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Will tariffs punish Americans?

We have a lot of respect for the National Retail Federation (NRF), but we wish that sometimes they looked at the world from many angles, not just from a short-term perspective.  The NRF released a statement from its President stating that ‘the tariffs proposed by the US administration will punish ordinary Americans for China's violations.’  If American cars sell poorly in China because of a 20% tariff, while Chinese cars continue to arrive in the US with a 2% tariff, sooner or later those who make cars in the US will lose their jobs. What could be a harsher punishment than that?

Store robots at Walmart

Business Insider reported that Walmart has expanded its in-store robots to 50 stores.  The robots are mobile and can scan for out-of-stock or misplaced items as well as missing shelf labels.  We are surprised that with its multi-billion dollar spend on IT Walmart still cannot track its store inventory and needs to look at the shelves to find out of stocks.  Retailers we work with track their store inventory with ease…

US - Chinese talks to sort out trade issues

The Wall Street Journal confirmed our earlier report from Geopolitical Futures that media talk about a global trade war makes little sense. According to WSJ, Washington and Beijing are quietly negotiating improved US access to Chinese markets. The US is seeking to narrow its merchandise trade deficit, including lower tariffs on US automobiles, more purchases of US semiconductors and greater access to China’s financial sector.

GST nonsense continues unabated

Inside Retail reported that eBay complained about the Australian Government considering a $5 charge on each overseas parcel, to cover the costs of bio-security screening.  eBay commented that ‘customers will be hit hard’.  Such complaints sound disingenuous and self-serving.  At $5 a parcel, the proposed levy would amount to, on average, 1% tax on overseas online purchases.  In the meantime, Australian retailers continue to suffer from the damage inflicted daily by overseas goods arriving in Australia at a 10% discount.  Surely, with some retailers pushed into liquidation, this causes much more harm to customers?

Global Trade War? Not yet

Mainstream media recently escalated their talk about a global trade war, to be triggered by the latest US tariffs aimed at China.  According to Geopolitical Futures, the tariffs are a mere shot across the bow designed to demonstrate US resolve to the Chinese when it comes to trade. GF expect China to make a token response for its domestic audience, but to avoid escalation.

Amazon’s strange moves

Bloomberg reported that less than a year after closing its acquisition of Whole Foods, Amazon is searching for bigger Whole Foods locations in cities that can serve as both grocery stores and urban distribution centers for delivering goods to online shoppers.  This kind of makes sense, but questions must be asked: if Whole Foods was a good business, why mess with it?  If it wasn’t, why did Amazon buy it?  The confusion at Amazon’s end seems to be confirmed by the news that they are also working on a project to convert parking areas at existing Whole Foods stores into stalls for Amazon delivery contractors to load up their orders. A word of advice to Amazon: if you reduce parking space at a supermarket, your sales will drop.  Just a basic law of nature as far as supermarkets are concerned.

Taxing online sales

Australia is not the only country with a messed up sales tax system. The Wall Street Journal recently questioned US Congress’s consideration of the proposed federal law authorising states to impose their respective sales tax on remote sellers, criticising South Dakota for trying to tax internet sales.  NRF pointed out that unfair competition from remote sellers exempt from the combined state and local sales-tax (charged at the rate of 6.5% in South Dakota) causes many local retailers to fail. Yet, Canberra politicians keep claiming that a 10% price difference is immaterial, therefore, there is no rush to tax overseas internet purchases - a view that is on the verge of commercial insanity.  In retail, a 10% price difference is a matter of life or death.

New Look to shut down 60 stores

According to The Telegraph, UK-based retailer, New Look will close 10% of its 600 stores as part of a reorganisation that will cut about 1,000 of its 15,300 staff positions. The company has launched a voluntary arrangement with its creditors to avoid insolvency.  When an otherwise good retailer gets into this kind of trouble, it just confirms how hard fast fashion retailing can be.

Trying to fix the US balance of trade

According to Bloomberg, the US Government announced the introduction of tariffs aimed at reducing the US / China trade imbalance and to curtail the current Chinese practice of forced technology transfers.  The US trade deficit, which is close to $600 billion annually, has become unsustainable, so something had to happen.  Interestingly, 20 years ago the books were balanced. Deutsche Welle reported that the affected sectors will include robotics, aerospace, maritime and modern rail equipment as well as electric vehicles, and biopharma products.

US interest rate hike signals bullish outlook

The US Federal Reserve raised its key short-term interest rate yesterday, the first of a total of three increases expected in 2018. Interest rate hikes can often be viewed in a negative light, with benefits isolated to investors. Contrary to this prevailing perception, an increase in interest rates signals higher levels of confidence in future economic prospects.

Nordstrom not going anywhere

NRF reported that the Nordstrom board has ended buyout talks with members of the Nordstrom family after failing to come to terms on a price.  Probably a good thing - we usually see takeovers and ownership changes undermining the ethos of the business, with performance and financial consequences a materialising few years down the track.

Myer on thin ice

Following the announcement of more loses and the suspension of dividends, the question arises: how will Myer’s lenders react?  While Solomon Lew has been vocal trying to influence the Board, Myer’s bankers will have more direct power - what options will they pursue?  A mere replacement of the Board won’t solve much as, in our assessment, the problems rest much deeper within the business.