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27
Feb-19
Wednesday

The Body Shop taps its activist roots

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Glossy reported that after being acquired by Brazilian cosmetics company Natura & Co. from L’Oréal for a reported US$1.1 billion in June 2017, The Body Shop is refocusing product, stores and activations around purpose-led initiatives. Worldwide, The Body Shop’s comeback is slowly taking shape since the acquisition: The brand saw net revenue increase over 11% in the fourth quarter of 2018 and nearly 18% for the year. The Body Shop’s turnaround is being facilitated by the lack of heavy promotions that were required by L’Oréal to hit companywide targets as well as the new emphasis in the brand ethos and storytelling. This ties to The Body Shop’s updated store strategy. Though its website makes up over 30% of sales in the US, The Body Shop will begin hosting in-store events around causes in order to promote the brand’s activism more clearly. Retail Directions is proud of our collaboration with The Body Shop, which began back in 1994.      

Kaufland receives another $145m capital injection

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The AFR reported that the world's fourth-largest retailer Schwartz Group has injected another $145 million of capital into Kaufland Australia, underlining the discounter's ambitious plans to take on Woolworths, Coles, Aldi, IGA and Costco. According to documents lodged with the Australian Securities and Investments Commission this week, Kaufland issued another $145 million of shares to its German parent, taking paid up capital to $323 million. This followed a $60 million capital injection in October. Kaufland, the sister chain of German discounter Lidl, is believed to have secured almost a dozen store sites in Victoria, South Australia, NSW and Queensland and has established a new head office in Melbourne, on the site of a former Bunnings store, to complement state offices in Brisbane, Sydney and Adelaide. The first hypermarkets, which will carry a wide range of fresh food and packaged groceries as well as clothing and footwear, electronics, homewares, sports goods, stationery, garden products and hardware, are now expected to open in 2020. Yet another warning shot across the bow for the grocery incumbents.

ALDI aims to be third largest US grocer by 2022

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Store Brands in the US reported that ALDI aims to become the third largest US grocery retailer by 2022. ALDI opened its first US store in 1976 and now plans to grow from more than 1,800 to about 2,500 stores in the next four years. The chain’s USP is operational excellence and low priced private-branded packaged goods – about 90% of its range is private label.  The main difference between ALDI’s ‘home brand’ and home brands offered in regular supermarkets is quality. In the US ALDI has gained a reputation for its product quality, not just low prices. Given that ALDI expanded even faster in Australia than in the US, Australian supermarkets should take notice: ALDI’s arrival was not just another disturbance in the market it was a structural change.  Unless the local operators manage to adjust to this new reality, their pains will continue.
26
Feb-19
Tuesday

Mega-rich buy 'branded residences’ from Porsche & Co

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The Hustle reported that ultra-rich vacationers are buying “branded residences” built by Porsche, Armani, and Bulgari. It might seem strange for brands that make jewelry, handbags, and cars to be moving into the real estate market. But luxury brands cater to the tastes of the rich - and the rich want to have their penthouse and park their Porsche in it, too. Oh, you thought we were joking about the Porsche penthouse? Nope. The owner of the US$32.5m penthouse suite of the Porsche Design Tower can actually park their Porsche on the 57th floor thanks to the skyscraper’s “signature” car elevator. But the amenities don’t end there: The penthouse features 4 floors, 2 pools, separate winter and summer kitchens, and an 11-car garage. Like other branded residences, Porsche manages security, maintenance, and just about everything else for its tower residents - and buyers are lining up to pay top dollar for the amenities.

Afterpay in the red to expand in the US

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The AFR reported that Afterpay Touch said growth in the United States "remains above expectations" and it should have more than 1 million customers and 2,000 merchants using the service in the US by the end of March, a much faster growth rate than it experienced in Australia, as the high-flying fintech went deeper into the red as it ramped up spending to support growth in the United States and Britain, where it will launch this half. Afterpay reported a net loss of $22.2 million for the six months to December 31 - analysts were expecting a small profit - as employment expenses went up on the back of new hires, including out of the technology industry in Silicon Valley. Locally, Afterpay's shares jumped up by 20%, following company's statement that recommendations in the Senate economic references committee report, and Afterpay's commitment to work with its competitors to block vulnerable customers from using its service, won't have a material impact on its business model. This added more than $800 million to the value of the company.
25
Feb-19
Monday

Afterpay and Zip escape buy now, pay later crackdown for now

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SmartCompany reported that Afterpay and Zip Co have escaped the worst from a Senate probe into the buy-now-pay-later sector and will not be required to conduct onerous credit checks on customers. Delivering a verdict on the industry in a final report released last Friday evening, the Standing Committee on Economics did not recommend expanding national consumer credit protections to encompass buy-now-pay-later providers. Instead, it palmed off “what regulatory framework would be appropriate for the buy now pay later sector” for further discussion among government and corporate regulator ASIC. The outcome is good news for Afterpay, which said in a market release on Monday it “does not expect any material impact” on its business. Likewise for Zip Co, which welcomed the findings in a market release on Friday evening.
22
Feb-19
Friday

Zip narrows losses and is ready for more regulation

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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

62
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

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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.  
21
Feb-19
Thursday

CAPEX out of control

69
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

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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

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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.