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Reactive retailing costs jobs and hurts consumers

According to the Washington Post, some of the world’s largest clothing chains, such as Zara, H&M, Gap and Topshop, intend to discontinue selling mohair apparel.  The decision is apparently based on allegations of animal cruelty at a dozen goat farms in South Africa.  If this is the only reason, then it looks like rational thinking no longer applies in some parts of the business world.  Consider this: these are unconfirmed allegations based on video footage from unaudited sources, no analysis has been made as to what % of farms are affected by the alleged cruel practices, and the retailers are not even clear whether any of their brands sourced mohair from these farms.  The same concerns raised in relation to the South African goats can be raised in relation to ordinary wool and many other animal-sourced fibers.  We would suggest that the question needs to be asked: who would benefit from such a ban?  Surely not the people employed in the industry, nor the consumers.
Sunday to be 100% run by AI and robots?

Forbes reported that founder (Richard Liu) expressed a hope that at some stage his company will be run without human beings, 100% operated by AI and robots.  Forbes hailed this as an audacious goal, which based on our research, makes little sense.  Organisations continually execute algorithms  - most of them are computational and as such can be automated, but quite a few are heuristic and rely on decisions.  Decisions require human judgment, using incomplete information and intelligence.  In our earlier writings, we pointed out that while increasingly smart, animated matter will continue to proliferate, machines with real human-like intelligence make little commercial sense.  The so-called "Artificial Intelligence" actually means the mere ‘Appearance of Intelligence’. It's safe to say that humans won’t be retiring any time soon.

UK House of Fraser's rocky road

According to Reuters, House of Fraser will need to close some of its stores as a condition of securing new funds from international retailer C.banner, which will become the majority owner of the department stores group with a 51 percent stake.  House of Fraser said it would launch a Company Voluntary Agreement (CVA) next month to allow it to restructure its store portfolio.  The company was founded in 1849 and it operates close to 60 stores in Britain and Ireland.  Under UK’s CVA, as long as 75% (by debt value) of the creditors vote for the CVA, then it binds all of the company's creditors irrespective of whether or not they voted for the deal. Creditors are also unable to take further legal action.

Esprit loses its spirit

Multiple media sources commented on the just announced exit of Esprit from Australia.  Sales of the Australian branch progressively evaporated from over $140 million pa in 2010 to a mere $50 million in 2017.  According to AFR, Esprit has been losing market share to global chains which entered Australia, such as Zara, Uniqlo and H&M.  Myer’s decline didn’t help either, as Esprit operated 38 concessions within Myer.  Australia is proving to be a difficult market for overseas retailers: Brooks Brothers, The Gap, TopShop and even H&M find it challenging.

Super Retail Group trading update

The Super Retail Group released a trading update, confirming that it is on target to deliver profit forecast for the financial year.  Some of its brands are under pressure from new competitors, so Super Retail has been working hard to stay its course.  The Group’s strategy includes expansion of its private label range to 50%, which carries the risk of alienating or even wiping out some suppliers.  It was interesting to note that omni-channel has been left in the Group’s strategy until 2020-22...


The Australian featured a set of articles covering the latest updates published by major Australian retailers. Wesfarmers kept plodding along, handicapped by their UK Bunnings venture and a struggling Target. Wesfarmers CEO made some enthusiastic comments about Flybuys, but after 24 years of operation, we are yet to see real benefits in terms of smart customer engagement, based on the tons of data collected so far.  Woolworths enjoyed solid growth, as a 4%+ like-for-like revenue increase is impressive within the very competitive market, particularly when compared to Coles' sub-percent growth results.  Finally, JB HiFi shares have been punished (10% slump), due to lukewarm performance, impacted by poor results in the home appliances category. We never did see much value in adding appliances to the range of electronic retailers.  There is little money to be made in a category where margins are barely above 10%.

Rebalancing physical stores and e-commerce

Bloomberg View published an interesting article pointing out that brick-and-mortar retailers may be gaining an advantage over e-commerce players, as retail rents dip and online advertising and shipping rates rise, quite substantially. Facebook's ad rates soared last year, and higher shipping costs lead Amazon to raise its Prime membership fee.

Could Walmart buy Coles?

The Australians Financial Review posed an interesting question, whether Walmart will use the proceeds from the Asda sales to Sainsburys to acquire the demerged Coles supermarkets.  Apparently, some analysts have suggested that this as a possibility.  We don’t think so, for three reasons: 60% of the sale price will be covered by Sainsburys’ stock, Coles Supermarkets are too similar to Asda, and Walmart have their own impressive store format anyway – why not use it and grab a part of the market, without spending billions on an acquisition?

The other side of static interest rates

The Reserve Bank of Australia has left interest rates unchanged at 1.5%.  Most commentators viewed it as a positive sign and attributed it to a relatively steady economic environment – in terms of unemployment, inflation, and moderate housing market activity.  We see it a bit differently: low interest rates also reflect the general lack of positive economic expectations about the medium to long-term future.  Businesses are reluctant to borrow, because they don’t see opportunites for solid returns.  Every coin has two sides…

Walmart sells Asda to Sainsbury in the UK

Walmart has announced the details of the deal which will create Britain’s largest grocer with revenue of around $70 billion.  Walmart will sell Asda to Sainsbury for $10 billion, of which close to 60% will be paid in stock, making Walmart a major shareholder in Sainsbury.  The newly merged business will surpass Tesco as the largest grocery chain in the UK, as Tesco turns over around $50 billion.  The Australian Financial Review commented that Sainsbury will gain more clout with suppliers, which is true, but to make matters substantially worse for some of the suppliers, Sainsbury will now go to every supplier that ever gave better deals to Asda and will apply pressure to reclaim the differential.

'Buy Local' an unrealised ideal

The Wall Street Journal pointed out an interesting trend in international shipping.  Refrigerated containers currently make up about 7% of total container volumes and the demand has been growing in excess of 5% per annum over the last five years, well ahead of shipping in general (around 2%).  Fresh produce, orange juice, pharmaceuticals and confectionery shipments are on the rise due to the growing affluence of the global population, especially in Asia.  The ‘Buy Local’ slogan doesn’t seem to be working that well.

The UK grocery wars

Reuters reported that Sainsbury and Walmart, the world’s largest retailer, were in advanced discussions regarding a combination of Sainsbury’s and Asda, the UK’s No. 2 and 3 UK grocers. Asda is owned by Walmart.  Tesco occupies the number one position in the UK market.  Britain’s big grocers, including No. 4 player Morrisons, have been losing share to German discounters Aldi and Lidl, reminiscent of the Australian grocery market shifts.  The structure of the deal remains a mystery, but it looks like a new holding company will be created, partially owned by Walmart.