Friday 23/10/20

1. In CONSUMER NEWS, Sunak gets more generous, consumer confidence takes a dent and take a bit wealth hit
2. In RETAIL/CONSUMER GOODS NEWS, Gap considers European closures, Hermès and Kering show a recovery in luxury, Barbie sales take off, Coca-Cola fizzes and Guinness announces a zero alcohol version
3. In TECH NEWS, Intel weakens and we see that Microsoft might benefit from Google’s woes
4. In INDIVIDUAL COMPANY NEWS, Gilead gets remdesivir approval and BA’s owner cuts capacity
5. AND FINALLY, I bring you a challenge – real house or dolls’ house? You decide…

So Sunak caves, consumer confidence is hit – as it personal wealth…

Sunak announces more generous UK jobs support scheme (Financial Times, Jim Pickard, George Parker and Robert Wright) shows that the Chancellor has promised an additional £11bn of support for jobs and businesses over the next six months in order to avoid mass unemployment going into winter. He said that his original winter plan, which was announced a month ago, was made with a re-opening economy in mind, but given that things have gone the opposite way, he has had to revisit. The winners (and losers) as Sunak splashes more cash (Daily Telegraph, Marianna Hunt) highlights winners – businesses will now benefit from the government paying 61.67% of unworked hours (it was going to be 33%), those in hospitality, accommodation and leisure under Tier 2 restrictions will be able to claim cash grants of up to £2,100 per month according to the rateable value of their property (this was only going to be available to those under Tier 3 restrictions) and the self-employed will be able to claim a new grant until February that will cover 40% of a freelancer’s average

monthly profits (it was going to be 20%), with a ceiling raised from £1,875 to £3,750. Losers will include company directors and the newly self-employed who still fall outside these criteria and freelancers will still have to pay tax on the grant. * SO WHAT? * This sounds like it’s better than what was on the table before, but it’s not perfect. Hopefully this will help to ease the inevitable rise in unemployment at least to some extent.

Meanwhile, Drop in UK consumer confidence fuels double-dip recession fears (Financial Times, Valentina Romei) cites data from research company GfK which shows that UK consumer confidence, spending and mobility has fallen in October to its lowest level since May as consumers have become more pessimistic and in Britons suffer world’s biggest hit to wealth in pandemic (The Times, Ben Martin) we see another study by Credit Suisse which shows that total household wealth in Britain has taken the biggest hit of any of the world’s leading economies in 2020. This study looks at financial and real assets (including property) net of debts. * SO WHAT? * Given what’s going on, I don’t think the findings of any of these studies is going to surprise anyone – apart from the Bank of England’s chief economist Andy Haldane, perhaps, as he kept on banging on about a V-shaped recovery. My @rse.

Gap considers drastic measures, Hermès and Kering prove luxury’s resilience, Mattel benefits, Coca-Cola fizzes and Guinness goes zero-alcohol…

Meanwhile, US retailer considering closure of all Europe stores and UK warehouse (The Guardian, Sarah Butler) shows that Gap is thinking about closing all of its 129 company-owned stores in Europe as well as a distribution centre in Rugby next year, putting hundreds of jobs on the line. The company is looking to move to a franchise model (they already have 158 across Europe) as presumably this is cheaper and lessens their exposure to risk. * SO WHAT? * Gap really has lost its way over the years and it is funny to think how popular it once was. Still, it has been slow to capture trends and the “main” brand has been overtaken by the better-performing Athleta and Old Navy brands in the US. I think that the company needs to get its house in order – especially in its domestic market – before getting on the front foot once more. The upside of a franchise model is that you are exposed to less risk, but the downside is that you have less control.

Hermès and Kering add to signs of luxury goods recovery (Financial Times, Leila Abboud) highlights positive signs for the French luxury groups as both companies reported third quarter sales that were above market expectations. Hermès returned to quarterly growth thanks to strong sales of its leather goods and Kering (which owns Gucci, among others) was boosted by strong demand in the China and US. * SO WHAT? * OK, so sales have been hit by travel restrictions cutting the effect of free-spending tourists, but it seems that luxury is bouncing back – rival LVMH last week reported strong sales growth at Louis Vuitton and Dior, for instance. Despite improvement from Hermès and Kering, neither company wanted to give guidance for the

full year, presumably because they have no idea what’s going to happen! FWIW, I wonder whether this is a short term blip in terms of uptick because I really think that in order to truly recover, the industry needs more tourists – and I don’t see that happening for quite some time.

Elsewhere, Barbie sales take off as parents try to cut down on screen time (Wall Street Journal, Paul Ziobro) shows that Mattel’s flagship doll put in an impressive 29% sales increase over the third quarter – the largest quarterly increase for at least two decades – due to parents wanting their children to do something other than stare at a screen and to efforts to widen the variety of dolls it sales with new hair colours, skin tones and career paths (!). There is even a four-pack of election-themed Barbies that includes a candidate and a campaign manager! * SO WHAT? * This is great for now, but I think the real test is going to be the upcoming Christmas season where it will be crucial to get the product mix and distribution spot on.

In beverage news, Coca-Cola rediscovers its fizz after sales slump (The Times, Dominic Walsh) shows that the company bounced back from a second-quarter slump in sales to exceed forecasts in the third quarter. The second quarter was a disaster because about half of its revenues come from “away-from-home” sales – so it was adversely affected by restaurant, bar and cinema closures. Since then, the company has cut jobs, streamlined its product portfolio and concentrated more on its top selling beverages. It remains uncertain about its outlook, however, given economic uncertainty.

Then in My goodness it’s Guinness for new era (The Times, Dominic Walsh) we see that there will be a new non-alcohol Guinness (called Guinness 0.0) launched on Monday that is “100 per cent Guinness but 0 per cent alcohol”. It’s brewed in the same way as the “conventional” black stuff but alcohol is removed by cold filtration. * SO WHAT? * This sounds like a good idea as it taps into the trend for low or no-alcohol beverages. Mind you, with everyone getting drunk at home under lockdown, I wouldn’t have thought this is a product that will do well under Covid. Interesting innovation, though!

Intel weakens and Microsoft could benefit from Google…

In Intel hit as consumers flock to lower-cost laptops, datacentre chips (Wall Street Journal, Asa Fitch) we see that the WFH boost may be fading as revenues fell after seeing strong sales in the first half. It seems that consumers are buying cheaper laptops and datacentre sales are also coming off the boil. The company’s share price fell by over 10% in after-hours trading.

Google’s antitrust woes seen helping Microsoft’s Bing (Wall Street Journal, Aaron Tilley) argues that Microsoft could potentially benefit from any antitrust actions that target Google as its Bing search engine is its only real competitor (but it only has less than 7% market share!). This is quite ironic really because when the US government came down on Microsoft twenty years ago, it was Google that benefited and grew into what it is now. Now it seems that it’s time for Google to return the favour! Nothing’s been decided yet, but it would seem logical that Microsoft will be the one to benefit.

Gilead gets approval and IAG cuts capacity…

In other news doing the rounds today, Gilead secures FDA approval for remdesivir (Financial Times, Hannah Kuchler and Donato Paolo Mancini) heralds approval for Gilead’s Covid-19 drug (called “Veklury”) that is supposed to speed up recovery – and is one of the drugs that Trump received recently. * SO WHAT? * This sounds great, but it’s not a cure or a vaccine – so is unlikely to get everyone too excited. Also, some trials are sceptical as to its efficacy (it was originally developed to treat Ebola).

Then in British Airways owner cuts capacity as losses rise (Daily Telegraph, Simon Foy and Oliver Gill) we see that the owner of British Airways, IAG, has decided to fly no more than 30% of usual flights between October and December due to Covid-related uncertainty (previous plans had targeted 40%). Unsurprising – and another kick in the teeth for the industry. When I see figures like this, I do wonder – who is actually flying at the moment??

…in other news…

I thought I would leave you today with something that will prey on your mind. Is it real or is it a dolls’ house? Decide for yourself in People confused by video of woman’s home which looks like a doll house (The Mirror, Rosaleen Fenton). I think dolls’ house.