Monday 03/02/20

1. In CORONAVIRUS NEWS, China acts to protect markets and insurers check cover
2. In CAR NEWS, Nissan has an interesting plan for Brexit while hybrid cars face a price war
3. In RETAIL-RELATED NEWS, sports brands compete with retailers and ghost kitchens replace retail space
4. In FINANCIALS NEWS, Revolut plans to move operations post-Brexit and Amigo finds no friends
5. In OTHER NEWS, I bring you a humane circus and a maths hack

So China acts to limit coronavirus damage to markets and insurers check their cover…

Coronavirus closes China to the World, straining global economy (Wall Street Journal, James T. Areddy) shows how more companies, airlines and governments are either closing down or severely curtailing their operations as the coronavirus continues to spread. Apple announced over the weekend that it would be closing all of its stores and its corporate offices until February 9th, highlighting the effects of the virus on the supply chain as companies like Tesla and Anheuser-Busch InBev also feel the repercussions as production facilities are shut down across the country. Demand for oil continues to fall (China is the world’s biggest oil importer and Wuhan is a key oil and gas hub), putting more downward pressure on the oil price to such an extent that Saudi Arabia is urging members of OPEC to set up an emerging meeting this Wednesday where they will presumably decide to cut production to stop the slide in price. American Airlines, Delta Air Lines and United Airlines put a temporary suspension on flights to China on Friday as tourists cancelled and flight crews got more nervy, Singapore said it would stop visitors coming in from China and Hong Kong is under pressure to close the border with the mainland. China has been irked by these actions and says that everyone is over-reacting. Chinese markets tumble on coronavirus uncertainty on first day after break (Wall Street Journal, Steven Russolillo and Xie Yu) highlights market weakness on the resumption of trading after the Lunar New Year break as 8% falls in the Shanghai

and Shenzhen Composites reflected a catch-up with world markets that had dropped last week. Meanwhile, China pumps in £130bn to calm markets (The Times, Ben Martin) shows what Chinese authorities are willing to do in order to avert market panic.

Insurers in the spotlight over coronavirus (Financial Times, Oliver Ralph) shows how companies and individuals are going through their insurance policies with a fine-tooth comb in order to see whether they are covered for costs relating to the outbreak. Although experts say that there will be some payouts, epidemics and pandemics are often excluded. Travel costs due to canceled flights etc. look like they could be covered but insurers are trying to shirk giving out payments too freely by saying that airlines should refund flight costs while credit card providers could cover some other losses. * SO WHAT? * Clearly, immediate costs are one thing, but companies will also be thinking about the impact that the spread of the coronavirus could have on future business. For instance, some hotels suffered a 40% fall in revenues in the wake of the SARS virus in 2003 as the outbreak affected people’s willingness to travel. No-one can really pin a figure on this at the moment, because we are still in the middle of it all, but it is certainly something that businesses will be talking about. I would have thought cruise ship companies will be hit pretty hard (nerves over the spread of disease is bound to make at least some travelers think twice about being in close proximity to thousands of others in a closed environment) while air travel and hotels will also suffer at least in the short term. The coronavirus outbreak also highlights supply chain exposure to China and will no doubt add to the debate for diversifying sourcing on a geographic basis.

So Nissan has a punchy Brexit plan and hybrid cars could be in a price war…

Nissan drafts plan to double down on UK under hard Brexit (Financial Times, Peter Campbell and Kana Inagaki) highlights a potentially punchy move by the Japanese car manufacturer in the event of Brexit leading to taxes on car exports from the the UK. While other manufacturers seem to be running down UK car production, this contingency plan suggests that the Sunderland plant (which makes the Qashqai, Juke and Leaf) would be maintained while facilities in Barcelona and France would be shut down. The plan, drawn up last year, implies that keeping production in the UK could help Nissan to grow from 4% to 20% market share! The company has, however, denied the existence of such a plan – but it does sound interesting!

EU emissions targets set to spark price war for hybrid cars (The Guardian, Jasper Jolly) suggests that there could be a price war over electric cars this year in manufacturers’ bid to sell more hybrids to avoid EU fines on carbon emissions. This will put pressure on them to reduce prices to shift more units, according to analysis by UBS. Those most at risk (and therefore the ones who are more likely to discount) include Mercedes-Benz, Renault, Fiat Chrysler and Jaguar Land Rover. * SO WHAT? * Funnily enough, plug-in hybrid electric vehicles (PHEVs) can actually be WORSE, emissions-wise, than the bog-standard internal combustion engine IF they are not charged because the smaller engine is hauling more weight and running less efficiently. Still, they attract various incentives for the manufacturers which means that there will be a lot of pressure to sell them. As the chief of the Society of Motor Manufacturers and Traders industry body, Mike Hawes, said “It’s a buyer’s market”.

Sports brands ditch retailers and ghost kitchens replace retail space…

Power play of sports brands puts retailers on back foot (The Times, Ashley Armstrong) is a really interesting article which shows that some of the big sports brands are tending to use their own websites and stores to get their product to the public in preference to traditional retailers. In the past, retailers held the power because brands didn’t have their own stores or digital capability but this has changed dramatically over the last few years. Nike recently said that it wants to cut the number of global retail partners to 40 from 30,000 and will cut retailers who don’t give it scale or the right vibe. Sports brands are trying to push “direct to customer” (DTC) sales – which include digital and own-store sales – because they engender more brand loyalty and are more profitable. * SO WHAT? * This is a really interesting development and is one that is definitely being felt by the retailers who need attractive product to sell in their stores. Last year, Sports Direct’s Mike Ashley complained that he wasn’t feeling the love from Nike in particular as the big sportswear companies get increasingly picky about having their brand damaged by being stocked in “pile-em-high-sell-em-cheap” outlets. IMO, it is the RETAILERS’ responsibility to step up in terms of branding, service and overall customer experience – if they can’t do this, they will get left behind.

Latest front in food delivery: kitchens in empty malls (Wall Street Journal, Heather Haddon) shows another interesting trend where the worlds of retailing and food delivery come together. Basically, property developers are building “ghost kitchens” (kitchens that specifically set up to prepare delivery-only meals) in empty mall units as the retail landscape evolves with consumer tastes. Retail developer Simon Property Group and hotels group Accor said yesterday that they were in talks with hospitality company SBE Entertainment Group to develop 200 such ghost kitchens that would supply nearby hotels and customers in the area. * SO WHAT? * I think that this is a very interesting development and shows how developers are having to be rather creative to ensure that obsolete retail space is put to good use. Uber founder Travis Kalanick is seeing growth in his ghost kitchens venture CloudKitchens (they are also known as “dark kitchens”) which makes kitchens and sublets them to restaurants, but there are others such as Kitchen United and various other VC-backed operations that are also in the market. VCs have invested almost $5bn in virtual kitchens since 2018 but critics say that it’s only going to be the big restaurants that can get high-order volumes for more than one mealtime who will ultimately benefit. FWIW, I think that this is great as long as people continue to order food online, but surely when wages fall and people realise that getting takeouts and not making the food themselves is a luxury rather than a necessity, the need for these kitchens will fall and the malls will be back to square one.

Revolut makes its own Brexit plans and Amigo remains friendless…

Brexit forces Revolut payments shift (Daily Telegraph, Michael Cogley) shows that fast-growing fintech unicorn Revolut will move European payments out of London and over to Ireland and Lithuania after Brexit, although the company’s global HQ will remain in London. Newly-appointed chief exec Richard Davies said that “We have already got the UK EMI licence. The strategy is to have our central and eastern European clients on our Lithuanian EMI and bank licence. We are in the process with the Central Bank of Ireland to have western European clients on our Irish licence”.

Then in Amigo finds itself without friends as rivals prove reluctant to bid (Daily Telegraph, Michael O’Dwyer and Lucy Burton) we see that potential suitors are not exactly fighting over themselves to buy the guarantor lender following last week’s announcement that it was for sale. Alternative options include taking it private or selling to private equity.

And finally, in other news…

I thought I’d leave you today with the impressive Circus swaps real animals for holograms- and they look stunning (The Mirror, Hannah Dodd https://tinyurl.com/sanjxn7) and the quite useful Simple method to work out complicated percentages is blowing people’s minds (The Mirror, Luke Matthews https://tinyurl.com/tkx53vm). Did you know that?