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23
May-19
Thursday

Natura acquires Avon for US$2b

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The Wall Street Journal reported that The Body Shop parent, Natura Cosmeticos has reached an agreement to buy Avon Products Inc in an all-stock deal worth about US$2 billion. Avon has been under pressure from the rise of online beauty sales, which it was late to embrace, and news of the deal saw its shares surge 9% during regular trading and 15% in aftermarket trading. The combined cosmetics company is expected to have annual gross revenue of around US$10 billion and have locations in 100 countries. Natura said that it expects the combination will allow it to cut costs by about US$150-US$250 million annually.
22
May-19
Wednesday

The Iconic gets a capital injection

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The AFR reported that online marketplace, The Iconic has received $18 million in capital from its European parent after reporting losses of $18.3 million in 2018. However, Australia's largest online fashion retailer appears on track to finally break even this calendar year after reducing operating losses to $3.3 million and breaking even at the EBITDA level for the first time. The online retailer, which sells more than 60,000 products and 1000 brands, has doubled its share of the Australian and New Zealand online clothing and accessories market, taking sales from retailers such as Myer, David Jones, Premier Investments and Sussan Group. About 15% of households now shop on The Iconic site, up from 9% in 2017, with 150 million customer visits annually. Erica Berchtold, the new CEO of The Iconic, aims to lift sales by expanding into new categories and private-label brands and developing technology to engage customers and personalise its offers.  

Home Depot warns of tariff impact

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Reuters reported that Home Depot Inc blames wet weather in February and a slump in lumber prices for its slowest growth in quarterly same-store sales in at least three years, while warning of a US$1 billion impact from new tariffs on Chinese imports. Bad weather along with land and labor shortages have constrained builders’ ability to construct new houses, especially in the low-price segment, creating a supply glut for lumber, a key building material. Home Depot said weak lumber prices hurt its first-quarter sales growth by US$200 million and if prices do not improve for the rest of its fiscal year, it could dent overall sales by as much as another US$600 million. Still, the company’s net income rose to US$2.51 billion, or US$2.27 per share, and beat analyst average estimate of US$2.18 per share. Net sales rose 5.7% to US$26.38 billion, beating expectations of US$26.36 billion. It's worth noting that this is the retailer than Bunnings is based on.  
21
May-19
Tuesday

Retailers buoyant as Coalition tax cuts loom

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The AFR reported that retailers expect the Coalition's unexpected election victory to boost consumer confidence and discretionary spending while taking the pressure off wage costs and house prices. Retail shares rose strongly on Monday in a  relief rally triggered by the Coalition's decisive win, with discretionary retailers and housing-related stocks leading the gains. Retailers welcomed the end of a period of political instability, which had eroded business and consumer confidence, and said the Morrison government had a mandate for change. Retailers are now preparing for the first stage of the Morrison government's tax cuts, which are projected to pump as much as $8 billion into the economy over the next few months, boosting disposable incomes. The tax cuts, while modest, will put more cash in the hands of consumers, helping to offset some of the factors that have weighed on discretionary spending, including low wage growth and falling house prices.

Some US Democrats want to ban cashless stores

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Market Watch reported that a pair of bills introduced in US Congress over the past week would put a stop to retailers going cashless. Introduced by a Democrat representative from Rhode Island, the legislation, nicknamed the Cash Always Should Be Honored (CASH) Act, would require cash to be accepted as payment for any goods or services sold at a physical retail establishment. Retailers would not be required to accept cash for transactions that were made online or by telephone. The bill also would put the Federal Trade Commission in charge of enforcing the prohibition on cashless stores. While the Act has widespread support, the National Retail Federation believes that “retailers should have the right to choose which payments to accept and to decide whether going cashless makes sense for their business.”
20
May-19
Monday

Meccaland sets the standard for retail experiences

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Reporting back after attending Meccaland, cosmetic brand Mecca's annual beauty festival, the three-day event set the benchmark for captivating offline retail experiences. From local and international brand ambassadors and influencers, a Mecca-branded ferris wheel, an over-the-top drag queen, two oversized glitter rainbows, a disco dancefloor and dancing Mecca staff on rollerskates dressed as cheerleaders to complimentary beauty services, exclusive products and masterclasses, the event had it all. Such was the gravity of the festival that it drew a massive crowd of more than 15,000 beauty devotees, according to Inside Retail. While the event took place in Sydney, it will continue in selected stores around the country with various after-party events, including complimentary beauty applications, consultations, samples and free product offers.

Discount chains feeling the heat

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CNN reported that discount chain Fred's will close 104 more stores by the end of June, in addition to the 159 stores it said in April it would shut. Between the two waves of closures, Fred's is reducing its store count by nearly half. Once completed, Fred's will have roughly 300 stores left. Earlier this year it had 557 stores, primarily across the southeastern United States. The 72-year-old company, which sells items like food and household cleaning supplies, is struggling to find a working strategy, which includes trying to get out of the pharmacy business. Given the struggles of similar retailers down under, it looks to us like people are their losing appetite for buying obnoxicals (trinkets).

H&M's new loyalty program

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Business Insider reported on H&M's new loyalty shopping program, which includes discounts on H&M products, access to exclusive events, free shipping on orders over US$40, and 20% off a blowout at Drybar. H&M joins a long list of retailers that have turned to membership programs to drum up loyalty among shoppers. Macy’s, Lululemon, Nordstrom, and Nike are among them. And it seems to be working for some of them. In a recent earnings call, Macy’s CEO said that its “Star Rewards” program was “outperforming” expectations, citing it as a key reason for the retailer’s growth during the previous quarter. Lululemon, which recently rolled out an Amazon Prime-style membership, also seems to be having success.  
17
May-19
Friday

RM Williams on the market

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The Australian Financial Review reported that L Catterton, the US-based private equity firm that owns RMS Williams, has put the business on the market.  Goldman Sachs were appointed to handle the sale.  The business has been turned around over the last few years and it is expanding internationally.  In 2018 it turned over $143 million ($6 million operating profit), compared to 2017, when it turned over $127 million and generated only $1 million profit.  RM Williams was established in 1932 and it is based in Adelaide - it is an iconic Australian brand.  In addition to its manufacturing operations, the business operates 50 retail stores and more than 500 multi-brand retail locations. It is expected that RM Williams will be sold for around $500 million.

Stores give Walmart its advantage over Amazon

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The AFR reported that Walmart keeps pressing its advantages over Amazon, and it keeps getting results. The big-box giant said comparable sales at its US business rose 3.4% in the first quarter from a year earlier, its strongest performance on that metric in the period in nine years. The gain reflected both an increase in traffic as well as shoppers spending more per transaction. Online sales rose 37% from a year ago. Fitting a recent pattern, a significant contributor to the online growth was its click-and-collect grocery service. This is a sweet spot for Walmart: The service is currently in 2450 US stores - coverage that Amazon will be hard-pressed to match, given its far smaller lineup of brick-and-mortar stores. And it allows Walmart to make an early land grab in the Wild West that is digital grocery shopping.

Zara Australia still claiming marketshare

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The AFR reported that global fast-fashion retailer Zara is still taking market share in Australia despite rising consumer awareness about the environmental cost of disposable fashion. Sales at Inditex’s Australian business,  Group Zara Australia, rose  10.5% to $311.8 million in the year ending January 31, almost five times the growth in the overall clothing footwear and accessories market. Zara’s profits rose at an even faster rate, with operating profit up 32.4% to $18.4 million and net profit rising 35.3%t to $12.04 million. Earnings before interest and taxation margins rose to 5.9% from 5%, reflecting positive operating leverage, exceeding EBIT margins at retailers such as Myer (1.8%) and Premier Investment brands such as Dotti, Portmans and Jacqui E (4.5%). However, Zara’s EBIT margins were much higher (10.6%) three years ago.

AI sharecroppers earn as little as US$2.50 ph

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The Hustle reported that Artificial intelligence is driving some of the biggest technological advancements of our time, from self-driving cars to facial recognition. However, the technology is reliant on a growing, often low-paid sector of human workers, or “AI sharecroppers.” Before an AI system can identify images on its own (a process called deep learning), it must be “trained” with millions of hand-labeled images. This so-called “AI labeling” industry is projected to grow from US$150m globally in 2018 to US$1B by 2023 - and like many booming industries, it’s largely dependent on tedious, cheap labor. Many of these jobs are outsourced to Southeast Asia and Kenya, where workers sit at computers labeling millions of images (stop signs, animals, vehicles) for as little as US$2.50 per hour. We've long held the view that AI has nothing to with intelligence, but rather 'trained' instinct.