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Department store beauty war

The Australian Financial Review reported that Sephora will be running shop-in-shop operations within David Jones. The first outlet will operate in DJ's Bourke Street store in Melbourne. More stores will follow in 2019.  Sephora already operates 14 stand-alone stores in Australia. Apparently the discussions between DJ and Sephora have been underway for the last four years. It is worth noting that this month Myer will become the exclusive department store stockist in Australia for Aesop, meaning the Aesop will exit DJ. According to the AFR, beauty and cosmetics category represents 20% of turnover at DJ and Myer, generating about 25% of gross profits.

Coles continues to test its customers

The Age reported that Coles has now banned trolleys from being used at some of its self-service checkouts. The ban, 'trialled' at about 20 stores, has apparently sparked an outcry from shoppers on social media. Coles claims that this move will improve customer service. We think that much better results would have been achieved if Coles focused on running an operationally excellent business rather than on testing how much inconvenience its customers can accept. Some examples: brands eliminated to make space for 'home' brand products, thin plastic bags replaced with much worse 'reusable' ones, use of customer's bags which slows down checkouts, number of checkouts replaced with much slower self-checkouts, and now people need to carry their groceries within the store as well. No doubt Aldi and Costco are rubbing their hands with glee.

Instagram ups its shopping game

Social media platform, Instagram has announced two fundamental updates to its e-commerce capabilities: shoppable posts in Stories and its Explore tab will get dedicated shopping channels. The new features give brands significantly more ways to get their products in front of users. With more than a billion users and 25 million business profiles, Instagram has emerged as a critical platform for consumer engagement in the Digital Path to Purchase funnel.

Officeworks posts solid results

The AFR reported on Officeworks' impressive performance. The office product retailer's sales grew 9.1% to $2.14 billion and earnings rose 8.3% to $156 million. Return on capital rose 13% to a record 16.6% and has almost tripled since 2009, underpinned by 10% compound annual earnings growth and better inventory management. Supported by investments in digital initiatives, data analysis, and services, as well as plans to continue to open four to eight stores annually, the business is confident it can continue to deliver above-market growth.

How to prevent a self-fulfilling prophecy

Bloomberg reported that RH (formerly known as Restoration Hardware, a California-based furniture retailer), opened its 19th store, a 9,000 sqm RH Gallery in New York.  The project took five years to complete at a cost of $50 million. RH's CEO says that the location will produce $100 million pa.  The CEO opposes the notion that physical retailing is dying due to e-commerce, and he has no interest in the “follow the herd” mentality that focuses on online while allowing retail and catalogue arms to wither.  “There’s been a lack of capital allocation and investment into physical retailing,” he said to Bloomberg. “It’s just rotted and died. Anything that you don’t invest in will atrophy.”  We think that his comments have merit – retailers who spend money on e-commerce to the detriment to their core operations tend to suffer the consequences.

The Coles delusion

The AFR published commentary on Coles, pondering on its positioning to "take on Woolworths and Aldi".  We think that this narrative doesn't recognise some of the fundamental characteristics of the supermarket segment in Australia. Coles cannot compete with Aldi, unless it opens a new line of business (they used to have it, called Bi-Lo), which operates on a very low-cost basis. As it is, Coles must recognise that Aldi will continue to expand until it fills in its niche in Australia. Fighting this tide amounts to mere delay tactics and lost gross profit in the meantime.

Reuters retail reporting faux pas

Reuters reported that US retail sales made their smallest gain in six months in August, up 0.1% after a 0.8% jump in July. Apparently, this signals cooling consumer spending. However, we keep repeating that analysing retail spending growth based on the previous month makes no sense at all and is sensationalist. The real picture can only be found in corresponding year-on-year data. In this case, US retail sales in August actually advanced 6.6% from a year ago - a dramatically different picture, which highlights that consumer spending remains supported by a tightening labor market, which is steadily pushing up wages. Annual wage growth increased at its fastest pace in more than nine years in August and there were a record 6.9 million job openings in July. Spending in the US is also being underpinned by tax cuts and higher savings as well as high consumer sentiment. Makes you wonder how the negative media-driven retail sentiment for August even got published?

Retailers look to renovations to bolster weak housing market

The AFR reported that homewares, hardware, and electronics retailers are counting on a pick-up in home renovations as the downturn in housing sales and prices starts to bite. Like-for-like (LFL) sales growth at retailers ranging from Beacon Lighting and Nick Scali to JB Hi-Fi, Harvey Norman and Bunnings came off the boil in the fourth quarter of the 2018 financial year and analysts expect conditions to become even more challenging in 2019 as the housing downturn gathers pace and consumers become more cautious. Sales of goods such as lighting, sofas, carpet, curtains, paint and appliances are strongly tied to house prices, housing churn and auction clearance rates. A Citigroup analyst said the current cycle was increasingly resembling that in 2011/2012, when a slowing housing market combined with elevated price competition drove large earnings downgrades.

Big W faces up to $40 million in increased labour costs

The AFR reported that Big W is facing up to $40 million in increased labour costs when it reaches a new Enterprise Bargaining Agreement (EBA) after allowing its long-expired EBA to fall substantially behind the industry award. The discount department chain has not been paying any Saturday penalties or the full 25% casual loading for several years. The expected hit comes as the chain has been underperforming in sales, reporting $110 million in losses last financial year, and was expecting a turnaround in 2019 when Woolworths group will review its fate.

Pillow Talk rebrands

Designed to connect with a new generation of consumers, bedding and homewares retailer Pillow Talk has unveiled new branding, including a fresh store look, logo and company purpose - "for the love of comfort". Pillow Talk will roll out the new look to all its Australian stores over a period of time and plans to open a couple of new stores as well. Retail Directions is proud to be the provider of Pillow Talk's retail technology, helping them deliver next-generation retail experiences to their customers.

Death of the supermarket checkout?

In January 2017, Amazon Go was first to market with a checkout-free grocery store in Seattle. Chinese e-retail giant Alibaba and Indian retail company Watasale both have similar offerings. In Australia, Woolworths is the first to embrace such technology, allowing shoppers at its supermarket in Double Bay to trial its new “scan and go” system. Besides convenience, an article in reported that "the new technology has the potential to reduce shoplifting to zero". However, in all the hype, it's important to remember that even Amazon Go has been flawed from the start. A recent article in Forbes said it best: "As beautiful as Amazon Go is, it could also be the retail industry's siren song, seductively distracting Amazon's competitors from the real endemic issues within their business models and ultimately leaving them shipwrecked on the shores of retail's landscape from what will likely be a myriad of fruitless and costly attempts to mimic Amazon Go's checkout-free visual recognition technology."

The cryptocurrency rout has gotten worse

We keep watching cryptocurrencies as they sit in the area where commerce and IT intersect.  We have warned repetitively that their value has no link to reality and that sooner or later it must collapse.  This seems to be happening - Wall Street Journal reported that the total value of all cryptocurrencies fell below $200 billion last weekend, down 76% from an all-time high of $832 billion in January.