Monday 06/01/20

1. In MACRO & COMMODITIES NEWS, the US/Iran situation heats up, Spain closes in on actually forming a government, BoJo hopes for swift EU trade talks and the battery industry talks about weaning itself off cobalt
2. In CONSUMER NEWS, restaurant chains get a boost from supermarket sales, retailers battle with too many returns and gyms face a new threat
3. In CAR NEWS, Daimler announces a big US recall and new car sales in the UK remain weak
4. In OTHER NEWS, I bring you the world’s one and only asaparamancer…

So US/Iran relations get much worse, Spain looks like it could have a government, BoJo pushes for quick negotiations and battery makers aim to reduce cobalt consumption…

In Iran pulls back from nuclear deal as Middle Eastern tensions rise (Financial Times, Najmeh Bozorgmehr, Chloe Cornish and Katrina Manson) we see that Tehran has threatened to tear up its commitments to the nuclear accord it signed with governments around the world in 2015 in the wake of the US killing of revered Iranian commander Qassem Soleimani. This came in response to Donald Trump’s threat to attack 52 targets if Tehran retaliates. This latest statement falls short of a total withdrawal as it said that it would continue to co-operate with the International Atomic Energy Agency, but supporters of the US action say that this is evidence vindicates its theory that Iran was never going to stick to the accord anyway. Trump pushes Iraq, threatens sanctions after vote to expel US troops (Wall Street Journal, Isabel Coles, Catherine Lucey) shows a bullish Trump who responded to the Iraqi parliament vote to kick out American forces following the Soleimani assassination by saying that “We have a very extraordinarily expensive air base that’s there. It cost billions of dollars to build. We’re not leaving unless they pay us back for it”. Saudi Aramco shares plunge as a result of Soleimani killing (Daily Telegraph, Louis Ashworth) highlights other consequences of the current situation as the Saudi Arabian oil giant’s share price fell by over 10% from their post-float highs yesterday as markets across the whole region weakened on fears of increased conflict. * SO WHAT? * We are at a very early stage of this latest development, so there is a lot of noise. I would expect this to continue at least until Soleimani’s extended funeral comes to a close as mass hysteria spreads around the region. Clearly this is a big deal and the current situation is very fluid, but if you take a step back, it seems to me that Trump is getting quite a lot of benefit from this. He’s eliminated a major enemy, made it even more difficult for Iran to sell its oil and could even bring his troops back from the Middle East (one of his election pledges) with compensation from the Iraqi government seeking to turf them out AND he’s managed to take the focus off his impeachment. It’ll be interesting to see what concrete actions Russia and China take, but in the meantime both sides (and allies) will be on high alert.

Meanwhile, in Europe, Spain on track for a coalition government after vote (Financial Times, Daniel Dombey) shows that the country is nearing its first coalition government in over 40 years as Pedro Sanchez, Spain’s

caretaker Socialist prime minister won a parliamentary vote on a new administration 166 to 165! There will be another vote tomorrow which now looks likely to return him to the office of PM in a controversial coalition with the radical left Podemos party. * SO WHAT? * Spanish politics have been an absolute nightmare for quite some time now and Sanchez’s gamble to call for a fourth general election in four years failed to break the deadlock, with a number of areas (including policy on Catalonia and the partial removal of labour reforms, among other things) continuing to prove to be incredibly divisive. Even if he succeeds in tomorrow’s vote, I suspect that the government will continue to be held back in achieving much given the huge divisions.

Boris Johnson to seek fast-track EU trade talks (Financial Times, George Parker) highlights BoJo’s hopes to persuade Ursula von der Leyen, European Commission president, to start intensive trade negotiations within weeks to “get Brexit done” by his self-imposed December 2020 deadline. She’ll be meeting him on Wednesday and will be doing a speech at the London School of Economics. * SO WHAT? * Cue loads of time-wasting on the European side as von der Layen has already said that the timetable is too tight. We’ll just have to see how this develops, but I do think things could get quite interesting if America, having appeared to make some progress in its trade talks with China, starts to turn the screws on Europe. In that scenario, it may be that Europe will be more minded to give the UK a better deal more quickly – although I suppose it could also be used as an excuse to delay things with the UK as it focuses its efforts on US talks. Could BoJo ask his American BFF to help chivvy things along??

Then in Cutting battery industry’s reliance on cobalt will be an uphill task (The Guardian, Jasper Jolly) we see that there are moves afoot to reduce and/or eliminate the use of cobalt in batteries. Elon Musk already pledged, back in 2018, to remove the mineral that is predominantly mined under controversial conditions in the Democratic Republic of Congo (DRC) from the next generation of Tesla cars – and companies like the UK’s Johnson Matthey, America’s Platinum Group Metals and smaller companies like Oxis Energy are also trying to make batteries with less or no cobalt. * SO WHAT? * Some progress has been made in recent years as the 11kg of cobalt in a 2012 Model S has been cut to around 4.5kg of the mineral in the current Model S, but the material has been key for lithium ion batteries in cathodes. The DRC supplies almost 75% of the world’s cobalt but has a terrible record in terms of human rights abuses and the use of child labour, hence the urge by many to look at alternatives. In the meantime, demand is expected to soar as sales of electric vehicles continue to increase.

Restaurant chains are getting a boost from supermarket sales, returns continue to be the bugbear of apparel retailers and gym memberships face a new threat…

We are probably all more than aware of the problems that are being experienced by both restaurants and supermarkets these days but Restaurant chains find sustenance in supermarket ranges (Financial Times, Alice Hancock) shows that supermarkets seem to be helping some restaurants out by selling their product! So in PizzaExpress’s case, it is struggling under £1.1bn of debt and poor performance in its restaurants, but – fun fact alert – it actually sells most of its pizzas in supermarkets! Gourmet Burger Kitchen, Strada, Prezzo and Giraffe are among the casual dinging chains who are experiencing tough trading conditions, so finding new distribution channels has proved to be one way of at least taking the edge off whilst simultaneously acting as additional marketing. Supermarkets also benefit from providing a “premium product” that the likes of Aldi and Lidl can’t replicate and now Nando’s (whose peri-peri sauce is the UK’s #1 selling chilli sauce!), Leon (sales of its aioli sauce in Sainsbury’s have exceeded forecasts by 60%!) Yo! (with its sushi) and Gourmet Burger Kitchen (with patties and relishes) are among those selling product in store. * SO WHAT? * This sounds like a lifeline for some ailing chains, but the risk is that supermarkets will eventually start to copy the product and ubiquity may end up devaluing the outlets themselves. Still, for the moment, supermarkets are proving to be a welcome revenue stream and provide some breathing room and revenues that can hopefully be redeployed for longer term survival.

Meanwhile, in apparel retailing, US retail: many unhappy returns (Financial Times, Lex) identifies an annoying and very expensive problem – product returns, or as they say in the industry, “bracketing” (the practice of ordering clothing in three sizes a returning the ones that don’t fit). Although online spending is continuing to increase, the huge amount of returns are decimating sales figures and profit margins. Americans returned 11% of purchases in 2018, according to the National Retail Federation, and many believe this

could be on the rise. A particularly stark example of this is with online fashion group Resolve, which said in its IPO prospectus in May last year that it made $400m in net sales in 2017 – but it turns out that the value of its returned goods was $385m! Funnily enough, its share price has virtually halved since it listed in June. Amazon is now banning customers who return goods too often, but middle and lower tier retailers like Gap and Macy’s are finding life much harder as they are less able to absorb the costs. Many happy returns? Retailers begin year with online headache (The Times, Ashley Armstrong) identifies another related phenomenon, “wardrobing” (where shoppers buy way more than they need/can afford and then return the items for a full refund), which has become so rife that Asos is now looking through its customers’ Facebook and Instagram feeds for abuse and then putting offenders on a blacklist. Returns are now 40% of Asos’ sales 😱 so you can see why they are taking this so seriously. * SO WHAT? * Retailers are having a real nightmare at the moment and these two damaging phenomena are making projections much harder to make as sales figures can be shredded by the amount of returns. Making shoppers return unwanted items to stores is one solution that gives retailers with a high street presence one way out, but it will be harder for online retailers to combat this. Another solutions is to increase the use of customer avatars (Zalando does this) or more accurate sizing tools (as per Uniqlo and Zara) to ensure a more accurate fit. The struggle continues…

Elsewhere, New Year, new gym – but now the customer is choosing where to go (Daily Telegraph, Rachel Millard) looks at a new threat to gym memberships – services that offer access to a range of gyms via middlemen which also allow cancellation with little or no notice. Companies such as ClassPass (which offers uses a flat fee starting for £15 a month to access a ton of gyms via an app) and MoveGB (which offers the same from £1 per week) are benefiting from a trend of gym-goers having less loyalty! Having said that, higher end gyms, such as GymBox and Barry’s Bootcamp are doing brisk trade as well. * SO WHAT? * This is clearly worrying for the likes of Pure Gym and Easy Gym who have seen massive rates of growth in recent years, so they will either have to offer more flexibility on membership or offer services that users value! Like high street retailers, it sounds like gyms now need to concentrate more on providing better experience.

Daimler announces a recall, Tesla excitement builds and UK new car sales continue their weakness…

In a quick scoot around car news, Daimler to recall 745,000 Mercedes-Benz vehicles in the US (Financial Times, Camilla Hodgson) highlights problems with unsafe sunroofs on C-Class, CLK-Class, CLS-Class and E-Class models and a resulting recall that is to begin on February

14th and Sales of new cars stuck in slow lane for a third year (The Times, Robert Lea) cites figures to be published today by the Society for Motor Manufacturers and Traders that will show further falls in new car sales in addition to weaker forecasts for this year.

And finally, in other news…

I thought I’d kick off the year with Woman uses asparagus to predict Trump will win election but will be impeached (Metro, James Hockaday https://tinyurl.com/yjoeynry). What a talent! Mind you, I don’t want to brag or anything, but I was interviewed on TV a few years ago and managed to predict the outcome of the referendum with a cucumber I bought from M&S (I might have to dig that out from YouTube 😜)…