under the plan, companies with annual turnovers of less than $50 million will have their tax rate cut to 26 per cent in 2020/21, then 25 per cent the following year. The cuts build on last year’s reduction to 27.5 per cent for the same business groups, from 30 per cent.

Secret Amazon brands put the squeeze on 3rd-party products

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The Hustle reported on Amazon’s private label business, which after quiet growth is on track to hit US$25 billion by 2022. Amazon sells 70+ in-house brands with names like “Lark & Ro” and “Arabella” that are nearly indistinguishable from 3rd-party products, often advertising private label products below competitors’ products. Its private label strategy aims at slowly reducing its reliance on 3rd-party sellers and increasing its profit margins. The company has also launched an “Amazon Accelerator Program” to develop even more private label brands. This is what invariably happens when a large retailer starts dominating its market segment – ‘home brands’ begin to sneak into the mix, to the detriment of the normal suppliers who helped the retailer grow in the first place.
10
Oct-18
Wednesday

The end of Sears?

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Fox Business News reported that iconic American department store chain, Sears is spiraling downward and fast. Sears stock lost 90% of its value over the past 12-months, now trading below US$1.00. This week reports surfaced that the retailer may close 11 more stores across the US, including one of chain’s most profitable US stores, which according to retail experts could drive Sears out of business. The company has already closed hundreds of stores and sold off assets in recent years. The article goes on to say that while some of the issues at Sears are unique to the company, the broader retail landscape is suffering as competition from the likes of Amazon gets even tougher. We don't buy this point of view, retailers who have adapted to provide a holistic Digital Path to Purchase focused on all sales, not just online, are thriving - e.g. Nordstrom.

French Connection shares rise on sale rumours

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Reuters reported that French Connection shares rose as much 45% on Monday after the British fashion retailer said the company could be sold as it reviews its strategic options. The statement follows a weekend report from Sky News that Founder, CEO and Chairman Stephen Marks, the largest shareholder in the business, had approached bidders to offload his stake. The company, whose brands include its namesake French Connection, Great Plains and YMC, has struggled to differentiate itself from rivals such as Inditex’s Zara, which offers a greater variety of clothes at cheaper prices. Once known for its provocative FCUK brand of clothes and accessories, French Connection is struggling and has been in the red for six years. In March, it said that it was close to turning profitable, adding that it would consider restarting dividend payments when it did. It will be interesting to see how this story plays out.
9
Oct-18
Tuesday

Woolworths picked as the winner in Wesfarmers-Coles demerger

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The AFR reported that Woolworths is tipped to emerge as a major winner in Wesfarmers' demerger of Coles "as a decade of aggressive price cutting comes to an end". Fund managers are speculating that the demerger will lead to the most benign industry conditions in almost a decade as a stand-alone Coles will have less capacity to invest heavily in price while spending $1 billion automating its supply chain and distributing 80%-90% of earnings in dividends. Once again, fundamental information was missing from the article. What about the impact of Aldi, Costco, and soon Kaufland on the supermarket segment? Both Woolies and Coles will come under ever-increasing pressure from the international raiders.

Keeping the market honest

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According to The Mail in the UK, Tesco's CEO has called for a tax on the sale of online goods to prevent the demise of brick-and-mortar stores. Apparently, the UK Chancellor of the Exchequer acknowledged that the government would need to tax internet giants such as Amazon and Google. We are all for levelling the playing field, but we think that such tax penalties shouldn’t be related to the size of the organisation but to its Profit and Loss statement. If a company runs at a loss for a number of years, it should be investigated, as it's clearly burning borrowed, or shareholders’ funds in order to distort the market.
8
Oct-18
Monday

Retail spending August 2018

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Multiple media outlets reported on the modest increase in retail spending of 0.3% in August over a flat July. In one article, the National Retailers Association called this increase the “weakest back-to-back results for 2018", noting that these figures emphasise the need for governments to put retail-friendly measures in place ahead of the looming holiday period, urging for extended trading hours to be considered. Again, we had to turn to the ABS to find year-on-year figures (YoY), which indicate that retail spending grew around 3.5% against August 2017 - a totally different picture to the month-on-month comparison.

Wesfarmers outlines strategy post Coles demerger

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In documents released to the ASX last week Friday, Wesfarmers said that the move to spin off Coles into a separately listed entity will enable it to invest in businesses with higher future earnings prospects. Coles contributed just 35% of Wesfarmers’ earnings in the 2018 financial year, despite accounting for 64% of the conglomerate’s employed capital. The group said its strong balance sheet and cash generative assets will create new investment opportunities post-demerger, while Coles, with 31% market share in the Australian supermarket sector, is expected to benefit from Australia’s population growth and improving disposable income and consumer sentiment metrics moving forward. Shareholders will vote on the demerger on 15 November 2018.

Cashing in on the collapse of Toys 'R' Us

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The Wall Street Journal reported that as the festive season approaches, US retailers are rushing to fill the holiday hole left by Toys ‘R’ Us. The toy retailer's collapse has its rivals fighting over billions of dollars in holiday toy sales and is also likely to make it harder for shoppers to get their hands on some of the year’s hottest items. Walmart Inc., Target Corp. and other chains are setting aside more floor space for toys in hundreds of stores. Even Amazon.com Inc. is planning to distribute toy catalogues to shoppers. But, will they have enough inventory for the annual crush of last-minute shoppers?

5
Oct-18
Friday

More positive predictions from the US

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Reuters reported that the NRF expects US Christmas-period sales in 2018 to increase between 4.3% and 4.8%, boosted by a strong economy. According to the NRF, the combination of more jobs, improved wages, tamed inflation and an increase in net worth all provide the impetus to spendThis is a good prognosis for Australian retailers who operate in the US market.
4
Oct-18
Thursday

David Jones launches "shoe heaven"

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The AFR reported that David Jones is emulating overseas department stores with its new luxury shoe floor, which opens today after a multi-million refurbishment of level seven of the retailer's Elizabeth Street store. The shoe offering is the largest in Australia and one of the largest in the world, raising the bar for Australian retailers who have, according to a retail expert from RetailOasis, historically lagged behind their international counterparts due to a lack of access to global brands and a "middle-of-the-road" strategy. The refurbishment will increase pressure on Myer, which lacks the cash to undertake similar renovations, but will also increase pressure on Woolworths Holdings to make a decent return on its investment. Woolworths outlaid $2.1 billion for David Jones in 2014 but wrote down the value of its investment by $721 million in January. This is a big move, that has to work.

Coles' margins to fall short of Woolworths

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The AFR reported that Coles' margins will fall after its demerger from Westfarmers, and that margins in food, liquor, and convenience/fuel will undershoot those at Woolworths. A JPMorgan analyst notes that Coles' total earnings before tax will fall from a reported $1.5 billion in 2018 to $1.49 billion in 2019, with $55 million in new corporate overheads (as if their cost base wasn't too high already). In review of the article, there is some fundamental missing information - what about the impact of Aldi, Costco, and soon Kaufland on the supermarket segment? And, let us assure you - it will continue to grow.