Friday 02/10/20

1. In RETAIL & CONSUMER NEWS, Ocado faces a lawsuit, retailers expect a muted Hallowe’en, M&S freshens up a bit, H&M aims to cut stores, Halfords moves up a gear and the US consumer takes an income hit
2. In CAR NEWS, US automotive sales rise and Tesla cuts prices
3. In MISCELLANEOUS NEWS, Rolls-Royce has a shocker, Bayer has a profit warning and warehouse rentals rise
4. AND FINALLY, I bring you a controversial fish finger sandwich…

So Ocado faces a lawsuit, retailers worry about a muted Hallowe’en, M&S gets a mini boost, Halfords cycles to glory and the US consumer takes a dent in income…

*** NEWS JUST IN – President Trump and his wife Melania have both tested positive for the coronavirus and will start to self-isolate immediately. On the surface of it I would have thought that this is tricky timing as we are now getting into the home straight of the presidential election – a time where he would normally be touring the country and seeing voters. He will no doubt try to spin it in some way, but if Biden can’t make more ground from this then he doesn’t deserve to be President IMO. Given that he has been flagging in the polls, I wonder whether he’ll try to delay the election… ***

*** ONE OTHER THING – regarding the current Watson’s Daily x More From Law x LittleLaw competition, STAGE ONE HAS CLOSED. If you’ve managed to get through round one, well done 👏! Round two of the competition will be based on the materials in Watson’s Daily and LittleLaw’s newsletters from this week (Monday 28th September – Friday 2nd October and then Monday 5th – Friday 9th October) as well as Harry Clark’s e-book on commercial awareness. The questions for round two will be released on Saturday 10th October. Unlike round one, you will only get ONE attempt – so make it count! If you’ve missed a few editions, you’ve got time to catch up!***

Ocado accused of infringing robot technology patents (Financial Times, Jonathan Eley) highlights a fly-in-the-ointment for the high-flying Ocado as a Norwegian rival, AutoStore, filed for legal claims in the UK and US saying that the Ocado Smart Platform (OSP) violated a number of its patents. The OSP is the integrated hardware and software system that Ocado is selling to grocers around the world and is the key driver behind its current £20bn market value. Ocado has been a customer of AutoStore since 2012, but relations have worsened over the years. * SO WHAT? * This could potentially be very damaging for Ocado, but you do wonder why AutoStore waited so long to file the claims. Apparently, the seeds were sown when Ocado signed a massive deal with Kroger in 2018 to install its systems. Ocado has now signed up partnerships with Coles in Australia, Aeon in Japan, Monoprix in France and Sobeys in Canada. The market seemed to shrug it off in trading yesterday, though, as the share price only fell by 5% – not much when you consider how central this is to Ocado’s value.

Retailers spooked by lack of spending on Hallowe’en (Daily Telegraph, Laura Onita) showed that retailers, bars and restaurants are bracing themselves for a damp squib of a Hallowe’en as findings from market research firm Pipslay showed that almost two thirds of Britons are not interested in going to Hallowe’en events this year and almost half of parents say that they will not be letting their children go trick-or-treating. This is serious for those exposed to this as we normally spend about half a billion pounds over Hallowe’en and Bonfire Night. * SO WHAT? * This will be the second Hallowe’en in a row to be torpedoed

as last year’s proved to be underwhelming because of Brexit. The retail gloom continues…

Marks & Spencer hopes eco-fashion brand will boost clothing arm (The Guardian, Zoe Wood) shows that M&S has started selling an eco-fashion brand on its website as part of its wider efforts to spruce up and make its clothing offering less boring. * SO WHAT? * The label Nobody’s Child sounds quite “wild” compared to M&S’s usual middle-of-the-road fare, but this is an interesting departure from the norm for Britain’s biggest clothing retailer as this is an outside brand. M&S’ chief exec Steve Rowe said said that the retailer would stock guest brands online and instore as part of a refresh. Sounds like a good idea. Anything to make it more interesting!!!

In H&M to shut hundreds of stores amid shift to the web (Daily Telegraph, Laura Onita) we learn that the world’s second-biggest clothing retailer intends to close hundreds of branches next year as about 25% of its 5,000 shops had leases coming up for renewal. It also announced better-than-expected Q3 results despite profits dropping by 50% over lockdown due to enforced store closures. It is boosting its digital investment to cater for increased online demand. * SO WHAT? * Whether the company really is going to close so many stores or whether it is just using the rental renewals threat as a way to bag lower rents from desperate landlords remains to be seen. I think that where clothes are concerned, a good balance between offline and online can be struck and H&M have made pretty good inroads on that front.

Profit forecast raised to £55m as cycling sales roll on (The Guardian, Joanna Partridge and Sarah Butler) shows that Halfords continue to knock it out of the park as it raised profit expectations for the second time in only a month as bike sales continued to surge. Strong bike sales continued after the peak summer season and sales of its car products and services returned to growth. * SO WHAT? * The unscheduled trading update was taken very positively by investors who powered it up by 18% in trading yesterday. Despite the positive guidance, the company remained cautious about the prospects for the rest of the year but has also launched a recruitment drive for skilled technicians to work in its stores and autocentres. I still think that demand is likely to drop off going into the end of the year as the prospect of cycling in the wind and rain will make this method of commuting less attractive to some. Still, car and bike servicing may well keep it going – and this can be a very lucrative area.

Elsewhere, across the Pond, US personal income falls after lapse of Covid benefits (Financial Times, James Politi and Matthew Rocco) cites the latest data from the Department of Commerce’s Bureau of Economic Analysis which shows that US personal income fell by 2.7% in August as emergency unemployment benefits lapsed. Consumption growth also slowed down. * SO WHAT? * This shows just how important the benefits are to consumption levels and puts more pressure on politicians to agree on a new stimulus/bailout package (something that that have failed to do recently). They need to come up with something quickly – but will they wait now until after the election I wonder?

US auto sales rise and Tesla reduces prices in China…

There’s some good news in US auto sales showed signs of recovery in third quarter (Wall Street Journal, Nora Naughton) shows that strong demand for trucks and SUVs – as well as increasing demand for urban consumers buying cars – is behind the momentum that has been building in the auto industry over the third quarter. * SO WHAT? * OK, so sales have been weaker overall, but there are definite signs that things are turning around. Car dealers are calling for more government stimulus measures to encourage more people to buy as they worry about the fragility and sustainability of the current trend.

Tesla cuts prices by going local (The Times, Simon Duke) highlights Tesla’s move to cut the price of its Chinese-made Model 3 by about 8% to $36,805 by using a cheaper battery produced by a supplier based in the Fujian province. Tesla usually uses expensive fuel cells made by Panasonic and LG Chem which contain nickel, cobalt and manganese rather than the Fujian battery which is lithium iron phosphate-based. * SO WHAT? * This is good news, but it would be even better news if it could lower car battery prices across the board (and around the world!) that would enable its vehicles to be accessible to more people!

Rolls-Royce and Bayer have nightmares and warehouse rentals rise…

Share hit 17-year low after it reveals £2bn cash-call (The Guardian, Joanna Partridge and Jasper Jolly) shows that engine-maker Rolls-Royce saw its share price fall to 17-year lows as it announced an emergency £5bn financing plan to strengthen its balance sheet. Given the sudden drop in air travel revenues from servicing its jet engines and selling new ones has, unsurprisingly, been decimated. It is planning a £2bn rights issue, a £1bn bond offering, a new two-year loan of £1bn and a potential extension of the £1bn loan that is partially backed by the government’s UK export finance agency (UKEF). * SO WHAT? * Rolls-Royce has gone through massive turbulence over the outbreak and its shares have lost 80% of their value since January.  Rolls-Royce has been in trouble for ages and the pandemic came at a very difficult time in the company’s history. It’s too early yet to ascertain whether or not this money will be enough to help it survive in the long term, though.

Speaking of poor share price performances, Bayer shares slump on profit warning as pandemic bites deeper (Financial Times, Joe Miller) shows that the company’s share price fell by over 10% to its lowest level in more than six months as it warned that the pandemic would hit its profits harder than it had originally expected. It said that weaker commodity prices, falling corn and soybean production and negative currency exchange effects in Brazil had particularly detrimental effects on its crop sciences business. The fact that it remained very downbeat on near term prospects also didn’t go down well with investors.

Then in Warehouse rentals jump as online sales grow (Wall Street Journal, Louisa Clarence-Smith) we see that the volume of warehouse space rented out in the last three months increased to record levels as online retailers needed to increase their capacity to keep up with rising demand. According to CBRE, take-up of capacity in Q3 was more than double what it was last year. Pets at Home, The Hut Group and Gousto were among those to sign up for big chunks of space. * SO WHAT? * I suspect this trend to continue as we face more potential lockdowns and, of course, Brexit going into the end of the year.

…in other news…

I thought I’d leave you today with a potential Friday night project in Birds Eye divides fans with Fish Finger Korma sandwich as some think it’s ‘all wrong’ (The Mirror, Courtney Pochin). I actually think that the concept of the chunky fish finger korma sandwich sounds quite good. Not sure about the execution, though 🤔