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6
Jul-18
Friday

US shopping malls are emptying out

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The Wall Street Journal reports that shopping malls in the US are the emptiest they have been in six years, with a vacancy rate of 8.6% in the second quarter. According to research from Reis Inc, the high vacancy rate is due to more consumers shifting to online shopping. Retailers such as Bon Ton, Sears, J.C. Penney and Toys “R” Us have all announced store closures this year. But, the main reason is not that Americans have abandoned brick-and-mortar for online merchants. The US simply has far too much retail space per capita - one of the highest globally. Stores still play a major role, with many pureplay retailers now recognising that having a brick-and-mortar presence reinforces their online efforts, including Amazon.com.
5
Jul-18
Thursday

Retail sales lukewarm

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An article in the AFR details the latest retail sales figures in Australia. Amid all the metrics mentioned, we were again disappointed with the way the data is represented. Retail sales statistics compared to the month before makes no sense and distort the real story. In retail, the only material measure is year-on-year corresponding period comparison.  In this light, the only meaningful figure noted in the report was the sales data for May, which shows a lukewarm rise of 2.4% from the same period in 2017.

Bapcor a front runner in Kmart Tyre & Auto acquisition

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The $1.8 billion automotive parts group, Bapcor is a front-runner to acquire Kmart Tyre & Auto from Westfarmers according to an article in today's AFR. Kmart Tyre & Auto, which operates 250 outlets, is expected to fetch approximately $300 million. According to Bapcor CEO Darryl Abotomey, the business is approaching the opportunity from a clinical viewpoint. Another potential buyer for Kmart Tyre & Auto is GPC Asia Pacific, the parent company of Repco. The AFR reported on 3 July that 3 bids were due for the retailer by end-July.

Outlook for Metcash is grim

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Times are seriously tough for grocery wholesaler Metcash, according to an AFR report. The article outlines the details of a $125 million off-market buyback, which will reduce the business's issue capital by about 5.3%. The move comes after supermarket chain Drakes' announcement in May that it will leave the Metcash supply chain, the growing strength of Aldi in key markets, and continued fierce competition from Woolworths and Coles. Fund managers warn that Metcash faces serious strife over the next 5 years. Across grocery and pharmacy, there is an interesting wholesaling shake up down under.

Afterpay shines on the sharemarket

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The AFR reports that Afterpay founder Nicholas Molnar has become one of Australia's ten wealthiest self-made individuals, with a $200 million fortune fuelled by the rapid growth of the buy now pay later service. Afterpay boasts more than 1.8 million customers and is growing at around 3,300 new customers per day. The business has 14,000 retailers on its books, flights on Jetstar are next, and it has now cracked the US market after cutting a deal with Urban Outfitters. AfterPay shares have enjoyed a bullish rally of 220% over the past year. Despite a few regulatory headwinds, the growth trend looks set to continue with Goldman Sachs analysts believing that the risks for a material change to its business model are minimal.  
4
Jul-18
Wednesday

Plastic bag ban a profit grab?

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The Herald Sun reports that supermarkets are cashing in big time on the newly enforced plastic bag ban. The 15 cent charge for multi-use heavy duty bags has generated $71 million in profit. Additionally, grocers are saving $170 million annually on the cost of giving away free plastic bags. All this gain for supermarkets' bottom line, while experience from other countries clearly shows that switching to multi-use bags does not help the environment. Makes you wonder...

Supermarket mafia?

31
The Herald Sun reports that a review of Food and Grocery Code of Conduct has found that while relations between Woolworths, Coles and Aldi and their suppliers have significantly improved, instances of troubling behaviour persist. For example, the report notes that suppliers have been threatened with cuts to their product ranges or shelf space unless they lower prices, but savings have not been passed on to shoppers. According to the review, supermarkets have also refused to accept price increases driven by rising costs such as electricity, only to then jack up the shelf prices and pocket the extra cash. The report calls for more effective legislation to be put in place to curb the distortion, however with supermarkets also looking to increase their private label offering over the next several years, suppliers are being punished from all angles - without any benefit delivered to the consumer.

E-commerce fuelled property boom?

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The AFR commented that if Australia follows the same e-commerce trends as the US, the demand for new industrial property here will surge. According to Colliers International, "Australia's e-commerce sector is at an eight-year lag to the US.  Applying the same annual growth rate in the share of US online retail sales between 2009 and 2017 to Australia, Australia's retail online share should increase to 9.9% by 2025." The total floor space in property lease deals that occurred in 2017 related to the e-commerce was around 150,000 sq. metres, compared with around 50,000 sq. metres in 2013.  Remembering that everything is one of a kind, we think that comparisons between regions can be misleading. Australian e-commerce faces a range of unique logistical challenges.  It is unlikely that the trend down under will be the same as in the US.

Pharmacy and supermarkets: little guys feel the pinch

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The AFR reported that shares in Sigma Healthcare fell a further 3% yesterday following a 40% crash on Monday, after the announcement that Chemist Warehouse is switching its sourcing to EBOS. According to the AFR, Sigma will now work more closely with a group of single store pharmacy outlets known as Pharmacy Alliance, who is set to become Sigma's largest customer by mid-2019. The situation has many parallels to the independent supermarket space, with the independents (supplied by Metcash) under pressure from larger, more operationally efficient competition.
3
Jul-18
Tuesday

SAP lost in the Cloud?

27
According to the AFR, the German software company SAP lost $140 million last year on turnover of about $1 billion in the APAC region.  The CEO made a comment that this was the result of switching to a cloud-based subscription model, which is exposed to intense competition.  He sees the shift as a positive, as the number of customers using SAP has been growing. We just can’t see how a loss-making venture can make it up in volume?

More upheaval in the wholesale space

18
The AFR reported that Sigma Healthcare’s shares dropped 40% yesterday after the announcement that Chemist Warehouse has decided to switch its sourcing to EBOS. This will cut 42% of Sigma’s revenue and it confirms the natural trend: when a chain of stores gets to a certain size, unless they are vertically integrated already, they will gain massive power over their wholesaler. And, they will use it.  We have seen a similar situation recently when Drakes decided to walk away from Metcash. A question needs to be asked though: while EBOS will gain the revenue, will they make any profit? Such ‘super’ deals usually come at a heavy price.

Carrefour and Tesco

19
An interesting ‘alliance’ has been announced between French Carrefour and UK Tesco – according to the AFR, the two giant companies will collaborate in the sourcing and buying area. We see this as somewhat unprecedented, but interesting, as the companies don’t have overlapping markets at present. Tesco and Carrefour are similar in size (around $80-$90 billion in turnover). Is this the prelude to a merger at some stage?