Get the latest retail news straight to your inbox

    Don’t go searching for insights in the retail space, we deliver them direct.
    The week's most important retail news, delivered to your inbox every Friday.

Chemist Warehouse will challenge EBOS

The AFR reported on rumblings amongst the pharmaceutical industry that indicate some EBOS customers are concerned about service levels dropping as it takes on the massive Chemist Warehouse chain as a new customer from next June after it broke ties with Sigma. Pharmacy chain Terry White Chemmart boss says pharmaceutical wholesaler EBOS Group will have to be on the top of its game to service all its customers, including rival Chemist Warehouse, but that its business is good for everyone as the scale will help EBOS deliver efficiency through its supply chain. With approximately 420 stores and 29.2% market share in the sector, despite all the rationalisations Chemist Warehouse will be a real challenge for EBOS.

A milk levy would distort the market

The AFR reported on the disconnect between the retail industry and the Department of Agriculture and Water Resources (DAWR). On Wednesday, DAWR Minister David Littleproud proposed a 10c a litre milk levy, but many retailers fear breaching competition laws if they implement the levy and are anxiously awaiting advice from DAWR. A more holistic solution that involves industry and government is needed to drive meaningful long-term reforms in the sector. The proposed 10c levy is fundamentally flawed, it would distort the market and subsidise Coles and Woolworths.

Sigma faces another hard year

The AFR reported that Sigma Healthcare is putting back the pieces post dealing with the fallout and earnings hit after losing its biggest customer Chemist Warehouse earlier this year. Facing another tough year ahead, the pharmaceutical wholesaler is looking to cut costs, and win new customers from rival EBOS Group, which has yet to pen a deal with Chemist Warehouse nine weeks after winning the contract. Merger and acquisition activity was also noted as a strategy to grow revenue and bridge the gap in earnings. The business suggests that it is on track to meet full-year guidance of underlying EBIT of $75 million, however, Citi analysts noted: "significant cost-cutting will be required to reach guidance". Wholesalers across all sectors continue to traverse tough times.

The importance of stores for online growth

The Hustle reported on how online apparel startup Goodlife defied convention to achieve impressive growth. Founded in 2014, the e-tailer embraced brick and mortar early its journey, starting with a 5-location test in 2016 and is now set to be in all 125 Nordstrom department stores by the end of 2018. At the same time, their online store is pushing 400% YoY growth. With all the hype around e-commerce, it's easy to forget about the media and experience value of a physical retail presence.

Cotton On Group outpaces listed rivals in growth

An article in the AFR reports on the growth performance of listed versus private companies, noting that regardless of the sector certain private businesses are outpacing their listed rivals. One example is international clothing retailer Cotton On Group (COG) with spectacular revenue growth (20.4%), catapulting from 17th to 10th place in the nation's top 500 Private Companies list. Capitalising on an increasing consumer preference towards affordable fast fashion, shoes, and accessories, COG has opened megastores, which typically house at least four of the Group's brands. Retail Directions is extremely proud of our decade-long and continuing collaboration with the fast fashion leader.

New lease accounting standards will hit some retailers hard

The AFR commented on the new lease accounting standards that will come into effect in January 2019, noting that Myer and Woolies will be hit the hardest by the changes. For example, Myer, which has seen underlying net profit fall by half in the past five years, could slump into the red when it is forced to move almost $3 billion of leases (present value $1.9 billion) on to its balance sheet under the new accounting standard AASB 16. Retailers with long-tail leases are likely to be worse affected.

How wrong can you be?

RetailBiz reported on online retailer Shoes of Prey's recent decision to halt orders while it considers its future options, saying that "e-commerce retailers are not immune to the tough market".  Contrary to the article's premise, Shoes of Prey has never been subjected to market forces. It was a venture based on capital, which was burnt, with a hope that the concern would get traction with customers. However, the concept failed, i.e. no money was made.  The market had nothing to do with it; unfortunately for the retailer, the concept was flawed.

Tech companies prepare to face US Senate grilling

The Wall Street Journal reported that lawmakers in the US are set to start tech industry hearings. Already accused of neglecting to patrol spurious political content during the 2016 election, the tech industry faces continuing allegations of taking too little responsibility for content published on their platforms in general. Representatives from Facebook, Twitter, and Alphabet are scheduled to appear before the Senate Intelligence Committee today to discuss efforts to stamp out foreign election interference. Another hearing, scheduled for early October by a Senate Judiciary subcommittee, will focus on antitrust concerns.

Woolworths drops $562 million on new distribution centre

The AFR reports that Woolworths is banking on a "quantum leap" in productivity after investing $562 million in a new automated distribution centre. According to the article, the most valuable feature of the new distribution centre is its ability to pick cartons off shelves and assemble pallets for specific aisles in supermarkets and load pallets on to trucks in the right sequence to meet the specific needs of stores. It all sounds impressive, however here's the kicker: they didn't have to spend half a billion dollars to get these (pretty basic) stock flow improvements.

Walmart to buy Coles?

The AFR reported on a trend in the past 12-months, which is big companies doing big transactions. Most of Australia's top-20 companies have investment bankers working on deals, while offshore swoopers have landed with mega bids for Westfield Group, APA Group, and Santos. M&A is a confidence game and confidence is growing. It means we haven't seen the last of the activity and the big question is where the next big bid lands? On that note, when Wesfarmers announced the demerger from Coles in February, it caught the attention of some powerful offshore retailers. As a $20 billion business, Coles is big, which limits the field of potential buyers. Sources are pointing to US-based Walmart as one company with the firepower, the willpower and maybe even the need to consider such a deal.

Reserve Bank holds rates despite risks

The AFR reported that the Reserve Bank of Australia has extended its record run of policy inaction, holding rates steady at 1.5% and remaining unmoved by concerns about higher mortgage rates and emerging market turmoil. In our assessment, the economy has started to slow down. As this continues, the worry is that with the very low rates the Reserve Bank doesn't have much in its arsenal to counter a downturn.

UK shoppers headed to the pub not the shops this summer

Reuters reported that British retailers posted sluggish sales growth last month as potential shoppers chose to make the most of this summer’s record hot weather and spend money at the pub instead. A British Retail Consortium report noted total spending was up just 1.3% on a year earlier, the weakest growth since November last year, apart from a big dip in April due to the timing of the Easter holiday. Contrasting the retail data, a broader measure of consumer spending by Barclaycard shows a 4.5% increase in August, boosted by an 11.9% year-on-year jump in spending at pubs. 2018 was the joint-hottest summer on record since records began in 1910, which benefited supermarkets, pubs, and restaurants.