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Bunnings' UK pain

AFR reported that Wesfarmers confirmed it was working with investment bank Lazard, to find a way out from its troubled Homebase chain.  Selling the business is one of the options under consideration.  Apparently the expected cost of the ‘UK expedition’ will be up to three times higher than the original purchase price ($700 million back in January 2016).  In 1993, Wesfarmers bought the McEwans chain in Victoria and were able to use it as a launchpad for Bunnings.  One of the assets that McEwans brought to the table was the design for large format stores, which were actually built by Wesfarmers as Bunnings.  The lesson here is obvious: what worked once, may not work in another place and another time.  It is worth remembering what W Edwards Deming, the pioneer of Total Quality Management, once said: “Everything is one of a kind.”

Coles is fighting for chairs on a sinking ship

The AFR commented that according to the Coles’ MD, Coles is regaining market share from Woolworths.  We have said many times that Coles’ core problem is not Woolworths, but highly efficient operators such as Aldi and Costco.  Fighting for chairs on a sinking ship is not helpful.  Coles should start assessing its KPIs against Aldi rather than Woolworths and a different story will emerge.

Australian landlords under pressure

The Age published an article titled ‘Vacant space like a cancer in malls’, commenting on Macquarie Bank’s list of retailers winding back their store commitments.  The list translates into nearly 350,000 square metres in vacancy, roughly equivalent to 1.5 Chadstone centres.  A number of large retailers have also announced their intention to exit leases that have become too expensive.  In the past, we have commented repetitively about rents and rent increases well in excess of CPI being unrealistic.  It looks like finally landlords may get the message and will start questioning the value of their retail space.

Dire warning from Atlanta

Reuters reported that nine days ago Atlanta was hit by a devastating ransomware attack.  According to Reuters, the city was plunged into technological chaos with some city workers forced to revert to using paper and their mobile phones to conduct business. Services had to be shut down such as municipal services, courts, and the water department.  Police files and financial document were rendered inaccessible.  We have warned on a number occasions that as retailers move further into cyberspace, they must start treating cybersecurity as a core business function, particularly because cyber extortionists have been moving from attacking individuals to large organisations.  The Mayor of Atlanta declined to say if the city paid the ransom (around $50,000).  Some experts suggested that the city should have paid the ransom, quickly.

Sherman Act could be in action sooner than expected

According to Reuters, Amazon shares fell almost 5 percent on Wednesday, wiping more than $30 billion off its market value, after news website Axios reported that the US President wants to rein in its growing power. Only a few days ago, we predicted that the Sherman Act could be invoked and now we learn that Trump intends to use it to shelter small retailers from being put out of business by Amazon.

Billabong’s fate sealed

AFR reported that Billabong has been finally acquired by the hedge fund which also owns Quicksilver.  The price tag was around $200 million.  Billabong’s CEO and Chairman made a claim that the brand will retain its original DNA, which is highly unlikely.  It takes about 3 years to dilute a brand under new owners.  Few have the skill to keep their hands off of their new acquisition.

The wingless ‘Flybuys’

AFR commented about Wesfarmers selling off Coles but retaining a controlling stake in Flybuys, because of the perceived high value of this “lucrative retail asset – data on shopping habits of 10 million Australians.”  We find it quite amazing to keep hearing the same claims, for nearly 25 years now, glorifying retail 101: recording who buys what and where.  Most retailers who have half-decent systems already capture such data and actually use it.

Permanent store staff are more profitable

The New York Times published an article about a study conducted at The Gap.  The study revealed that more predictable and consistent hours aren’t just compatible with profitability, they can significantly improve a store’s bottom line. The average sale was 7 percent higher in stores that introduced consistent staff schedules, instead of rostering employees on an ad hoc basis.  This confirms how critical it is to have happy store teams.

Strong brands continue expanding

CNBC reported that US retailers have so far announced about 1,700 new store openings for 2018.  Retailers such as Ulta Beauty, Dollar General, Target, Ross, and Warby Parker continue to expand their brick and mortar portfolios. Who said that brick and mortar has become obsolete?

JD Sport Fashion buying Finish Line

Reuters reported that JD Sport in the UK has agreed to buy US retailer Finish Line for $558 million in cash. Finish Line is a listed company operating over 550 stores focused on selling premium multi-branded athletic footwear, apparel and accessories.  JD Sports has expanded overseas in recent years, gaining a presence in France, Spain, and South Korea. Growing demand for branded sports shoes and clothes has enabled JD Sport to become the UK’s leading sportswear retailer.

Cotton On launches Aussie loyalty program

Inside Retail reported that the Cotton On Group (COG) has launched a portfolio-wide loyalty program in Australia, following rolling out the program in New Zealand, Asia, and South Africa. COG's GM of e-commerce Brendan Sweeney told IR that "Nobody else has anything that spans across the whole family of brands.” Behind this impressive technological and customer engagement feat sits the Retail Directions Platform, powering Cotton On's selling, loyalty, and retail ops worldwide.

Aldi and Lidl expanding in the UK

According to Reuters, Aldi plans to grow its current 750+ locations in the UK to 1,000 by 2022, and its rival Lidl says it will increase its 700+ locations to as many as 1,500.  This tells us that a well-run supermarket chain wins, no matter in which country it operates, but it needs to have a strategic focus and absolute clarity about its value disciplines.  This is what Australian supermarkets lack and it is only a question of time before the first Lidl store opens down under, adding to the misery.  We have no doubt that the weather, ‘headwinds’, or ‘difficult market conditions’ will be to blame.