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Noni B reports a Merry Christmas

The AFR noted that women's fashion retail group Noni B has reported that after acquiring Katies, Crossroads, Autograph, Rivers, and Millers in 2018 sales were up 140%. Like-for-like sales increased 1% in December, but the total first half-year like-for-like sales were down 3.1%. Substantial cost reductions were also reported. We remain cautious in our assessment as the true test after an acquisition comes in year two and three, when the retailer must switch to the business-as-usual model.  Continuing cost cuts could also have a detrimental effect, and apparently more are planned.  

2019, the year of 5G?

The AFR reported that Aussie consumers will be able to buy the first 5G-ready smartphones in Telstra stores by the end of June, after the telco giant revealed it had signed deals with "more than one" smartphone manufacturer to get exclusive access to their first 5G-ready handsets. The deal makes Telstra the first of Australia's three mobile network providers to commit to a clear timeframe for the launch of its 5G mobile network. However, no details were provided on how much the 5G plans would cost and about how these 5G-enabled smartphones would differ from 4G phones. One thing is for certain, end of days for the NBN looms on the horizon.

Overtired workers cost Japan US$138B

According to research reported by The Guardian, Japanese employees are the most sleep-deprived workforce globally, allegedly costing the economy US$138B per year. On average, Japanese workers get 6 hours and 35 minutes of sleep per night. To compensate, many Japanese proudly practice ‘inemuri’ -- the act of ‘sleeping while present’ in meetings or presentations, sometimes while standing up. Many Japanese companies discourage overtime and insist their employees leave by 9 pm to ensure they get enough sleep. Some companies are also building ‘strategic nap rooms’ to reduce in-meeting naps. Another Japanese company called Crazy created a sleep-monitoring app that rewards employees up to US$580 per year for getting more than 6 hours of sleep per night.

Amazon will use AI to deliver free samples

Axios reported that Amazon is testing an AI-powered program, partnering with brands like Maybelline and Folgers, to send free samples to potential buyers’ doorsteps through its delivery service. The new ad strategy could throw a monstrous haymaker to the jaws of Facebook and Google’s online ad dominance - if it connects. Makes sense. Alexa sees you when you sleep, she knows when you’re awake, and she knows what you shop for online. And, with more than 100m Prime services subscribers, analysts believe this is a major breakthrough in its efforts to throw Google and Facebook from their ad-dominated hills.

Kathmandu downgrades earnings, is The Reject Shop next?

The AFR reported on Kathmandu's softer than expected trading update last week. Given that that earnings downgrades rarely happen in isolation, analysts are signaling that The Reject Shop may be next. The company has already downgraded earnings once - at its annual general meeting in October - and since flagged further declines in sales. The Reject Shop's sales were down 4.9% year-on-year in the six weeks to late November, which was after the downgrade, and that the company needed to arrest the decline leading into Christmas to make its revised profit numbers. The other one feeling some heat is Myer - although its investors know it is as much a cost out story as sales story, at least in the short to medium term.    

Retailers stuck as shoppers stay home

The AFR reported that retailers are scrambling to avoid a "liquidity crisis"; after in-store foot traffic fell 8% between Black Friday and Boxing Day, compared to 3% over the same period in the previous year. "Foot traffic appears to have been weak as shoppers continue to shift December shopping trips online and pull forward purchases into Black Friday in November," said Citi in a note reviewing the past Christmas season. Citi said that discounting had not increased, and in some cases, retailers had pulled back after "several years of discounting ramping up to unsustainable levels in some categories". Analysts attributed the steep decline in foot traffic to three broader trends: the rise of online shopping, shifts in the retail calendar, and growing cost-of-living pressures.

Sears on the brink of liquidation

CNBC reported that Sears is planning to announce its decision on Chairman Eddie Lampert's bid to save the company tomorrow morning. According to sources close to the business, Sears and Lampert have been so far unable to resolve disagreements over his US$4.4 billion bid to save Sears and 50,000 jobs by buying it out of bankruptcy through his hedge fund ESL Investments. Without a fix, Sears will liquidate.

Amazon’s cashierless stores could be a US$4.5b business by 2021

The Hustle reported that not only are Amazon’s new cashierless and cashless stores giving traditional “convenience” stores a run for their money in the US, but new research also suggests they’re already more lucrative. Based on in-person tests and data-collection, analysts at RBC Capital found that each Amazon Go store will reel in an estimated US$1.5m in yearly revenue, 50% more than your typical corner shop. With 8 Go locations on the map presently, Amazon is considering a plan to open as many as 3,000 new Go stores over the next 2 years, which, based on RBC’s report, would mean that the storefronts could become a $4.5B business by 2021. While it may be more profitable long-term, the upfront investment for cashierless stores is much larger than “dark age” convenience outlets. The first Go location cost more than US$1m in hardware alone.

Cross-channel the new fraud

The Ragtrader reported that new research indicates that retailers, both online and off, are falling behind when it comes to payment security, with Card-Not-Present (CNP) fraud to cost the industry $130 billion in the next four years. The report revealed that cybercriminals are looking to make cross-channel the new fraud. For instance, larger retailers reported 1,525 fraud attempts per month in 2018, which was up 43 percent year-on-year. In comparison, smaller players only reported an average of 249 fraud attempts in 2018. However, this still represented an 11 percent increase in prevalence YOY. We've repeatedly commented that a cybercrime-enabled loss prevention function has become essential to retail operations in the Digital Age.

ZipPay supports 'scaled' responsible lending checks

The AFR reported that buy now, pay later service ZipPay is ready to embrace responsible lending checks and caps on late fees, as the sector faces increasing scrutiny from the regulator and a Labor-led Senate committee. Zip's co-founder and chief operating officer said the company would be open to a more limited regime. This would include verifying income and identity, and checking credit history, but wouldn't extend to expense checks. This position is in contrast to Afterpay, which said it supports the corporate regulator exercising its soon-to-be-granted product intervention powers but has been resistant to the idea of responsible lending checks.

Kathmandu in the spotlight

Australian Financial Review and The Age reported that Kathmandu's same-store sales fell 1% in the second half of 2018, affected by lower than expected sales over the Christmas period.  The share price dropped by 14% after Kathmandu's announcement and this has affected other retail stocks - particularly in the discretionary segments.  In our assessment, this was an overreaction, as Kathmandu actually made more profit.  However, according to AFR, "the retailer provided a rosy picture of trading in late November", so the market has judged Kathmandu  against this benchmark rather than assessing its performance in general.

Australian $ crash

Various media outlets commented on a wild 24 hours for the Australian currency, which at some stage hit a 10-year low against US$ (67.46 cents), recovering to 69.37 by the end of the day.  Apparently the dip was caused by computer trading, with sell algorithms triggered by a sale order, combined with thin liquidity and low transaction volumes.  ANZ Chief Economist made a prediction that AUD will go down to 67 cents by mid-year, but most analysts believe that the rate will stay above 70 cents.