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Myer woes

Myer announced its results for 2017/18 and they don't look good.  We found it quite surprising how little commentary was provided to cover "Implementation costs and individually significant items", totalling over $540 million.  These included a $515 million goodwill impairment - a big number when compared to the current market capitalisation of around $360 million.  The 'Customer First' plan sounds like mere retail 101 rather than a strategy.  The key to Myer's issues resides in onerous leases and overspending on technology.

The real cost of the Cloud

The Wall Street Journal commented on a survey of 46 CIOs, which indicated that companies this year are expected to spend more on IT.  Counter intuitively, it is the rush towards the Cloud that causes it.  Organisations now need to manage increasingly complex technology environments that include a mix of cloud providers as well as on-premise infrastructure.  New security challenges also need to be managed.  Budgets growth of over 4% is expected, up from 1.5% the year before.

China promises retaliation if US imposes more tariffs

The ABC reported that China on Monday promised retaliation if US President Donald Trump escalates their tariff battle, raising the risk Beijing might target operations of American companies as it runs out of imports for penalties. The threat came after Trump said Friday he was considering extending penalties to an additional $267 billion of Chinese products in their battle over Beijing's technology policy. That would be on top of $50 billion of goods already hit by 25% duties and another $200 billion on which Washington is poised to raise tariffs. Trump’s ultimate goal is to promote US manufacturing, though some analysts predict this will only result in more expensive goods for consumers. While the price increases may happen, if the US didn’t take action, the Made in China 2025 strategic plan would challenge US technological leadership, with severe strategic and economic consequences.

Bunnings under fire for ‘pooling’ worker hours

The ABC reported on hardware retailer Bunning's policy to "pool worker hours" in a bid to keep staff in-store during peak periods. According to the article, Bunnings effectively sends workers home during quiet periods and banks their hours to be used during busier times, in a bid to average out hours over the rostering period. Despite the controversy, the retailer does not appear to have broken any laws. The practice is not new at Bunnings and the public airing of it appears to be timed to coincide with negotiations over a new Enterprise Bargaining Agreement (EBA). It echoes a similar situation faced recently by Flight Centre, which actively defended allegations of wage underpayment and customer price gouging amid its own EBA negotiations.

The retail apocalypse myth

Despite all the noise in the media about the demise of physical retail, according to new research from IHL Group, North American retailers will open 12,663 stores and close 8,828 stores in 2018, for a net increase of 3,835 store locations. Indeed, some high-profile brands have closed their doors, but this only represents a handful of retailers and is not indicative of the entire market. The report detailed the growing influence of Amazon, and that investments in people, technology and store experience are key to remaining relevant. Most importantly, along with improving their experience, stores need to attack their out-of-stocks (supply chain). According to the report, upwards of 24% of Amazon sales can be attributed to customers who first tried to buy the product at a local store but found it out of stock.

Aussie dollar will continue to slide

The AFR reported that the Australian dollar has shed almost 13% against the US currency since late January. Not helping the AUD, the US August jobs report released early Saturday exceeded expectations in terms of the number of new jobs and the pace of wage gains, further bolstering bets that the Federal Reserve will increase interest rates both this month and in December. With the US economy strengthening and some manufacturing shifting away from China, all signs point to this being a structural economic change, rather than a cyclical one, which means that the Aussie dollar is likely to stay at the 70c (or even lower) mark to the US dollar for some time.

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.