DigiDay reported that Target is out aggressively pitching so-called DTC brands with new deal terms, signaling a balancing of power in wholesale retail. The company now sells formerly online-only brands including Casper, Harry’s, Barkbox, Quip and Native. They all have an aesthetic instantly recognisable by online shoppers — or really anyone who has experienced targeted ads on social media. They have established customers, and troves of first-party customer data thanks to the direct-to-consumer launch strategy. They’re attractive players for Target to get its hooks into, and as the cost to advertise on Facebook and Google climbs and online growth slows, digital brands need new retail outlets to both increase brand awareness and drive customer acquisition. Target is not alone, Walmart and Nordstrom are also rewriting the rulebooks of merchandising in order to accommodate trendy digitally native brands. It's an interesting approach, as it reduces sales cannibalisation from brick and mortar. But, it does need extra merchandising and logistical effort.    

The AFR reported that Rod Sims, chairman of the competition watchdog, the Australian Competition and Consumer Commission (ACCC), is itching for the government to reform the $170 billion franchising sector. It follows a damning parliamentary report released last week that put the spotlight on the sector and found inherent conflicts of interest and an entrenched imbalance of power between franchisees and franchisors. It found the current regulatory environment "manifestly failed to deter systemic poor conduct and exploitative behaviour and has entrenched the power imbalance" between franchisors and franchisees. When a sector accounts for almost 8.9% of GDP and has been described in a joint parliamentary report as comparable to the financial services sector when it comes to poor corporate governance and cultural issues, it is time for the government to act.

The AFR reported that private equity bigwig Bain Capital is close to finalising a lead manager syndicate for one of its key Australian assets, Boost Juice owner Retail Zoo. Bain is expected to tap Citigroup - which has been on the Retail Zoo ticket for some months - as well as rival investment banks Goldman Sachs and UBS. It comes as Bain considers exit options for Retail Zoo, including the sale to a trade buyer or another private equity firm and a sharemarket listing on the Australian Securities Exchange. The private equity firm bought Retail Zoo and its juice chain business Boost Juice in 2014, in a deal valuing the business at $185 million. Retail Zoo has since been pitched to potential acquirers as "Australia's leading multi-brand QSR platform" with store numbers growing at about 40 a year to be approaching 600 stores.  

The AFR reported that Kogan.com has taken a leaf out of Catch Group's playbook, launching an online marketplace to boost sales and better compete with Amazon and eBay. The marketplace enables third-party traders to sell goods on Kogan.com, as they do on Amazon.com.au, Catch.com.au and eBay, and increases the range of products available to customers, without Kogan.com having to buy or hold the inventory. Kogan.com said many leading retailers and brands had already signed up, boosting the number of products to more than 100,000, including brands such as Microsoft, Breville, Lego, Fisher-Price, Paw Patrol, SodaStream, Gillette, Gucci and Philips. The new marketplace promises to reinvigorate Kogan.com's sales growth, just as it has at Catch Group, which launched a marketplace in June 2017.

The AFR reported that Afterpay competitor Zip Co will target daily spending such as groceries and fuel in its rush to grab a share of the growing alternative payments market, the company's co-founder Peter Gray said after the buy-now, pay-later group raised $42.8 million from institutional investors to fund further investment in products, customer acquisitions and strengthen its balance sheet. Zip's capital raising comes after a strong run for Zip and Afterpay, and as a host of me-too offerings are being brought to market from the controversial buy-now, pay-later segment. Unlike Afterpay, Zip has said it will focus on growing in the local market, though it is planning to expand to New Zealand.

Business Insider reported that Sigma Healthcare has turned down a merger offer from Australian Pharmaceuticals Industries, saying it stood to gain more if it continued operations as a standalone company. API, which owns the Priceline chain of pharmacies, quietly lobbed a $727 million bid for Sigma back in October, though it was not announced publicly until December, when API upped its shareholding in Sigma to 13%. Investors were not impressed with the news, wiping almost $82 million off Sigma's market capitalisation. Citi analysts estimated API would need to lift the bid price to about 73¢ per share from its offer that valued Sigma at 69¢ per share. If the two companies were to come together, the single entity would be the country's biggest pharmaceutical wholesaler. Sigma and API together would account for 45% of the market, which would make it larger than EBOS, with 36% share, according to UBS.

The AFR reported that Afterpay Touch rival and buy-now, pay-later provider Zip Co has gone into a trading halt before a capital raising announcement. Zip said in an ASX announcement that it would raise capital from "sophisticated and professional investors". Its shares last traded at $1.66 on Tuesday and will stay halted until Friday or when the proposed raising is completed. The credit card disrupter narrowed its net loss to $6.8 million for the six months ended December 31, from a $14.6 million loss a year earlier. Its revenue more than doubled to $34.2 million in the same period after signing up major retailers including Bunnings, Target and Officeworks. Unlike its competitor Afterpay, Zip's immediate focus remains on expanding in the Australian market.

The AFR reported that outdoor clothing retailer Kathmandu is in damage control after discovering its online store was breached by unidentified parties and sensitive customer information may have been stolen. Kathmandu revealed the breach yesterday, saying it had recently become aware that an unidentified third party gained unauthorised access to Kathmandu's online platform for more than a month, between January 8 and February 12. Cyber attacks on major retailers are rare in Australia but are increasingly common overseas as new payment technologies transform the way people shop and provide new entry points for cybercriminals. We have repeatedly advised that cybersecurity needs to be at the core of loss prevention for modern-day retailers.

The AFR reported that Shoes of Prey co-founder Michael Fox says he has learned the hard way that shoppers have a subconscious desire to be shown what to buy, despite market research suggesting customers would be keen to create their own unique styles on the shoe retailer's website. Mr Fox conceded that mass-market customers would really rather buy exactly what celebrities and Instagram influencers were wearing rather than create their own shoe styles. The Shoes of Prey business model – delivering made-to-order shoes in just two weeks – was a financially, legally and ethically unsustainable business model. Customers who visited the retailer's website suffered "decision paralysis" when faced with the time-intensive task of producing their own shoes, which led to lower conversion rates, according to Mr Fox. The business also had high fixed costs but could not fall back on scale to break even because each shoe was custom designed. Shoes of Prey stopped trading in August last year while it explored options to raise more capital or sell the business.

Reuters reported that US retail sales rose modestly in January after a December drop that was even larger than originally estimated, but the recovery was not seen as strong enough to alter the course of a US economy that was losing momentum in early 2019. The report from the Commerce Department on Monday was welcome news for the economy after a raft of weak December data, as well as a sharp moderation in the pace of job growth in February. Still, January’s increase in retail sales recouped only a fraction of December’s plunge, leaving expectations for a slowdown in consumer spending in the first quarter intact. The drop in December was the biggest since September 2009 when the economy was emerging from recession. Economists polled by Reuters had forecast retail sales to be unchanged in January. Sales in January increased 2.3% from a year ago. Economists now expect GDP growth will be lowered to a 2.1% pace when the government publishes its revision later this month.

The AFR reported that Coles, Woolworths and Metcash will spend $8 billion over the next three years refurbishing stores, building new stores and distribution centres and improving digital capabilities to keep up with changing consumer trends and become more efficient ahead of a new wave of competition. Investors in the supermarket chains say the added capital expenditure is needed to protect market share from Aldi, Kaufland and Amazon and restore margins, which have fallen over the past few years as the major chains have cut prices to compete with Aldi. However, there are concerns that instead of gains going to shareholders they will go to shoppers in the form of lower prices and better service. We feel both shareholders and the consumers will lose - we have repeatedly warned that the high cost of operations incurred by local grocery operators make them sitting ducks for the operationally excellent international invaders.