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Digital privacy in the headlines

The AFR reported on the impact of recent changes to the privacy laws in Europe, Australia, Asia, and the US, particularly the far-reaching tentacles of Europe’s new General Data Protection Regulation (GDPR) through the global supply chain. Many Australian companies, retailers included, are now becoming aware of direct GDPR obligations or are getting caught up in indirect onerous compliance because of their European-related activities. The impending cost of GDPR to businesses is staggering too, with Fortune Global 500 companies expected to spend about US$8 million on compliance. The upside of all this? Now may be a good time to become a privacy manager.

Luxury brands target menswear growth

Reuters reported that luxury brands are investing in menswear, which is expanding faster than women's clothing as styles loosen up and streetwear like hoodies find a new audience. Sidney Toledano, head of LVMH’s fashion group, said, "There’s strong demand across the men’s fashion industry, in all its shapes and forms, and which comes in part from a younger clientele. We see it very clearly in the sales." The report noted a fascinating statistic: currently, only 7% of luxury brand sales go to men.

Supreme Court sides with AMEX in antitrust case

National Public Radio in the US reported that the US Supreme Court has sided with American Express on their policies that stop retailers from steering customers to other credit cards that charge lower swipe fees - a practice retailers say raises costs to consumers. We don’t quite agree with this – it is actually the retailers who end up paying for it.  BTW: There was no mention of a surcharge restriction for AMEX, which means that retailers can easily work around the ruling by imposing surcharges. Only then will customers be impacted (and AMEX).  However, surcharges will make the retailers look bad in the eyes of the customers.

What about profits?

USA Today reported that Amazon Prime discounts will now be available in all Whole Foods outlets.  This follows initial pilot stores, which were well received by customers (why wouldn’t they?).  USA Today commented that “Discounts and loyalty programs have long been a common strategy among grocery stores, serving a dual purpose. Discounts lure shoppers in and return visits provide the store with data on their shopping habits.” Sounds very cliché to us.  Since Amazon took over Whole Foods, they have been progressively changing the business, eroding its gross and net margins.  But, running a business at a loss is nothing new for Amazon, to the detriment of the competitors.

Freud and IGA

The Australian Financial Review must have made an error when it said that “Retail sales across the IGA retail network declined 0.9% on a like-for-like basis for the 12 months to April 2018” and then immediately followed that statement up with a quote from the new CEO of Metcash: “Now we need to figure out how to go faster.”  This sounds like a Freudian slip – Metcash is in trouble, mainly because of its business model rather than competition or so-called unfavourable market conditions.  The recent announcement of Drakes' switch to their own distribution network confirms this.  Any independent chain that reaches a size sufficient to support their own sourcing will walk away from Metcash.  Why wouldn’t they?

Shopping centres paradox

Inside Retail published an article endorsing the shift towards services as the way for shopping centres to stay relevant, “a strategy that has proved highly successful and created a new class of ‘super’ neighbourhood shopping centre.”  The article is timely, as it coincides with our observations that many recently refurbished shopping centres have an issue with inadequate car parking space.  During weekends it is near impossible to find a parking spot and the shift towards services will make matters substantially worse, as services require longer customer visits.  It is a vicious circle: online takes traffic away from the shopping centres, which then refurbish to become more attractive and in the process overstretch their car parking capacity, pushing more people to buy online.

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.