Friday 27/09/19

  1. In INITIAL PUBLIC OFFERING NEWS, Peloton’s debut frightens off Endeavour
  2. In RETAIL-RELATED NEWS, McKinsey starts up a mall, vacant shops in the UK hit new highs and the costs of Thomas Cook become clearer
  3. In INDIVIDUAL COMPANY NEWS, Juul and Imperial Brands get dinged by vaping while Pearson has a profit warning
  4. In OTHER NEWS, I bring you a swanky new airport…



So Peloton’s IPO disappoints and scares off Endeavour…

Peloton skids on stock market debut (Financial Times, Richard Henderson) highlights the rather disappointing debut for the Silicon Valley-based provider of fitness equipment and online spin classes as its shares fell by 11% from its flotation price of $29. The IPO raised $1.2bn for the company, however, and chief exec John Foley said he wanted to prioritise growth over profitability for the next few years and didn’t sound too concerned about the $300m lawsuit the company is facing from music publishers who say that the company hasn’t paid license fees. Here is the company’s business model: you buy a $2,200 exercise bike and/or a $4,000 treadmill with a massive screen that helps you take online workout “classes” for an additional $40 a month. If you are a pauper, don’t worry – you can get a piece of the Peloton dream by paying a $20 monthly subscription fee if you don’t have more money than sense have their equipment. This is the second worst IPO debut for a company raising over $500 this year, beaten by SmileDirectClub, which fell by a quite frankly frown-inducing 28%. * SO WHAT? * It seems that investor fervour for hugely loss-making companies that give themselves massive valuations has waning a bit recently. Endeavour pulls IPO after Peloton’s poor debut (Wall Street Journal, Maureen Farrell, Corrie Driebusch,

Miriam Gottfried and Allison Prang) shows that the owner of the Miss Universe Pageant, Ultimate Fighting Championship and Hollywood’s biggest talent agency decided to pull its own plans to float as a result of Peloton’s performance – and this, in turn, may deter others as well (or at least force them to be more realistic about their valuations). I just can’t see Peloton as a long-term investment because its model is so fragile – it is relying on a very narrow customer base that has a lot of money and can probably be fickle. If you are a serious cyclist wanting to train, you’d get a Wattbike or one of the myriad of turbo trainers and go on Zwift to get that social feeling (and no, I’m not being paid by these companies in case you were wondering!). Yes, it involves buying a bike – but at least you can cycle the blimmin thing outside as well as having the whole indoor malarkey going on! Alternatively, you could join a gym and go to the classes or hire your own personal trainer for far less money. Mind you, I would change my mind if Peloton used the money it’s just raised to broaden its business model and perhaps move into other areas. I wonder whether it will try to emulate the “cult” feeling the keeps people going to CrossFit – but then CrossFit is real and CrossFitters sweat with each other in classes that engender mutual encouragement and they have the increasingly popular CrossFit Games that give everyone something to aspire to. For the moment, at least, I think it’s a one-trick pony with a hugely inflated opinion of itself and I worry about the true scalability of its business model.



McKinsey tries its hand at retail, UK shop vacancies rise and the costs of Thomas Cook’s collapse become clearer…

McKinsey to start selling underwear and make-up (Financial Times, Alistair Gray) is a headline I never really expected to see, but the canny management consultancy has announced that it will be opening a retail store and selling underwear, make-up and jewellery to real customers in a real shopping mall in suburban Minneapolis in a venture called “Modern Retail Collective”. The outlet, which is due to open today in Mall of America, the biggest US shopping centre, will be used to test new retailing technology like smart mirrors and software that improves the customer experience. Customers will also be able to pay in cryptocurrency while retailers taking space in the mall will rotate. * SO WHAT? * I think that this is an interesting concept and something that will no doubt be welcomed by retailers who want to try new things out in what seems to be a “retail laboratory”. I do wonder, however, whether such a mall will attract an atypical consumer who likes to try out new things more than your average punter and therefore skew results. Whether it’s successful or not, I’m sure it will provide McKinsey with some insight and perhaps a rich data source that it will turn into money via research reports.

Meanwhile, Vacant shops tally hits five-year high (Daily Telegraph, Laura Onita) cites the latest findings from the Local Data Company which show that the number of vacant shops on the UK high street has hit its highest level since the end of 2014 as retailers battle against changing consumer trends, rents and business rates. * SO WHAT? * This is just evidence of what most of us have probably suspected anyway given the seemingly endless flow of negative news on the sector. Clearly landlords and local councils can help retailers by lowering rents and rates, but at the end of the day it’s the retailers themselves who will have to adapt. There are “offline” retailers who are actually doing quite well out there (e.g. Joules, JD Sports, Primark etc.), so it CAN be done. It’s just not that easy!

Cost of Thomas Cook collapse becomes clearer (Financial Times, Alice Hancock and Daniel Thomas) looks at the ongoing fallout from Thomas Cook’s collapse as banks, suppliers, partners and landlords of its high street shops continue to count the cost. Banks including Morgan Stanley, Barclays, UniCredit, Credit Suisse and Royal Bank of Scotland are among those facing writedowns of up to £1.8bn as a result and official estimates currently put the cost to the government and the industry’s Atol insurance scheme at over £500m. We are still in the early aftermath of this debacle, so there is obviously a chance that the costs are going to go up (it’s rare that costs goes down in these cases as the ripple effect can easily be underestimated!).



Juul and Imperial Brands suffer vaping problems and Pearson warns on profits…

Following on from all of the recent anti-vaping developments, Backlash against vaping in US will hit profits, Imperial warns (The Guardian, Sean Farrell) shows that it’s all having a very real knock-on effect as FTSE100 company Imperial Brands warned its profits would fall below previous expectations for the full year due to the growing backlash. Yesterday’s trading update showed the company lowering its full year forecasts for net revenue growth and earnings per share to take into account the increasingly hostile environment. Its share price fell 13% on the news. * SO WHAT? * The huge swing in sentiment against vaping resulted in all sorts of strife – and not just at Imperial. The whole hoo-hah has, for instance, led to Juul’s chief exec resigning – to be replaced by Altria’s chief growth officer KC Crosthwaite (Altria has a 35% stake in Juul). Having a grizzled tobacco veteran in the hot seat at a very tricky time could be a good thing for Juul as he will be

very used to dealing with massive hostility. China stopped Juul’s product sales, India’s banned e-cigarettes, Trump is moving towards a ban on almost all flavoured vapes and the whole thing is getting jumped on by the FDA, the FTC and federal prosecutors. In Altria’s case, KC will need all the experience he has to navigate this one – and if he does, maybe the PMI/Altria merger will be back on. But until then, it’s tin hats on and wait for the **** to hit the fan.

Investors throw the book at Pearson (The Times, Simon Duke) highlights Pearson’s downbeat expectations for the future, blaming a sharp fall in the sale of US university textbooks, as it continues to overhaul its business and boost its digital learning offering. The share price fell by 14% on this news as investor fear increased that the company’s turnaround plans weren’t perhaps as effective as they had been led to believe. Given that Pearson is the biggest publisher of textbooks in the US and its college courseware business brings in 25% of its turnover, you can see the reason for concern. * SO WHAT? * I think that the company is in a transition phase as students use physical textbook less and online resources more. In order to survive, Pearson has to remain relevant in an increasingly digitised world and ensure that its offering stays relevant.



And finally, in other news…

I thought I’d leave you today with something really impressive: Beijing opens glitzy airport ahead of China’s 70th anniversary ( This place looks incredible!

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