Monday 07/09/20

1. In CONSUMER/RETAIL NEWS, the end of furlough looms for Sunak, the Asda bidding war is set to end shortly, Lidl talks expansion and we take another look at Amazon’s drones
2. In TECH NEWS, Apple is now bigger than the Russell 2000 and Epic Games tries to return to the app store
3. In INDIVIDUAL COMPANY NEWS, vaccine developers gets together and the Qashqai gets delayed
4. AND FINALLY, I bring you a cautionary tale about electric fly swats…

So the end of furlough looms, Asda should get a buyer soon, Lidl wants to make ground and we look at the future of Amazon’s drones…

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Sunak faces job cuts crisis after furlough term ends (Daily Telegraph, Tim Wallace) shows that there are tough times ahead as a survey from BDO showed that 60% of mid-sized UK businesses are expecting to cut staff once the Job Retention Scheme (JRS) runs out at the end of October. Almost 90% of such firms said that they’d already made some redundancies and there are particular fears that certain skills in manufacturing could disappear forever. * SO WHAT? * Let’s remember that this is a SURVEY and is therefore a measure of sentiment. The reality could be vastly different (either way) depending on what the government does and what else is going on in the economy at the time. Of course businesses are going to be painting a dire picture – they want government help (it’s very understandable!). I would have thought that it would be advisable to extend furlough at least in some areas rather than have a hard stop (like with Eat Out To Help Out) because a sudden end could make companies take more cautious actions than they need to, leading to unemployment jumping overnight. This would, in turn, further darken sentiment and lead to a wider downward spiral that could become increasingly difficult to stop.

In the cutthroat world of UK supermarkets, Asda bidding war in final phase as rivals circle (Daily Telegraph, Hannah Boland) highlights that Asda’s future owner could emerge this week as private equity firms fight it out. Apollo Global Management and Lone Star Funds are believed to be preparing offers, with bids due today. There are others believed to be in the running, but Apollo and Lone Star are seen to be the front-runners to buy the business from  current parent Walmart. * SO WHAT? * Walmart has been

trying to offload Asda for the last few years as its international strategic focus has changed (it wants to concentrate its efforts more on growth markets like India, for instance) and the bid by Sainsbury’s fell through. Walmart is thought to want to keep a minority interest in Asda whoever the buyer may be, but we’ll find out terms soon enough.

It’s game on as Lidl steps up expansion plan amid pandemic (The Times, Ashley Armstrong) shows that Lidl wants to use the recession to grow as it did during the last one, when it proceeded to eat incumbent supermarkets’ lunch and tempt customers away. Lidl now has a 5.9% market share and Aldi has 7.9% but I think it’d be fair to say that the “Big Four” (Tesco, Sainsbury’s, Asda and Morrisons) are much more savvy now and won’t give up market share so easily. It is aiming to open a new shop every week and wants to reach 1,000 stores by 2023. * SO WHAT? * Although the company’s physical stores have grown in number since it came to the UK in 1994 to 800 supermarkets, 13 distribution centres and over 23,000 employees, it is still behind the curve on web sales. Interestingly, although the online grocery market has doubled in size since March to 14%, it seems that Lidl will not be chasing despite rival Aldi recently enlisting the help of Deliveroo for deliveries. The company maintains that this is a very expensive way to shop and will make it harder to keep prices low.

Then in Amazon/drones: oops a daisy (Financial Times, Lex) we see a discussion on the implications of last week’s news that the company got approval for a new fleet of drones. Delivering direct to residential areas is problematic given such difficulties delivering to apartment blocks or basement flats but it cites the use of such drones in China where JD.com moves goods from warehouses to “village promoters” who then go “the last mile” and deliver by hand. * SO WHAT? * I think that drone deliveries are still WAAAY off becoming mainstream reality as regulation continues to be very tricky. Although the US FAA gave approval for a drone fleet last week, the practicality may be made trickier in America by the US-China trade spat given that China makes over 70% of civilian unmanned aerial vehicles, with DJI being the biggest maker.

Apple’s valuation comparisons continue to impress while Epic Games pleads for a return to the app store…

Apple’s value vaults over entire US index of small-cap stocks (Financial Times, Robin Wigglesworth) highlights yet another record as Apple’s valuation was briefly larger than that of the entire Russell 2000 index of US smaller companies prior to the Big Tech sell-off last week! The five biggest constituents of the S&P500 are all tech companies: Apple, Amazon, Microsoft, Alphabet and Facebook. * SO WHAT? * This is indeed impressive stuff, but on the other hand their combined outsize influence means that any valuation wobble – as we saw last week – can have a huge effect on the rest of the index. I guess that, at the moment, the outperformance of these stocks covers the woes of many other companies. Unfortunately, if their valuations fall there is the danger that other companies in the index will feel downward pressure no matter how well they do. It is also interesting to note that Apple’s success highlights

the trend of big companies getting bigger while smaller companies are going sideways or getting smaller – and there is even a widening gap between “mega caps” and everyone else.

Given that context, ‘Fortnite’ maker asks judge again to return game to Apple’s app store (Wall Street Journal, Sarah E.Needleman) shows that Epic Games, the maker of Fortnite, is trying to get the judge to make Apple return it to the AppStore. It filed a motion late on Friday seeking a preliminary injunction against Apple, alleging that the latter was engaged in monopolistic behaviour by barring it. Epic revealed that devices running Apple’s iOS system were the largest platform and that 63% of players who accessed the game by such devices only play Fortnite this way. * SO WHAT? * This new filing is in addition to the broader case on anticompetitive conduct scheduled for September 28th and Epic Games says that Apple’s actions have irreparably harmed its business. Given Apple’s size and power, I don’t think that Epic has a chance. At the end of the day, they signed up to Apple’s (and Google’s) terms and they broke them – simple as. The knottier question is whether there is some kind of cartel thing going on as other app stores are charging very similar rates but I would be surprised to see any proper action this side of the presidential election.

Vaccine developers rally and the Qashqai gets delayed…

In Covid-19 vaccine developers prepare joint pledge on safety, standards (Wall Street Journal, Peter Loftus and Jared S.Hopkins) we see that companies including Pfizer, Johnson & Johnson and Moderna are putting together a joint statement to pledge that they will not seek government approval for coronavirus vaccines until they have proven to be safe and effective. This is expected to be made public early next week and is meant to reassure the public that corners won’t be cut in getting a vaccine approved. * SO WHAT? * I think that this is a bit of meaningless PR that is designed to quell rising doubts that vaccines are going to be approved too quickly. Vaccines normally take years to get to market, but current developments imply that this process will be way faster than usual, prompting fears that they will be approved before being fully tested. FWIW, I think that pretty much

everyone is going to have to take vaccines when they come out as I can imagine that there will be some form of official proof that you have submitted to it in order to do things like travel abroad etc. This is just a guess on my part but I can imagine a system of a sort of “vaccine passport” that you will need to show in order to do certain things – it may even be required by employers, for instance, in order to be able to work in an office and could be required to get on a plane and travel to certain countries etc.

Production of Nissan’s UK flagship vehicle delayed further (Financial Times, Peter Campbell) heralds some disappointing news as Nissan has delayed UK production of the new Qashqai until the middle of next year. This is mainly due to the pandemic but it will also give the carmaker time to adapt to any changes to trading rules post-Brexit. Production was originally due to start in October but has been delayed a number of times due to the coronavirus. * SO WHAT? * This will be tricky given the popularity and importance of the Qashqai, but I guess that Nissan is doing the sensible thing by holding off and waiting for more clarity given the uncertain outlook for the car market and wider economy.

…in other news…

Today, I thought I’d leave you with the cautionary tale in Man blows up part of house in France while trying to swat fly (Skynews, Lucia Binding). Just think before you swat…