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29
Nov-18
Thursday

US tax code typo

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An article in The Hill covered an error in a US tax reform law, which has had a material impact on retail store renovation projects. The mistake means retailers are required to depreciate remodeling work over 39 years rather than taking the immediate write-off Congress intended. The Tax Cuts and Jobs Act of 2017 was supposed to eliminate the previous 15 year depreciation period on renovations by allowing retailers and restaurants to write off the full cost immediately. But in the rush toward passage, a mistake in wording meant that improvements at stores and restaurants fall into a category intended for constructing the building itself, which lasts for decades and has to be depreciated over 39 years. This "typo" definitely affects Australian retailers operating in the US as well.

Sales are reshaping the retail calendar

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An article on the ABC covered the trading shift generated by shopping events such as Black Friday, Cyber Monday, and China's Singles Day, which are reshaping the retail calendar. The change is beginning to show through in the statistics, with last year's November sales spiking, while December disappointed. The Australian Bureau of Statistics' seasonally-adjusted figures showed November retail turnover coming in at $26.4 billion, beating December. However, according to the ABS original figures, December sales were actually still ahead at $33.6 billion. NAB's group chief economist Alan said it indicates the ABS is not yet used to accounting for a bigger November and it will take about three years for the seasonal factors to essentially allow for this new change in behaviour. In response to this increasing trend, retailers need to reforecast and plan staffing and inventory levels accordingly, rather than assume the traditional Christmas boom will continue.

Buy now, pay later sector booming but are regulations coming?

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The AFR reported that the Australian Securities and Investments Commission (ASIC) has expressed concern about Afterpay being used as the lender of last resort by debt-ridden consumers. It has also warned the entire buy now, pay later sector that it is prepared to use new powers to intervene against harmful products. After investigating six players including Afterpay, ASIC found one in six users of the service became either overdrawn, delayed bill payments or borrowed additional money. The ASIC report shows the sector has grown dramatically to include two million users in the 2018 financial year compared to 400,000 consumers two years ago.    
28
Nov-18
Wednesday

US Black Weekend results

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Bloomberg reflected on the Black Weekend sales results in the US - their takeaway from the past few days is that Americans are spending at unprecedented levels, and the overwhelming majority of that growth is online. While brick-and-mortar chains can rightfully claim their stores help boost web sales by giving shoppers a chance to see products in person, the growth in web sales means lower margins. The shift online means that chains have to spend more on already-elevated shipping costs, and many now offer zero or reduced rates for mailing packages during November and December, which only exacerbates the hit to results. In general, physical stores had a disappointing four-day period with visits down 6.6%, but not all brick-and-mortar chains and categories are the same. For example, sales of electronics and appliances rose 6.4% over the weekend. The four-day Black Weekend delivered $60 billion in sales, compared to $41 billion in 2012 and $57 billion in 2017.

Omni-channel retail keeps expanding - in both directions

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DigiDay reported that Parachute, a US-based born-digital bedding and bath brand, is now expanding into physical retail - two years after opening its first retail store in Venice, California. Parachute has six physical stores and plans to open 20 by 2020.  The company commented that its online and physical stores are profitable. Parachute joins a growing group of brands, born online, that are building store networks. Casper (online bedding specialist), announced in August that it plans to open 200 stores in the next three years. Warby Parker (online eyewear)  intends to have 100 stores up and running by the end of this year.  What encourages Parachute to expand into brick and mortar is the realisation that where there is a Parachute store in an area average online spend increases ten-fold. We have pointed out on a number of occasions that a strong driver for online sales is an on-the-ground presence.
27
Nov-18
Tuesday

Sussan Group sale process steps up

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The AFR reported that the Sussan Group parent company ARJ Group Holdings, with brands include Sportsgirl, Sussan and Suzanne Grae, lodged documents with ASIC last week detailing a four-fold increase in net profits to $30 million in the 12 months ending July 2018 as sales rose 4% to $473.1 million.  It was a big rebound from 2016, when sales fell 3% to $459 million and net profit slumped to just $2.27 million compared with $36.1 million in 2015. Off the back of the results, the Group is making a fresh push to find a buyer for the business. It would be intriguing to know what portion of the net profit gain came from improving sales and margin, and what was the result of cost cutting, to boost the financial position of the business in preparation for sale.
26
Nov-18
Monday

Those in store spent more on Black Friday

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The Financial Times reported that Americans splashed out record sums on Black Friday online deals last week but fewer of them went shopping in person. Sales in stores during Thanksgiving and Black Friday dropped between 4 and 7% compared with last year, according to a preliminary analysis by one retail analytics platform. However, another tracking platform found that shopper visits for the two-day period fell just 1%, less steep than the 1.7% decline it recorded a year ago. To us, the most interesting statistics are that those consumers who did shop in-store spent more with average transaction values up about 3%. As we've said before, winning in the retail game requires a strong Digital Path to Purchase that drives sales through all channels, not just online. And, clearly, stores still play a pivotal role in the retail experience.
23
Nov-18
Friday

Coles ain't Aldi?

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The AFR reported that Macquarie and Goldman Sachs have mixed reviews on Coles' solo outlook post its demerger from Wesfarmers. Macquarie is cautious about Coles' plan to spend about $1 billion on two automated distribution centres, which will increase net debt to EBITDA from 0.7 to 1.1 times. The bank is also wary about the impact of new competitors, stating that "Kaufland could obtain around 1% market share quite quickly." On the other hand, Goldman Sachs expects Coles to grow earnings by increasing sales of fresh food and private label, shifting away from promotions to everyday low prices, opening new stores and cutting supply chain costs. This all sounds very familiar.

Noni B lifts profit guidance

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The AFR reported that Noni B expects earnings to rise 21% this year to $45 million, attributing the gains to synergies from its $31 million acquisition of five brands from Speciality Fashion Group in July - good news for shareholders. However, reading between the lines, there was a 5% fall in same-store sales across the group over the last four months, which doesn't present the best medium to long-term outlook for the retailer.

The death of (bad) retail

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In their 'The Future of Everything' section, The Wall Street Journal commented that just over a year ago, the future of brick-and-mortar stores looked dire. Back then predictions were made that a quarter of malls were expected to close within 5 years. The way out was apparently to turn them into entertainment centers. But, the WSJ pointed out that while some retailers have struggled, others have thrived. Technology that was supposed to kill traditional retail actually helped marry online and offline shopping. A number of innovative brands which started online are now moving into the physical space. We are pleased to hear that we are not the only ones who recognised that the retail evolution doesn't mean extinction.
22
Nov-18
Thursday

Supermarket's Game of Thrones

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The AFR reported that Woolworths is planning to cut back on capital spending, freeing up funds so it can drop prices and reduce household food bills while also returning money to shareholders. The article also notes that analysts and investors have been expecting competitive pressures in supermarkets to ease after Woolworth's $1 billion investment in price in 2016 and 2017 and following Coles' demerger from Wesfarmers. In our assessment, the analyst and investor sentiment would be correct, but only if there were no other players in the market. With Aldi, Costco and, soon, Kaufland all competing for their share of the pie - if anything, things will get more heated in the supermarket space.

Amazon lifts block on US site delivery

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The AFR reported that Amazon has made a U-turn on its decision to block Australian consumers from shopping on its US site after working out a way to add GST to online orders from overseas. Amazon outraged Australian consumers in June, when it said it would stop shipping from amazon.com and other international sites to Australian addresses from July 1, when the new GST regime came into effect. The move materially impacted Aussie consumers who lost access to both the US site's wider product range and cheaper prices. Reading between the lines, Amazon's decision to backtrack must be related to the commercial consequences of the "embargo".