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Amazon's grocery gamble

The Wall Street Journal reported that Amazon is planning to open a chain of grocery stores across major US cities. Since its US$13.7B acquisition of Whole Foods, Amazon has expanded several supermarket services, adding Prime discounts and delivery at Whole Foods and launching a line of cashierless Amazon Go stores. But this new expansion is by far Amazon’s biggest grocery gamble. Amazon plans to launch its first grocery store in Los Angeles this year, with locations in San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia to follow. Unlike Whole Foods (AKA ‘Whole Paycheck’), these new stores will offer low prices and a wider variety of different brands and products, positioning Amazon to compete with other grocery chains. Amazon also plans to expand its network of Whole Foods stores and has said that it hasn’t ruled out the option of buying smaller, regional grocery chains, either.

The retail-pocolyse is at high tide

The Hustle reported that last week was one of the worst weeks for US brick and mortar retail in recent years. In a 48-hour span, nearly 500 retail store closures were announced, by Gap (230 stores), Foot Locker (165), Victoria’s Secret (53), and JCPenney (27). And, Tesla is also closing “many” of its 378 locations to focus on selling cars online. According to Business Insider, this is part of a wave of 4.5k expected store closures in 2019 - possibly as much as 200m square feet of space. At first glance, it's easy to assume the worst for physical retail. However, this isn't only a result of e-commerce, stores are the centrepiece in omni-channel retailing and there has never been more fierce competition for consumer attention.  

Top 50 global retailers

The NRF's Stores Magazine released a fresh look at the 50 most international retailers based on their operations at the start of 2018. The methodology uses a system in which points are given to retailers based on their international revenues, their participation in franchising and alliances outside of their local region, and their ability to sell via online marketplaces. To qualify for the rankings, retailers need to have a direct investment in at least three countries, at least one of which is not adjacent to the domestic market. So, who is the No. 1 retailer in the world today? Rather than one clear answer, there are many champions to pick from. Walmart still holds the top position for annual sales, but Amazon has the title for the largest publicly traded market capitalisation and Alibaba has the highest sales via marketplace platforms. Check it out here.

Harvey Norman' Irish lucky charm back at HQ

The AFR reported that the architect of Harvey Norman's turnaround in Ireland, Blaine Callard, is set to end his decade in Dublin and return to the retailer's head office in Australia, where he may be put to work on the more lacklustre domestic operation as it grapples with the Amazon threat. The Ireland business was loss-making when Mr Callard took the helm in 2010, and haemorrhaged nearly $200 million in the years that followed. It took six years to start breaking even, but the latest half-year result suggests Mr Callard's turnaround strategy is now bearing fruit. In the half-year to the end of 2018, pre-tax profit at the Irish and Northern Irish businesses surged by 164.4% to $10.34 million, as sales revenue climbed 21.6% to $208.07 million. If he has any kind of magic touch, it might be needed in Australia, where headline franchisee sales revenue fell 1%in the December half, and underlying profit after tax and non-controlling interests rose just 0.1%.

Gap shares surge as Wall Street praises split

Reuters reported that Gap Inc shares surged as much as 24% at the close of last week as a number of Wall Street analysts lauded the company’s decision to separate its better-performing Old Navy brand. The company, once a trendsetter with its casual logo emblazoned hoodies to Khaki cargos, has struggled to keep pace with fast-fashion rivals such as Zara and H&M. Old Navy has been the only bright spot for the company in the past few years, cushioning it from the weak performance of its namesake Gap and Banana Republic brands. Gap said that Old Navy would be spun off to its shareholders, while the other entity will consist of the Gap brand, Athleta, BR, Intermix and Hill City. The company also said it would close hundreds of underperforming Gap stores in the next two years and would increase investments in its online business as they try to adapt to a more modern retail environment.

US economy going strong

The Wall Street Journal reported that the US economy finished one of the best years of a nearly decade-long expansion. Despite turbulent financial markets, a trade dispute with China and a partial government shutdown beginning in late December, the US GDP was up 3.1% from a year earlier. Consumer spending was robust and the US homeownership rate climbed in the fourth quarter to the highest level in nearly five years.

The Iconic's new CEO set to accelerate sales

The AFR reported that The Iconic's new CEO, Erica Berchtold, aims to accelerate The Iconic's sales – which have grown seven-fold in six years, from $50 million in 2013 to an estimated $375 million in 2018 – by expanding into new categories, increasing its share in existing categories such as kids wear, maternity wear and menswear, and expanding private-label sales. The Iconic broke even at EBITDA level in 2018 for the first time after increasing sales by 40%. It has racked up losses of $152 million since launching in 2011. About 15% of households now shop on The Iconic site, up from 9% in 2017, with 150 million customer visits annually. The company doubled its distribution capacity last year after moving into a 40,000 square metre centre in Yennora in Sydney's west. It is also looking at developing technology to further engage customers and personalise its offers.

FTC cracking down on fake Amazon reviews

The Hustle reported that in a first-of-its-kind case, the US Federal Trade Commission has taken action on the scourge of Amazon sellers who pay for phony reviews. Some 82% of American adults check online reviews before buying a product. Thing is, an alarming number of online reviews are fake. Fakespot, a website that ID’s fake reviews, estimates 30% of product reviews on Amazon are inauthentic (Amazon has contested this figure). The FTC’s involvement - the latest in a string of actions it has taken against the tech industry - is welcome for Amazon and other e-commerce platforms. Though as with any federal action, consistent enforcement is a different story. Time will tell if this was the start of a larger movement or just a one-off public flogging.

Amazon hits its growth ceiling?

The AFR reported that Laguna Beach-based WCM Investment Management has decided to pull the pin and sell out of the trillion dollar e-commerce Amazon juggernaut. Amazon has gained more than eight times since the $42 billion fund bought the stock in 2011, so what prompted the fund to bail on Jeff Bezos? The answer: despite its competitive advantage, Amazon isn't getting any bigger. Its core US e-commerce business has been slowing in growth for about seven or eight quarters. Additionally, the fund believes that Amazon's Prime membership offering, with 50% penetration of the US market, is close to saturation point. Amazon's share price has also dropped around 20% over the last 6 months. We commented about a year ago that there was both a vertical and horizontal limit to what could be sold online and, globally, we're seeing this assessment of digital commerce ring true.    

Gerry Harvey pins hopes on overseas stores

The AFR reported that Harvey Norman chairman Gerry Harvey says the retailer's once loss-making overseas stores may eventually generate as much as 50% of profits. Earnings from Harvey Norman's 89 company-owned stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia accounted for 25% of group earnings in the December half, up from 7% five years ago and 3% 10 years ago, reflecting the success of the retailer's strategy of building at least one flagship store in each market. However, gains overseas are unlikely to counter concerns about the tough outlook for Australia with shares trading at a five-year low. Harvey Norman is one of the most exposed listed retailers to the slowing housing and consumer markets, with about 30% of earnings coming from furniture and homewares and about 16% from appliances and electronics retailing in Australia.  

The Body Shop taps its activist roots

Glossy reported that after being acquired by Brazilian cosmetics company Natura & Co. from L’Oréal for a reported US$1.1 billion in June 2017, The Body Shop is refocusing product, stores and activations around purpose-led initiatives. Worldwide, The Body Shop’s comeback is slowly taking shape since the acquisition: The brand saw net revenue increase over 11% in the fourth quarter of 2018 and nearly 18% for the year. The Body Shop’s turnaround is being facilitated by the lack of heavy promotions that were required by L’Oréal to hit companywide targets as well as the new emphasis in the brand ethos and storytelling. This ties to The Body Shop’s updated store strategy. Though its website makes up over 30% of sales in the US, The Body Shop will begin hosting in-store events around causes in order to promote the brand’s activism more clearly. Retail Directions is proud of our collaboration with The Body Shop, which began back in 1994.      

Kaufland receives another $145m capital injection

The AFR reported that the world's fourth-largest retailer Schwartz Group has injected another $145 million of capital into Kaufland Australia, underlining the discounter's ambitious plans to take on Woolworths, Coles, Aldi, IGA and Costco. According to documents lodged with the Australian Securities and Investments Commission this week, Kaufland issued another $145 million of shares to its German parent, taking paid up capital to $323 million. This followed a $60 million capital injection in October. Kaufland, the sister chain of German discounter Lidl, is believed to have secured almost a dozen store sites in Victoria, South Australia, NSW and Queensland and has established a new head office in Melbourne, on the site of a former Bunnings store, to complement state offices in Brisbane, Sydney and Adelaide. The first hypermarkets, which will carry a wide range of fresh food and packaged groceries as well as clothing and footwear, electronics, homewares, sports goods, stationery, garden products and hardware, are now expected to open in 2020. Yet another warning shot across the bow for the grocery incumbents.