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4
Jun-19
Tuesday

Metcash gets a lifeline from Drakes

4
The AFR reported that grocery wholesaler Metcash has signed a five-year supply deal with independent food retailer Drakes Supermarkets in Queensland, removing a major threat to its revenue by closing off Drakes moving to self-supply in that state. A year ago, Drakes announced plans to build a $80 million automated distribution centre in South Australia and move to self-supply in that state when its $270 million supply deal with Metcash expired this month. Drakes had been widely expected to also shift its Queensland business to self-supply once the Adelaide distribution centre was operating. However, Metcash said on Monday it had reached agreement to supply Drakes' 21 Queensland stores for another five years after its existing agreement expired on Sunday. Metcash has also made a short-term supply agreement with Drakes to supply its Foodland supermarkets in South Australia for another four months, to September 30. Drakes may extend this option to September 30, 2020.  The eventual loss of the Drakes contract in South Australia is expected to cost Metcash about $270 million in sales and $16 million in earnings.

US moving toward antitrust probe of tech giants

3
Reuters reported that the US government is gearing up to investigate whether Amazon, Apple, Facebook and Google misuse their massive market power, setting up what could be an unprecedented, wide-ranging probe of some of the world’s largest companies. As noted yesterday, the Federal Trade Commission and the Department of Justice, which enforce antitrust laws in the United States, have divided oversight over the four companies, two sources said, with Amazon and Facebook under the watch of the FTC, and Apple and Google under the Justice Department. With jurisdiction established, the next step is for the two federal agencies to decide if they want to open formal investigations. Results are not likely to be quick. A previous FTC probe of Google took more than two years. Technology companies face a backlash in the United States and across the world, fueled by concerns among competitors, lawmakers and consumer groups that the firms have too much power and are harming users and business rivals.
3
Jun-19
Monday

Costco sales rise as tariff uncertainty looms

7
The Wall Street Journal reported that Costco booked another quarter of sales gains, boosted by increasing visits to its warehouse club as the retail giant tries to navigate the US-China trade fight. Comparable sales rose 5.6% in the quarter ended 12 May. E-commerce sales rose 20% during the quarter. Costco offers some items on its website and has teamed with Instacart to offer same-day grocery deliveries. But it has kept its focus on getting shoppers to buy in bulk at its cavernous stores. The retailer has brought in some imports early to reduce tariffs, reduced costs with some suppliers, cut orders for some goods and is looking at sourcing outside of China in some cases. Price increases are being passed on to shoppers on some items.

US regulators divide scrutiny of Amazon and Google

9
Reuters reported that US antitrust regulators have divided oversight of Amazon.com Inc and Alphabet Inc’s Google, putting Amazon under the watch of the Federal Trade Commission and Google under the Justice Department, the Washington Post said on Saturday. Amazon could face heightened antitrust scrutiny under a new agreement between US regulators which puts the e-commerce giant under the watch of the trade commission. The development is the result of the FTC and Justice department quietly dividing up competition oversight on both of the American tech giants, Amazon and Google, the newspaper said adding that the FTC’s plans for Amazon and the Justice Department’s interest in Google were not immediately clear. We've stated repeatedly that changes in the legal and regulatory framework to put serious constraints on the large technology companies are badly overdue.
31
May-19
Friday

7-Eleven opens its first cashless and cardless store in AU

8
The AFR reported that convenience chain 7-Eleven has opened its first “cashless and cardless” store in Australia. The store, which officially launched in Richmond in inner-city Melbourne on Wednesday, has no physical counter and customers shop by choosing physical items from the shelves, scanning the barcode and transacting via the 7-Eleven app linked to a debit or credit card. A statement from 7-Eleven said the convenience store estimates checkout time for a customer could be a matter of “seconds” and is part of a push to create a “frictionless” consumer experience. 7-Eleven employees will be redeployed into customer service roles to “focus on greeting and assisting customers and on delivering the brand’s growing food offer”, the statement said. The move is the latest indication of the retail sector moving towards a cashless future.    

Woolworths to cut specials to restore trust

5
The AFR reported that half-price specials may soon become a novelty in the $100 billion food and grocery market as Woolworths and Coles move away from deep across-the-store discounting and towards consistent prices every day. One day after Coles said it was reviewing its promotional strategy after struggling to shift to every day low pricing (EDLP), Woolworths said it was also too reliant on discounting and wanted to move to more consistent pricing. Our comments regarding Coles' strategy ring true for Woolies as well - its inflated cost base will make it impossible to sustain a competitive pricing position against operationally elegant competitors such as Aldi and Costco.

Why TopShop failed in the US

4
DigiDay reported that when Topshop announced last week that it was filing for bankruptcy in the US and liquidating all U.S. stores, it should not have come as a surprise. Late last year, the company posted an annual loss of US$14 million. What’s more, its CEO was embroiled in a sexual harassment scandal that caused the company to lose lucrative partnerships. Topshop had been a popular brand and retailer in the UK for more than 50 years when it launched in the US with ambitious growth plans back in 2009. But after 10 years, and a much-top-reduced growth trajectory that gave the brand only 11 stores compared to more than 300 stores in the UK. In the fiscal year 2017, more than 90% of Topshop’s revenue came from the UK and barely 9% came from the US and all other markets combined. The company cited aggressive discounting to stay ahead of a whole pack of competitors as one of the primary problems it faced. Overall, TopShop simply failed to build a strong local community.
30
May-19
Thursday

Benchmarking performance for future growth leaders

6
Earlier today, the Australian Retailers’ Association (ARA) held a lunch in Melbourne for senior retail executives, sponsored by Retail Directions and Tyro. The forum was led by David White, National Retail Leader of Deloitte Australia who provided attendees with an exclusive preview of the trends and insights from Deloitte’s new Australian research powered by the Deloitte Retail Performance Index. Learn more here.

Coles reviews promo and pricing strategy... again

8
The AFR reported that Coles is reviewing its promotional and pricing strategies (again) after admitting it had struggled with its 10-year quest to shift shoppers and suppliers towards "every day low prices" rather than discounts, which cost the Australian food and grocery sector $51 billion a year. Australia is the most promotional food and grocery market in the world, according to Nielson, with 38% of products sold at a discount in the year to date, down from 40% over the past decade. The average discount is 27%. We've repeatedly stated that Coles' (and Woolies) cost base is too high, especially when compared to its lean, operationally excellent international competition such as Costco and Aldi. This operational handicap makes "every day low prices" impossible to sustain.

Retail reshuffle in the US

7

Fox Business reported that some of the United States’ most prominent retailers are shuttering stores or declaring bankruptcy in recent months amid sagging sales in the troubled sector. The article states that the rise of e-commerce outlets like Amazon has made it harder for traditional retailers to attract customers to their stores and forced companies to change their sales strategies. Many companies have turned to sales promotions and increased digital efforts to lure shoppers while shutting down brick-and-mortar locations. Major US retailers which have closed stores or filed for bankruptcy in recent months include: Abercrombie & Fitch, Aerosoles, BCBG, American Apparel, Bon-Ton Stores Inc., The Children’s Place, CVS, Dressbarn, Dollar Tree, Fred's, Foot Locker, Gap, Guess, Gymboree, Hhgregg, J.C. Penney, The Limited, Macy’s, Michael Kors, Payless, RadioShack, Sears/Kmart, Signet Jewelers, Shopko, Topshop, Toys R Us, Victoria's Secret, Wet Seal.

29
May-19
Wednesday

Myer: shrinking to greatness

6
The AFR reported that Myer's 40-year old store at Belconnen in Canberra is the first of at least a dozen stores due to be downsized under a new strategy aimed at creating smaller, more-profitable stores rather than closing them altogether. Myer has reversed a decision to close the Belconnen store, signing a new lease with landlord Scentre Group after reaching an agreement to shrink the 18,000-square-metre store from three floors to two. The deal reflects Myer's new approach to store closures under chief executive John King, who says he would rather shrink floor space than close stores. According to a UBS report this month, Myer has scope to hand back space in 16 of its 58 stores over the next three to four years, reducing floor space by about 90,000 square metres, or 10%, and saving about $21 million, including $18 million in rent.