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7
Feb-18
Wednesday

Asia Pacific arm of Steinhoff is working on refinancing debt

6
The AFR reported that the Asia Pacific arm of Steinhoff is working on refinancing about $500 million of debt, in parallel to efforts aimed at a management buyout.  This apparently would cost close to $1.5 billion.  Michael Ford, Steinhoff’s AP CEO commented – quite rightly – that the local business can operate without its parents.  Steinhoff’s local brands (Harris Scarfe, Best & Less, Fantastic Furniture etc.) were successful in their own right, before becoming a part of Steinhoff’s stable.

Stock markets in the US seem to be levelling off

6
Stock markets in the US seem to be levelling off, with a slight rebound towards the end of trading on Tuesday.  However, the prices remain volatile.  The Australian Financial Review commented that we are witnessing a peculiar situation where an overflow of good news spooked the market. People started to worry about an overheated US economy, and possibly inflation and interest rates jumps.  In our view, prematurely.  US economic fundamentals have strengthen, but the US long way to go before the recently freed gears start to move faster.

Bunnings UK, a lesson in "we can do no wrong"

6
The media have been commenting extensively about the massive loses of Bunnings in the UK.  The Bunnings case illustrates the dangers of the ‘we can do no wrong’ attitude and should act as a stern warning for other retailers - to carefully consider what possibly could go wrong before they embark on acquisitions and other large-scale ventures.  Successful companies include humility in their core values – for a very good reason.

Gary Perlstein attempts to buy City Chic

5
Manoeuvres around the Specialty Fashion Group are continuing.  According to The Australian, the outgoing CEO - Gary Perlstein - is attempting to buy out the most successful brand (City Chic), with backing from Ian Miller and Geoff Levy.  We wonder whether the board would ever endorse this, because that would leave the rest of the business stripped of its valuable unit.  In our view Gary Perlstein’s consortium would have to pay more than the current valuation of the entire business in order to have a chance of getting its bid approved.

Kaufland close to opening first store down under

7
German chain Kaufland is getting close to opening its first Australian store.  This will add to the woes of Coles, Woolworths and the independents.  The Australian commented that even Aldi and Costco will feel the pinch, as Kaufland operates very large format stores, with very wide offer.  Apparently the first site will open in Adelaide, adding to Kaufland’s portfolio of over 1,200 outlets in Europe.  It is also likely that at some stage we will see Lidl stores in Australia (the same parent company), competing head on with Aldi.

Retail landlords face an era of lower rent

5
The troubled Oroton business struggles to come out of administration.  The potential buyer, Will Vicars, has been having difficulties in getting landlords to agree to lower rents and two stores have already closed.  The landlords seem to be oblivious to what’s coming their way – the era of lower rent.  More and more retailers are prepared to walk out if they cannot be given a rent relief.  The dynamics for brick and mortar stores has changed and unless landlords understand this, they will soon have a lot of vacant stores.

Best Buy to stop selling CDs

5
US Today reported that Best Buy in the US has notified its suppliers that it will stop selling CDs on July 1, reacting to consumers' shift to digital music. Revenue for streaming services such as Apple Music and Spotify has surged in recent years while CD sales slumped, according to the International Federation of Phonographic Industry.
6
Feb-18
Tuesday

Bunnings UK business considers next move

5
According to Inside Retail, Wesfarmers’ MD commented that all options are on the table for Bunnings UK business.  This follows a $1.3 billion write down related to Bunnings UK/Ireland and Target.  At the time when Bunnings announced their entry into the UK market, it sounded to us like a pretty serious gamble: a concept originally based on Home Depot, refined to work well in Australia, to be implemented in the UK by converting an existing business that operated according to a different formula?  It clearly violated the principles shared by Justin Cohen how NOT to enter a foreign market.
5
Feb-18
Monday

Dow Jones Industrial Average dropped 2.5%

5
The Dow Jones Industrial Average dropped 2.5%, its biggest one-day decline since the U.K.’s surprise vote to leave the European Union in June 2016. Meanwhile, the yield on the benchmark 10-year Treasury note climbed to 2.852%, its highest level since January 2014.  It is worth noting that it still remains higher than it was on 1 January 2018.  According to The Wall Street Journal, bond investors have started to take the threat of inflation more seriously, and an anticipated rise in interest rates spooked stock investors.  According to WSJ, many investors still expect the stock market to remain strong due to a brightening earnings picture. Analysts’ projections for U.S. earnings in 2018 have been upgraded significantly over the past month following changes to the U.S. tax code, while results for the fourth quarter have largely exceeded analysts’ expectations.

Bitcoin falls below $US8,000

5
The Age reported that Bitcoin has fallen below $US8,000 for the first time since November last year.  It reached a record high of $US19,511 on December 18.  Wall Street Journal commented that three of the largest banks in the U.S. - Citigroup, JPMorgan Chase and Bank of America - said they would no longer permit credit-card customers to buy bitcoin with their credit cards, so Bitcoin is being progressively rendered useless.  The Age compared price graphs for Bitcoin and the infamous schemes from the distant past – such as the 17th century Dutch Tulip Mania, and then the French Mississippi and British South Sea Companies in 18th century.  They all look strangely similar, with Bitcoin even more crazy than its predecessors.  Anyone who lost money on Bitcoin had been warned repetitively.