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Godfreys going private

Inside Retail reported that John Johnston has effectively secured the purchase of the business, with more than 91% of Godfreys’ shares now in his hands. He intends to delist the company, undertake an overhaul and rebuild it.  A big task, given the difficulties the company is in.  Delisting has some negative implications as well, particularly affecting relationships with banks and landlords.

US retailers applaud sales tax ruling

The US Star Tribune reported that major US retailers, including Target and Best Buy, cheered the recent Supreme Court ruling that will allow states to require online retailers to collect sales taxes. Target stated that it “has long advocated for sales tax policies that level the playing field and treat all retailers the same, whether they have stores, operate online or both.” Best Buy officials said the decision "finally brings sales tax collection into the internet age, and reinforces the basic American notions of fairness and a level playing field for all who choose to compete in the marketplace."  We share the sentiment – there's nothing wrong with taxes, as long as they don’t distort the economy.  Amazon is caught in the new ruling and will need to apply sales taxes as required.  Makes us wonder whether they will display the same emotional reaction as we saw in relation to the Australian GST system clean up?  

Doing the wrong thing for the right reason

The Australian commented on the plastic bags ban, in the context of a 2006 inquiry by the Productivity Commission into waste management. The report’s lead author said that “plastic bags are useful: hygienic, waterproof; they have multiple uses and functions.”  The report stated that “plastic bags take up little landfill space and their inert characteristics can actually help to reduce a landfill’s potential for adverse environmental impacts.”  Yet, because of a prevailing perception that the bags are bad for the environment, Coles and Woolworths decided to eliminate them.  A recent study in the UK found that reusable bags need to be used 173 (!) times before they have a lower environmental impact than ordinary plastic bags.  An economist from RMIT said that he was surprised that Coles and Woolworths decided to “deliberately pursue a policy that they know will reduce customer satisfaction”. Of course, we're advocates for sustainable environmental practices, but they need to be based on facts; the matter is too important to waste resources on ineffective initiatives. It's not plastic bags and plastic straws that have the biggest impact. Have you considered the tons of other waste generated by the supermarkets and fast food chains?

BIS report the final nail in the coffin for cryptocurrencies

The AFR reported on the findings of the Bank for International Settlements (BIS) review into cryptocurrencies. The Swiss-based "bank of central bankers" and the leading global authority on the crypto-craze, has found that cryptocurrencies have no intrinsic worth, are useless as a form of exchange, entail exorbitant transaction costs, are very slow, are subject to fraud or digital manipulation, and, together they have turned into an ecological fiasco. The report said Bitcoin alone uses as much electricity as Switzerland. Not to be confused with Blockchain, the cryptocurrency bubble has now definitively burst, with Bitcoin crashing from $19,187 to $6,474 since peaking in December. The BIS report is the final authoritative nail in the coffin.

Online sales tax update (US)

The New York Post reported that the Supreme Court has ruled that US states can now force online sellers to collect sales taxes, irrespective of where their customers live.  This changes a 50-year rule that exempted sellers from collecting taxes on out-of-state transactions.  The ruling can affect hundreds of thousands of sellers, including those selling via Amazon (about US$32 billion last year).  We reported on the Supreme Court suit earlier this year, initiated by South Dakota,  which claimed it was being robbed of millions of dollars in sales tax because internet sellers shipping to the state were not collecting sales tax.  We are seeing a clear trend of states beginning to impose taxes on e-commerce transactions.  This is (in our view) a good structural phenomenon, as it removes sales/VAT tax distortions and also repairs the sales tax revenue, eroded when sales moved online.

Surprising findings about retail consumption

The Harvard Business Review recently published an article about retail consumption. The research covered by the article signals that the way people shop actually hasn’t changed much in the digital age (“5 Surprising Findings About How People Actually Buy Clothes and Shoes”). Shoppers still prefer to buy clothing in person, and when they do, it’s usually to replace the staples in their wardrobes, not to purchase cheap new trends that are bound to fall apart after a few washes. Repeat purchases were made during 83% of shopping excursions (87% for sportswear). The study described in the article also challenged perceptions about online shopping versus brick-and-mortar consumption. US retail is hurting but not because Americans have abandoned brick-and-mortar for online merchants. The key problem is the glut of stores in the US. The US has 40% more shopping space per capita than Canada, five times more than the UK, and 10 times more than Germany. If you haven’t read it yet, we strongly recommend the article.

Beauty moving into brick and mortar

Glossy in the US commented on an interesting trend: wholesale beauty brands launching their own stores centered on experiential elements, like meet-ups and training classes, aimed at reintroducing themselves to customers.  Another driver is to be better able to gather data about consumers.  One possible explanation would be the decline in department store traffic, an important channel for cosmetics.  Historically, beauty brands were wholesaling businesses that were distributed through pharmacies or department stores and they had little access to customers.

Private label woes

Inside Retail published an article about the proliferation of private label products.  What we found interesting was the statistic that 85% of retailers surveyed stated that their main driver behind the introduction of private label products is the need to improve margins.  This confirms our earlier observations that Coles’ claims that its ongoing shift towards private label is in response to customer demand doesn’t agree with facts.  There is no doubt that the rush to private labels undermines established brands and according to the article, discourages suppliers from innovation, jeopardises the livelihoods of smaller, independent suppliers, and ultimately results in less choice for customers.

Short-term thinking, long-term consequences

The NRF has been so vocal in their criticism of tariffs being applied by the US Administration to high-tech Chinese imports that Retail Directions' Pulse needs to comment. NRF CEO Matthew Shay said that "These tariffs won't reduce or eliminate China's abusive trade practices, but they will strain the budgets of working families by raising consumer prices." He is definitely right that tariffs will lead to some price increases, but his assertions that the tariffs will be ineffective seem groundless. 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.

Freight capacity crunch in the US

The Australian reprinted an article from The Wall Street Journal about the freight capacity crunch in the US, resulting in rising prices and causing shipping delays. US trucking and rail spending went up by over 17% since last year.  This is now impacting the profits of retailers such as Costco and Dollar General, as well as manufacturers.  We warned a few weeks ago that the saturation of the delivery system will start acting as a break on the continuing expansion of online sales that need to be delivered.

Amazon launches Prime down under

Inside Retail reported that launched its Prime membership program in Australia today, offering free two-day delivery to 90% of the country for an annual membership fee of $59. Amazon Prime in the US costs $119 annually. Prime members in Australia will also have access to the four million products on Amazon in the US, which Amazon decided to make available through the Australian site, with free international delivery on orders over $49.  In our view, this still doesn’t compensate for their recent decision to stop shipping orders from its US site to Australian addresses in order to protest against the now more level GST rules in Australia.