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8
May-18
Tuesday

Baby Bunting's short-term pain, long-term gain?

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Baby Bunting announced that it expects earnings before interest, tax, depreciation, and amortisation (EBITDA) to be in the $18-$20 million range, down from the $23 million previously forecasted. The recently flagged administrations of its third and fourth largest competitors, Baby Bounce and Baby Savings, have undermined the company’s sales performance due to the high levels of clearance discounting in the market. Shares went down by 3.5%, but we think that this is a strange reaction, as, with some competitors now gone, the long-term prospects for the business are better than they were a few months ago.

Godfreys’ troubles continue

41
The AFR reported that the ailing vacuum cleaner retailer has gone into a trading halt.  The business was bought in 2011 by a syndicate of investors and then floated in 2014 at $2.75 a share.  The shares traded at $0.30 on Friday.  An offer to buy the business is on the table (from one of the original investors, John Johnson) at $0.32.  We are watching with interest how the Godfreys’ saga will unfold.  The trading hold is expected to be in place until Wednesday, 9 May.
7
May-18
Monday

How to double your business overnight

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Reece Limited announced its intention to acquire US company Morsco for A$1.9 billion.  Morsco has a similar business profile to Reece.  The combined business will turn over A$4.8 billion per year.  The deal will be financed through A$560 million equity rising and a U$1.2 billion loan in the US.  A bold move for the leading Australian plumbing and HVAC supplier.

Walmart’s flip?

28
According to Bloomberg, Indian Flipkart Online, one of the nation's fast-growing and largest retail platforms, has agreed to a deal to sell 75% of the company to Walmart for around US$15 billion.  It is expected that the deal will be finalised in the next 10 days.  This would be an interesting twist, with Walmart divesting its UK business and entering India instead.

Reactive retailing costs jobs and hurts consumers

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According to the Washington Post, some of the world’s largest clothing chains, such as Zara, H&M, Gap and Topshop, intend to discontinue selling mohair apparel.  The decision is apparently based on allegations of animal cruelty at a dozen goat farms in South Africa.  If this is the only reason, then it looks like rational thinking no longer applies in some parts of the business world.  Consider this: these are unconfirmed allegations based on video footage from unaudited sources, no analysis has been made as to what % of farms are affected by the alleged cruel practices, and the retailers are not even clear whether any of their brands sourced mohair from these farms.  The same concerns raised in relation to the South African goats can be raised in relation to ordinary wool and many other animal-sourced fibers.  We would suggest that the question needs to be asked: who would benefit from such a ban?  Surely not the people employed in the industry, nor the consumers.
6
May-18
Sunday

JD.com to be 100% run by AI and robots?

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Forbes reported that JD.com founder (Richard Liu) expressed a hope that at some stage his company will be run without human beings, 100% operated by AI and robots.  Forbes hailed this as an audacious goal, which based on our research, makes little sense.  Organisations continually execute algorithms  - most of them are computational and as such can be automated, but quite a few are heuristic and rely on decisions.  Decisions require human judgment, using incomplete information and intelligence.  In our earlier writings, we pointed out that while increasingly smart, animated matter will continue to proliferate, machines with real human-like intelligence make little commercial sense.  The so-called "Artificial Intelligence" actually means the mere ‘Appearance of Intelligence’. It's safe to say that humans won’t be retiring any time soon.

UK House of Fraser's rocky road

27
According to Reuters, House of Fraser will need to close some of its stores as a condition of securing new funds from international retailer C.banner, which will become the majority owner of the department stores group with a 51 percent stake.  House of Fraser said it would launch a Company Voluntary Agreement (CVA) next month to allow it to restructure its store portfolio.  The company was founded in 1849 and it operates close to 60 stores in Britain and Ireland.  Under UK’s CVA, as long as 75% (by debt value) of the creditors vote for the CVA, then it binds all of the company's creditors irrespective of whether or not they voted for the deal. Creditors are also unable to take further legal action.
4
May-18
Friday

Esprit loses its spirit

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Multiple media sources commented on the just announced exit of Esprit from Australia.  Sales of the Australian branch progressively evaporated from over $140 million pa in 2010 to a mere $50 million in 2017.  According to AFR, Esprit has been losing market share to global chains which entered Australia, such as Zara, Uniqlo and H&M.  Myer’s decline didn’t help either, as Esprit operated 38 concessions within Myer.  Australia is proving to be a difficult market for overseas retailers: Brooks Brothers, The Gap, TopShop and even H&M find it challenging.

Super Retail Group trading update

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The Super Retail Group released a trading update, confirming that it is on target to deliver profit forecast for the financial year.  Some of its brands are under pressure from new competitors, so Super Retail has been working hard to stay its course.  The Group’s strategy includes expansion of its private label range to 50%, which carries the risk of alienating or even wiping out some suppliers.  It was interesting to note that omni-channel has been left in the Group’s strategy until 2020-22...
3
May-18
Thursday

Retales

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The Australian featured a set of articles covering the latest updates published by major Australian retailers. Wesfarmers kept plodding along, handicapped by their UK Bunnings venture and a struggling Target. Wesfarmers CEO made some enthusiastic comments about Flybuys, but after 24 years of operation, we are yet to see real benefits in terms of smart customer engagement, based on the tons of data collected so far.  Woolworths enjoyed solid growth, as a 4%+ like-for-like revenue increase is impressive within the very competitive market, particularly when compared to Coles' sub-percent growth results.  Finally, JB HiFi shares have been punished (10% slump), due to lukewarm performance, impacted by poor results in the home appliances category. We never did see much value in adding appliances to the range of electronic retailers.  There is little money to be made in a category where margins are barely above 10%.

Rebalancing physical stores and e-commerce

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Bloomberg View published an interesting article pointing out that brick-and-mortar retailers may be gaining an advantage over e-commerce players, as retail rents dip and online advertising and shipping rates rise, quite substantially. Facebook's ad rates soared last year, and higher shipping costs lead Amazon to raise its Prime membership fee.
2
May-18
Wednesday

Could Walmart buy Coles?

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The Australians Financial Review posed an interesting question, whether Walmart will use the proceeds from the Asda sales to Sainsburys to acquire the demerged Coles supermarkets.  Apparently, some analysts have suggested that this as a possibility.  We don’t think so, for three reasons: 60% of the sale price will be covered by Sainsburys’ stock, Coles Supermarkets are too similar to Asda, and Walmart have their own impressive store format anyway – why not use it and grab a part of the market, without spending billions on an acquisition?