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17
Sep-18
Monday

The Coles delusion

15
The AFR published commentary on Coles, pondering on its positioning to "take on Woolworths and Aldi".  We think that this narrative doesn't recognise some of the fundamental characteristics of the supermarket segment in Australia. Coles cannot compete with Aldi, unless it opens a new line of business (they used to have it, called Bi-Lo), which operates on a very low-cost basis. As it is, Coles must recognise that Aldi will continue to expand until it fills in its niche in Australia. Fighting this tide amounts to mere delay tactics and lost gross profit in the meantime.

Reuters retail reporting faux pas

18
Reuters reported that US retail sales made their smallest gain in six months in August, up 0.1% after a 0.8% jump in July. Apparently, this signals cooling consumer spending. However, we keep repeating that analysing retail spending growth based on the previous month makes no sense at all and is sensationalist. The real picture can only be found in corresponding year-on-year data. In this case, US retail sales in August actually advanced 6.6% from a year ago - a dramatically different picture, which highlights that consumer spending remains supported by a tightening labor market, which is steadily pushing up wages. Annual wage growth increased at its fastest pace in more than nine years in August and there were a record 6.9 million job openings in July. Spending in the US is also being underpinned by tax cuts and higher savings as well as high consumer sentiment. Makes you wonder how the negative media-driven retail sentiment for August even got published?
14
Sep-18
Friday

Retailers look to renovations to bolster weak housing market

16
The AFR reported that homewares, hardware, and electronics retailers are counting on a pick-up in home renovations as the downturn in housing sales and prices starts to bite. Like-for-like (LFL) sales growth at retailers ranging from Beacon Lighting and Nick Scali to JB Hi-Fi, Harvey Norman and Bunnings came off the boil in the fourth quarter of the 2018 financial year and analysts expect conditions to become even more challenging in 2019 as the housing downturn gathers pace and consumers become more cautious. Sales of goods such as lighting, sofas, carpet, curtains, paint and appliances are strongly tied to house prices, housing churn and auction clearance rates. A Citigroup analyst said the current cycle was increasingly resembling that in 2011/2012, when a slowing housing market combined with elevated price competition drove large earnings downgrades.

Big W faces up to $40 million in increased labour costs

9
The AFR reported that Big W is facing up to $40 million in increased labour costs when it reaches a new Enterprise Bargaining Agreement (EBA) after allowing its long-expired EBA to fall substantially behind the industry award. The discount department chain has not been paying any Saturday penalties or the full 25% casual loading for several years. The expected hit comes as the chain has been underperforming in sales, reporting $110 million in losses last financial year, and was expecting a turnaround in 2019 when Woolworths group will review its fate.
13
Sep-18
Thursday

Pillow Talk rebrands

13
Designed to connect with a new generation of consumers, bedding and homewares retailer Pillow Talk has unveiled new branding, including a fresh store look, logo and company purpose - "for the love of comfort". Pillow Talk will roll out the new look to all its Australian stores over a period of time and plans to open a couple of new stores as well. Retail Directions is proud to be the provider of Pillow Talk's retail technology, helping them deliver next-generation retail experiences to their customers.

Death of the supermarket checkout?

24
In January 2017, Amazon Go was first to market with a checkout-free grocery store in Seattle. Chinese e-retail giant Alibaba and Indian retail company Watasale both have similar offerings. In Australia, Woolworths is the first to embrace such technology, allowing shoppers at its supermarket in Double Bay to trial its new “scan and go” system. Besides convenience, an article in News.com.au reported that "the new technology has the potential to reduce shoplifting to zero". However, in all the hype, it's important to remember that even Amazon Go has been flawed from the start. A recent article in Forbes said it best: "As beautiful as Amazon Go is, it could also be the retail industry's siren song, seductively distracting Amazon's competitors from the real endemic issues within their business models and ultimately leaving them shipwrecked on the shores of retail's landscape from what will likely be a myriad of fruitless and costly attempts to mimic Amazon Go's checkout-free visual recognition technology."

The cryptocurrency rout has gotten worse

18
We keep watching cryptocurrencies as they sit in the area where commerce and IT intersect.  We have warned repetitively that their value has no link to reality and that sooner or later it must collapse.  This seems to be happening - Wall Street Journal reported that the total value of all cryptocurrencies fell below $200 billion last weekend, down 76% from an all-time high of $832 billion in January.
12
Sep-18
Wednesday

Myer woes

11
Myer announced its results for 2017/18 and they don't look good.  We found it quite surprising how little commentary was provided to cover "Implementation costs and individually significant items", totalling over $540 million.  These included a $515 million goodwill impairment - a big number when compared to the current market capitalisation of around $360 million.  The 'Customer First' plan sounds like mere retail 101 rather than a strategy.  The key to Myer's issues resides in onerous leases and overspending on technology.

The real cost of the Cloud

8
The Wall Street Journal commented on a survey of 46 CIOs, which indicated that companies this year are expected to spend more on IT.  Counter intuitively, it is the rush towards the Cloud that causes it.  Organisations now need to manage increasingly complex technology environments that include a mix of cloud providers as well as on-premise infrastructure.  New security challenges also need to be managed.  Budgets growth of over 4% is expected, up from 1.5% the year before.
11
Sep-18
Tuesday

China promises retaliation if US imposes more tariffs

16
The ABC reported that China on Monday promised retaliation if US President Donald Trump escalates their tariff battle, raising the risk Beijing might target operations of American companies as it runs out of imports for penalties. The threat came after Trump said Friday he was considering extending penalties to an additional $267 billion of Chinese products in their battle over Beijing's technology policy. That would be on top of $50 billion of goods already hit by 25% duties and another $200 billion on which Washington is poised to raise tariffs. Trump’s ultimate goal is to promote US manufacturing, though some analysts predict this will only result in more expensive goods for consumers. While the price increases may happen, 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.

Bunnings under fire for ‘pooling’ worker hours

9
The ABC reported on hardware retailer Bunning's policy to "pool worker hours" in a bid to keep staff in-store during peak periods. According to the article, Bunnings effectively sends workers home during quiet periods and banks their hours to be used during busier times, in a bid to average out hours over the rostering period. Despite the controversy, the retailer does not appear to have broken any laws. The practice is not new at Bunnings and the public airing of it appears to be timed to coincide with negotiations over a new Enterprise Bargaining Agreement (EBA). It echoes a similar situation faced recently by Flight Centre, which actively defended allegations of wage underpayment and customer price gouging amid its own EBA negotiations.
10
Sep-18
Monday

The retail apocalypse myth

10
Despite all the noise in the media about the demise of physical retail, according to new research from IHL Group, North American retailers will open 12,663 stores and close 8,828 stores in 2018, for a net increase of 3,835 store locations. Indeed, some high-profile brands have closed their doors, but this only represents a handful of retailers and is not indicative of the entire market. The report detailed the growing influence of Amazon, and that investments in people, technology and store experience are key to remaining relevant. Most importantly, along with improving their experience, stores need to attack their out-of-stocks (supply chain). According to the report, upwards of 24% of Amazon sales can be attributed to customers who first tried to buy the product at a local store but found it out of stock.