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11
May-18
Friday

Musings on retail's environmental footprint

38
The NRF has commented that the costs of goods are on the rise as shipping expenses increase.  The NRF’s comment made us reflect on occasional retail initiatives such as ethical sourcing, the abolition of shopping bags or plastic packaging, aimed at protecting the environment.  At the same time, the same retailers keep expanding their home deliveries (now between 5 and 15% of all sales, depending on the country), generating substantial additional traffic on the roads, with all the associated environmental damage.  Conveniently, no one talks about this.
10
May-18
Thursday

Uber will no longer "Rush"

36
According to The Dallas Morning News, Uber announced that UberRush (created in 2014) will be shut down and will stop servicing Walmart.  According to Uber, the venture provided lots of lessons for its UberEats business.  This (we think) means that UberRush must have lost some serious money (i.e. it was one of those so-called “learning experiences”).  We keep repeating that delivered sales cost much more and are particularly un-economical in the grocery sector.  We see supermarkets as warehouses open to the public, where customers do their own picking, packing, and shipping.  When you take over these functions from your customers (and you need to in the online + delivery model) you erode your profits.  No wonder Aldi doesn't sell online in Australia.

Something must happen at Godfrey’s

30
According to the AFR, sales over the last two weeks dropped by over 25%.  For a publicly listed company, this is certainly not good news.  Godfrey's new approach to marketing, introduced in February, seems to have failed.  The business is now apparently keen to accept John Johnson's Arcade Finance offer to buy the business back. One thing for sure: the business will not be able to continue without a serious change.

Post-budget musings

46
Standard & Poor rating agency has warned that Australia’s AAA outlook remains negative, post the budget announcement.  S&P quoted growing global risks, which aligns with our earlier comments about the 2018/19 budget and its future projections – they rely on an overly optimistic assumption that nothing of substance will change in the global economy over the next seven years.
9
May-18
Wednesday

AI at H&M

43
According to The Wall Street Journal, Hennes & Mauritz, aka H&M, used AI to tune its range and will now be stocking fewer basics and a wider fashion offer.  This is intended to reverse profit decline (20% down) and overstocks (U$4 billion).  Hopefully, H&M are aware of our earlier revelations that AI stands for ‘Appearance of Intelligence’ rather than for ‘Artificial Intelligence’ and still double-check their computer predictions with experienced merchants. Stockholm based H&M operates 4,500 stores worldwide.

Strong results from Adairs

29
Adairs, a publicly listed Australian mid-tier bedding, towels, and linen retailer provided a trading update, with the expected sales for the financial year to be in excess of A$310 million and EBIT of approximately A$45 million, i.e. 14.5%.   The business operates in excess of 160 stores, mainly in Australia, competing against department stores and similar operators such as Bed Bath & Table, Sheridan and Pillow Talk.  The share market responded favourably. A word of caution about businesses that EBIT in excess, while fantastic, it acts like a honeypot, attracting competitors to the market.  So, in the medium to long-term, it is better to spend more on strengthening the business rather than to keep the extra profit.

Australian Federal Budget

58
The Australian Government published its 2018/19 budget.  Other than shifting money around a bit, minute income tax changes, and a focus on squeezing more money from everyone through stronger compliance measures, the budget doesn’t promise any constructive, structural changes.  Record high public expenditure and business-hostile regulations remain in place.  Consequently, we don’t expect any significant boost to the economy.  Also, in its projections, the budget assumes that nothing of substance will change in the global economy over the next 7 years.  Somewhat foolish, we think.

Lidl’s first anniversary in the US

37
Lidl is a part of the German Schwarz group, which turns over around U$120 billion.  The group includes the Kaufland chain, which is about to open in Australia.  There are over 10,000 Lidl stores world-wide.  According to the NRF, Lidl aimed to open 100 stores in its first year in the US, but only opened about 50.  Apparently, Lidl currently has 40 sites in the planning stage, 14 under construction and 11 awaiting opening, so they are serious.  They've taken some key learnings in the US market, adjusting their focus to smaller footprint stores, in more dense demographic areas.  They have definitely made a dent in the areas where they have opened, forcing price reductions amongst competitors.
8
May-18
Tuesday

Baby Bunting's short-term pain, long-term gain?

43
Baby Bunting announced that it expects earnings before interest, tax, depreciation, and amortisation (EBITDA) to be in the $18-$20 million range, down from the $23 million previously forecasted. The recently flagged administrations of its third and fourth largest competitors, Baby Bounce and Baby Savings, have undermined the company’s sales performance due to the high levels of clearance discounting in the market. Shares went down by 3.5%, but we think that this is a strange reaction, as, with some competitors now gone, the long-term prospects for the business are better than they were a few months ago.

Godfreys’ troubles continue

41
The AFR reported that the ailing vacuum cleaner retailer has gone into a trading halt.  The business was bought in 2011 by a syndicate of investors and then floated in 2014 at $2.75 a share.  The shares traded at $0.30 on Friday.  An offer to buy the business is on the table (from one of the original investors, John Johnson) at $0.32.  We are watching with interest how the Godfreys’ saga will unfold.  The trading hold is expected to be in place until Wednesday, 9 May.
7
May-18
Monday

How to double your business overnight

43
Reece Limited announced its intention to acquire US company Morsco for A$1.9 billion.  Morsco has a similar business profile to Reece.  The combined business will turn over A$4.8 billion per year.  The deal will be financed through A$560 million equity rising and a U$1.2 billion loan in the US.  A bold move for the leading Australian plumbing and HVAC supplier.

Walmart’s flip?

28
According to Bloomberg, Indian Flipkart Online, one of the nation's fast-growing and largest retail platforms, has agreed to a deal to sell 75% of the company to Walmart for around US$15 billion.  It is expected that the deal will be finalised in the next 10 days.  This would be an interesting twist, with Walmart divesting its UK business and entering India instead.