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The risk of more pressure on Australian retailers

Inside Retail reported that federal opposition intends to restore Sunday and public holiday penalty rates, to 'increase the wages'. The executive director of the Australian Retailers’ Association, said that the opposition's intention overlooks one key fact: the ruling on penalty rate cuts was made by the Fair Work Commission, an independent body, and any reversal of its decision would set a dangerous precedent. Fair Work in 2017 cut Sunday, public holiday and evening penalty rates for permanent and casual employees on the Retail, Pharmacy, Hospitality and Fast Food awards.

Myer shareholders get some relief

The AFR reported that Mye shareholders have fewer reasons to frown after a 75% share price rise. Myer shares have rebounded from a 12-month low of 36¢ in February to 63¢ this month following better than expected first-half results that showed the beleaguered retailer is capable of boosting profit in the absence of sales growth – at least in the short to medium term. CEO John King delivered the first underlying profit growth in eight years by pulling back on discounting to raise gross margins, increasing sales of higher-margin private label brands, and exiting unprofitable products such as furniture and cutting costs and debt. Myer is in negotiations with landlords to reduce floor space by about 30,000 square metres, or about 4%, in the short term and by as much as 20% longer term. This would reduce top-line sales, which have been in decline for 20 years, but improve sales per square metre and productivity. One of Mr King's strategies to boost sales is to bring in about 20 new brands, including a suite of labels from the UK and Denmark, to plug holes in the range left by the exit of Country Road, Mimco, Politix, Saba and Nike.

Walmart India: if you can't beat 'em, join 'em

The AFR reported that Walmart is making friends in India with the kind of competitors it spent decades putting out of business in the United States - mum-and-dad shops. These unlikely allies are part of the latest attempt by the retail behemoth to crack India's giant consumer market, taking on e-commerce arch-rival Amazon and Asia's richest man, Mukesh Ambani. Years of lobbying by global retailers failed to persuade the Indian government to open its market to foreign competition, because of fears it could put out of business many of the 12 million neighbourhood shops that account for almost 90% of the country's retail sales. Walmart's attempt to build an e-commerce business to reach consumers was also hampered by new regulations. So the US company is rolling out a plan to more than double its wholesale chain in India over the next four years – supplying the local shopkeepers instead of competing with them. The move intensifies the three-way brawl with Amazon and Ambani. Each has a different strategy, but all need to woo the owners of the neighbourhood shops.

Suppliers pull products in standoff with Woolies and Coles

The AFR reported that Woolworths and Coles have been in a standoff with global food manufacturers after refusing to approve price rises for popular products, such as porridge oats and cat food, triggered by rising commodity costs. Nestle has stopped supplying its market-leading Uncle Tobys oats to Woolworths after Australia's largest supermarket chain refused to pass on a 6% price rise late last month. Mars Petcare stopped supplying both Woolworths and Coles with its market-leading pet food brands including Whiskas, Pedigree, My Dog and Dine after failing to secure price rises. The disputes have left large gaps on supermarket shelves and triggered a torrent of complaints from customers, who have voiced their anger on social media. The standoffs have raised concern about the long-term outlook for food and grocery manufacturing in Australia following seven years of deflation.

This is not the milestone you think it is

Forbes points out that since the US Commerce Department reported February retail sales, many responses point to online sales reaching a major “tipping point” and a milestone, overtaking brick-and-mortar sales at general-merchandise retailers. The thing is, while online sales have grown about five times to US$59.77 billion in February from under US$12 billion in February 1999, the truth is online sales growth has slowed and the retail share they garner on a seasonally adjusted basis didn’t rise anywhere close to their sales rate. Yes, the trend of consumers shopping online is here to stay and the tide of underperforming retailers shutting stores as they attempt a turnaround isn’t reversing either. The fact that US per-capita shopping square footage is above that of its counterparts at major developed countries, foreshadows the need for more money-losing stores and malls to be weeded out. But the scenario of brick-and-mortar retail apocalypse is simply not happening. So-called digital natives, led by Amazon are embracing physical retail en mass.  

Retailers likely to benefit from pre-election budget


Yahoo! Finance reported that Australia’s pre-election budget may benefit retailers in the form of planned tax refunds. With an election scheduled for next month, Australia’s budget has forecast a return to surplus, while also increasing tax relief to more than 10 million low- and middle-income earners. The payments will come as rebates of tax paid and may trigger an increase in retail spending of as much as 1.5% in the September quarter, according to Citi analysts.


Amazon cuts prices at Whole Foods

The Wall Street Journal commented on Amazon planning to cut prices on hundreds of items at Whole Foods stores.  According to WSJ, “the e-commerce giant seeks to change the chain’s high-cost image amid intense competition among grocers.”  We interpret it somewhat differently – it looks like Amazon is learning what real retail is all about.  Running a supermarket is even harder, due to its high velocity – all mistakes are multiplied a hundred-fold. We can only guess that under Amazon’s stewardship sales have started to decline, so they've decided to reposition the business. A risky strategy in our opinion – it could make matters worse.

Walmart is beating Amazon in a business worth US$49b

The AFR reported that on a number of fronts in online shopping,'s strategy is clear and brutally effective. There is one important area, though, where Amazon's strategy looks much fuzzier: Click-and-collect. This is a model that's well-suited for traditional retailers. Target's Drive Up service is offered at about 1,000 stores and will be in all stores by the end of 2019. Walmart's grocery pick-up program is available at about 2,100 stores and will be in 3,100 stores by the end of the fiscal year. Both Walmart and Target say their net promoter scores – a key measure of customer satisfaction – are especially high for curbside services. However, beyond the grocery segment, Amazon has a limited number of pick-up centers and lockers. It all adds up to a smattering of tentative moves. Perhaps being an also-ran at click-and-collect won't be so terrible for Amazon. But the e-commerce heavyweight will be better off if it gets more skin in the game.    

Latest retail statistics from the US

Reuters, like many other media outlets, perseveres with reporting immaterial retail statistics. According to Reuters, “US retail sales unexpectedly fell in February, the latest sign that economic growth has shifted into low gear.”  The drop was 0.7% in comparison to … January.  Considering that February had 9.6% fewer days than January, this doesn’t sound too bad.  But, the real issue is the benchmark used – in retail, month-on-month figures have little bearing. The relevant figure, year-on-year growth was 2.2% in February.  This tells us that the US economic boost is slowing down, but it is still at a respectable cadence.

Napoleon Perdis Cosmetics creditors count their losses

The AFR reported that unsecured creditors of Napoleon Perdis Cosmetics will receive between 4¢ and 13¢ in the dollar under a rescue proposal by Livia Wang and fashion executive Henry Lee. This is more than they would receive (between 0 and 5¢ in the dollar) if Napoleon Perdis Cosmetics, which went into voluntary administration in January, were wound up, its administrators say. According to a report by Worrells, the administrators received 41 expressions of interest for NPC and 28 parties signed confidentiality agreements, but only two proposals made it to the final round."Kuba's DOCA proposal was (taking into consideration the imperative to strive for the best outcome available to all creditors) the most attractive offer on balance," the report said.

Amazon Australia delivers more losses

The AFR reported that despite Amazon's soaring revenues Down Under losses are mounting. Accounts lodged with the corporate regulator show that Amazon's e-commerce business made $292.3 million in calendar 2018, but lost $5.3 million after tax. Meanwhile, Amazon Web Services made $306 million (plus $12 million as a landlord to related parties) but lost $15.7 million after a $6.9 million provision for income taxes. The 2018 losses compound losses from the 2017 calendar year. The results indicate that ultimate parent Amazon Inc is applying the same patience in regards to the profitability of its Australian businesses as it once applied to itself. Concurrently, Tax Office data released in December showed Amazon paid $10.4 million in corporate income tax in the 2016-17 financial year. With local retailers already feeling pressure from stagnant wage growth, low discretionary household spending and low levels of consumer confidence — as well as high rents and land tax — the news that Amazon is basically not paying tax will be a difficult pill for Australian retailers to swallow.

Woolworths announces closure of 30 Big W stores

The AFR reported that Woolworths will book $370 million in one-off costs this year after biting the bullet on its loss-making Big W chain, closing 30 stores and two distribution centres. The store closures, which represent about 16% of the Big W network, were announced today by chief executive Brad Banducci following a six-week review foreshadowed at the half-year results. The 30 stores will close over the next three years and the two distribution centres, at Monarto in South Australia and Warwick in Queensland, will close at the end of their leases in 2021 and 2023. Woolworths has not yet said which stores will be on the chopping block and is also yet to announce how drastic the loss of jobs will be. But it did say it would aim to recycle many of the employees back into the business where possible.