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16
Mar-18
Friday

Another Australian fashion chain on the market

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The Australian reported that the sales process of the Sussan fashion business has started. The sale seems to be driven by lacklustre business performance, with the current owners unable to see any blue sky. Analysts expect the sale price to be between $200 and $400 million, for the chain composed of about 500 stores. We compared this to the recent sale of Brett Blundy’s Bras ‘N Things, which yielded $500 million for 180 stores - much more impressive. This makes us wonder: could the difference be caused by Bras ‘N Things using our software platform and Sussan not?

Premier shines again

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Premier Investments has reported a 9.4% increase in half-year net profit to $78.6 million on the back of strong sales at Smiggle and Peter Alexander.  Most of their other brands also performed well. The actual EBIT increased by 10.2 per cent to $102.5 million. We are pleased to be a part of Premier’s journey, providing store systems for The Just Group.

Supermarket reshuffle continues

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The Canberra Times reports that Wesfarmers announced their intention to spin Coles off into a separate company. This would create a new top-30 company listed on the Australian Securities Exchange.  Wesfarmers, with a market value over $45 billion, said the move would allow it to focus on growing its other divisions, which include Bunnings, Kmart, Target and Officeworks, and look for opportunities to buy new businesses.  The Coles Group, bought by Wesfarmers in 2007, accounts for about 60 per cent of the conglomerate's tied-up capital but generates only 34 per cent of its earnings.  Post the announcement Wesfarmers shares went up by 5%.  This says a lot about market’s view of Coles’ long-term prospects.

US retail sales increase 4.4%

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Unlike the mainstream media, which yesterday publicised the decline in US retail sales, the NRF (obviously) understands the industry. According to NRF Chief Economist, retail sales during February increased 4.4% over last year, excluding automobiles, gasoline stations and restaurants. The NRF said, "economic fundamentals are favourable for spending to expand in the coming months."  We are glad we pointed this out yesterday.
 

Toys ‘R' Us to disappear

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So, it’s official.  The question now arises about winners and losers.  30,000 people will lose their jobs in the US alone and more job losses will occur in other markets, such as the UK (where Toys ‘R Us had 100 stores, of which 25 have already been shut).  Customers will lose too, as will toy suppliers.  However, department stores such as Kmart, Big W and Target, as well as specialty toy retailers, will see a spike in sales, but not until Toys ‘R Us liquidate their stock through a fire sale.  According to AFR, the Australian arm of the business lost over $7 million on sales around $275 million.  Amazon and Walmart have been blamed for the toy giant's demise, but we think that it all started with the leveraged buyout 12 years ago.  Such financial tricks are hardly ever good for business.

Willy Sutton still at large

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“I rob the banks because this where the money is,” said the ill-famed American bank robber Willy Sutton.  According to Financial Times, the European Union wants to impose a turnover tax on large technology companies (such as Google, Facebook and Apple), aiming to collect about $8 billion per annum.  Willi Sutton’s criteria will be applied: a business must be turning over €750 million globally and over €50 million in the EU.  We are not big fans of the technology giants, as they harm competition, but this looks to us like a mere money grab.  Someone will have to pay for this in the end, i.e. Google’s, Apple’s and Facebook’s customers.

Unusual shopping malls keep growing

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The Wall Street Journal published an article about the rise of airport shopping precincts.  Major airports around the world, from Singapore to Dubai, London to Beijing, have increasingly become shopping malls, albeit with gates. According to the article, airport retail businesses still see solid growth, despite the competition from online.  Dufry AG, the largest duty-free airport retailer, posted same-store revenue growth at about 8% in the first nine months of 2017 compared with the same period in 2016. This tells us that with all the ‘digital disruption’ around, the brick and mortar segment is not necessarily shrinking – it is just being redefined.

Retail is retail…

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The NRF published its annual State of Retail Report and according to HomeWorld Business, the report shows more than ever that retail is retail regardless of where a sale is made or how the product is delivered. “Products ordered online are increasingly picked up in-store or shipped from a nearby store, and digital technology being used at bricks-and-mortar locations lets retailers help customers find what they want or make the sale even if the product is out of stock. Traditional retailers have seen the opportunities of online selling for years now, and those selling online increasingly see that stores are part of the key to success.”  This confirms our key message to retailers: Digital Path to Purchase must be accepted as the standard way of doing business, and ‘purchase’ means any purchase, not just online.  Therefore, retailers such as Nordstrom need to be applauded for ending the practice of reporting online sales separately to store sales.  Channel management needs to be about either over-the-counter pickup or home delivery - not about the way the customer asked for the stock.
15
Mar-18
Thursday

Looming Chinese banking crisis?

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Deutsche Welle reported that the IMF estimates China's overall debt figure to be about 234% of gross domestic product (GDP) and predicts that it will rise to 300% by 2022. Corporate debt currently stands at around 165% of GDP, and household debt is also spiraling upward at a rapid pace.  As a result, China is seen as one of the economies most vulnerable to a banking crisis.  The remedy would be to slow down the pace of infrastructure investment, but this would undermine overall growth in the economy – something the Chinese government is unlikely to endorse.

The end of Toys 'R' Us

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FoxBusiness reported that Toys ‘R’ Us has informed its employees that it will close or sell all of its more than 700 US stores amid mounting debt and years of declining sales.  The impending liquidation could result in as many as 33,000 layoffs, according to the Wall Street Journal.

Aldi’s expansion efforts intensify

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The Daily Mail in the UK commented on Aldi’s efforts in Australia to strengthen its regional management team, by attracting high caliber graduates.  Vastly elevated salaries are available to successful applicants.  But, as one of the graduates said: “The salary also truly reflects the hard work and high standard of what is expected from you in the role.”  Aldi’s program confirms that Operational Excellence doesn’t necessarily mean low wages.

How to turn good news into bad

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Bloomberg reported that US retail sales dipped 0.1% in February from the previous month. Other media channels immediately repeated this message, making us wonder, how does this reconcile with the overall boom in the US economy?  It turns out that Bloomberg doesn’t understand retail, therefore its false assumption that sales in January and February ought to be the same.  The real metric: sales in February were up 4% from last year! Most Australian retailers can only dream about such results.