Monday 12/08/19

  1. In AUTO MAKER NEWS, China goes international and Tesla continues to disappoint owners
  2. In UK RETAIL NEWS, the number of empty shops increases, Sports Direct aims to go “upmarket” and Asda’s fridges help to keep us warm this winter
  3. In INDIVIDUAL COMPANY NEWS, BlackRock buys a chunk of Authentic Brands and UPS has an Amazon dilemma
  4. In OTHER NEWS, I bring you a Darth Vader balloon…



So Chinese manufacturers look further afield while Tesla owners face disappointment…

Chinese auto makers go global as sales slow at home (Wall Street Journal, Trefor Moss and Vibhuti Agarwal) shows that Chinese car makers are pouring money into overseas markets such as India, Africa and Europe. Chinese cars have made great leaps in terms of quality and are very attractively priced. For instance, China’s biggest auto maker SAIC Motor Corp, tested the Indian market by supplying 21,000 of its MG Hector SUV in June – and they sold out in four weeks (they’d originally assumed it would take six months to shift them)! The company has opened plants in Indonesia and Thailand over the last two years to supply the southeast Asian region. It has been joined by Great Wall Motors – which opened its first overseas plant in Russia in June – and state-owned BAIC Motor Corp, which started production at a $772m facility in South Africa last year. Zhejiang Geely Holding Group (aka “Geely”), which owns Volvo Cars, opened its first overseas plant in Belarus in 2017 to supply Russia and Eastern Europe and launched its first vehicle for the southeast asian market last December after buying a 49.9% stake in Malaysian maker Proton in the same year.  * SO WHAT? * Chinese auto manufacturers have had to look outside their domestic market because, as everyone else is finding, it has been slowing down after decades of

stellar growth. Chinese companies like FAW Group and Chery Automobile have tried and failed to expand overseas in the past but it seems that others are learning from these moves and have the long-term goal of making a mark in mature markets such as the US and Europe. However, for now, they are concentrating on emerging markets but will no doubt have an eye on how Japanese and Korean manufacturers transformed themselves in the 70s and 80s to the global powerhouses they are today.

Tesla drivers in UK ‘are waiting months’ for parts and repairs (Daily Telegraph, Olivia Rudgard) shows how Tesla is continuing to fall short in looking after its customers. Some drivers are saying that they are having to wait for up to 10 months to get their cars fixed and that previous high standards are in notable decline, with the company getting a lowly 3.1 out of 10 on Trustpilot. One poor guy ended up selling his Model S for a £25,000 loss after he was told it would take 7 months to replace his windscreen! * SO WHAT? * I think that customer service and support is vital for any car company’s growth given that cars are a major purchase and most people do a great deal of research before buying. If you combine shipping delays and poor aftersales, you are basically going to hand your opposition customers on a platter. The irony of all this is that Tesla has, arguably, been the one to make electric cars that appeal to the masses – but all the other incumbent manufacturers will benefit from the demand that it created with superior production and aftercare. I still maintain that Tesla should combine with a “traditional” manufacturer to give it production capacity and a better distribution network.



Vacant shop numbers hit a new high, Sports Direct aims high and Asda offers up its fridges to warm us all…

Most empty shops for four years (Daily Telegraph, Laura Onita) cites the latest data from the British Retail Consortium (BRC) which shows that town centre vacancy rates now stand at 10.3%. The travails of former retail stalwarts like Toys R Us, Maplin, New Look, Debenhams, Mothercare and others have been well-documented and the situation is unlikely to get better any time soon considering that the same report showed that footfall was also down in July by 2.7% in high streets and 3.1% in shopping centres. * SO WHAT? * Everyone bangs on about how we should save our high streets, but then at the same time go on to order things online at cheaper prices! Clearly, the government really needs to step in here to either lower taxes on physical stores or impose taxes for online retailers. Neither option is clear cut, though, as lowering taxes on existing stores could be too-little-too-late for many and cut valuable income for local authorities etc. Imposing taxes on online shopping, on the other hand, will hurt consumer spending power – which isn’t likely to go down well either. Conclusion: retailers need to find the optimal balance between offline and online offerings and ideally provide an offline experience at their stores that can’t be replicated by keyboard-shopping. As I keep saying, you are never really going to be able to compete with the internet on price – but you can make your shops fun and interesting places to go.

In Sports Direct elevation head says brands will get lift-off (The Times, Ashley Armstrong) we see that Michael Murray, chief exec Mike Ashley’s future son-in-law and heir-apparent, is having to fight against a great deal of scepticism over Sports Direct’s ambitions to go “up market”. New-look stores with better womenswear ranges, a wider selection of sports and lifestyle brands like Tommy Hilfiger and Timberland as well as e-sports arenas (which is where its acquisition of Game Digital will come in) are the aspiration – but in the meantime, the company has got

to sell off the rest of its cr*ppy stores. Nepotism’s poster child Murray says that “There will be a point when Sports Direct becomes better known for its elevated shops, but it will take a number of years”. * SO WHAT? * Sports Direct has skillfully surfed the “athleisure” wave and made its money by piling it high and selling it cheap, but Mike Ashley’s trolley dash down the UK high street has resulted in a number of interesting acquisitions at knock-down prices. The problem is that he has garnered a reputation for strangling brands (just look at Lonsdale and Slazenger, for instance) and there is a real possibility that he will do the same with his latest acquisition, Jack Wills. FWIW, I think that he has bought a number of decent-enough brands that have fallen on hard times, but I just think he is spreading himself too thinly at the moment to be able to turn these things around in time. Surely the company needs someone in the driving seat who has proper experience at consolidating and turning brands around than some kid who can only boast a degree in Real Estate (really??) and the fact that he’ll be marrying the boss’ daughter.

Asda signs up its fridges to keep the UK warm this winter (The Guardian, Jillian Ambrose) is an intriguing-sounding headline, don’t you think?? Apparently, Asda has signed up 300 of its stores and 18 of its distribution depots to act as a virtual battery pack for the energy grid this winter. Basically, Asda will turn off its fridges in sync with peak electricity demand, earning it money from the National Grid whilst simultaneously contributing to its carbon emissions reduction targets. All industrial fridges are turned off at least once a day for defrosting purposes, so doing this to coincide with peak electricity demand is not a big deal. * SO WHAT? * I think that this is a really interesting idea – and if more companies could do this, it would make a massive difference. Tesco is trialling mini-power cuts to its freezer aisles with the electricity being made available to the National Grid, for instance, but if ALL supermarkets (and other outlets) could do something similar, it could prove to be a major boost – especially as more people are buying electric cars these days, necessitating an increase in power supply. Power generation is no doubt going to have to increase in future as demand for electric vehicles increases, but this is something that can be done NOW to help the cause without causing too much disruption.



BlackRock buys a big chunk of Authentic Brands and UPS has an Amazon dilemma…

BlackRock buys $870m stake in Authentic Brands (Financial Times, Richard Henderson) heralds a major buyout deal for BlackRock to purchase the celebrity and clothing licensing group Authentic Brands, which owns brand rights to Marilyn Munroe and Muhammad Ali along with Sports Illustrated magazine and a majority shareholding in retailer Nine West. This is part of a push by the asset manager into the world of private equity as its clients seek out juicier returns from the ones they are getting from stock and bond markets. Authentic Brands licences 50 brands that combine to generate $9.3bn in annual retail sales. * SO WHAT? * This sounds like a decent enough deal, but private equity returns are not risk-free by any means. Still, BlackRock has the funds and the brainpower to have a dabble in the private equity world and everything will be fine as long as the returns roll in. Things could turn sour, however, if they don’t as you would have thought that investors in BlackRock will be more conservative than most private equity veterans so maybe

the margin for error will be that much narrower, meaning that they’ll probably be paying higher prices for less risky assets.

Following on from FedEx deciding last week not to renew its ground delivery contract with Amazon, UPS bets on Amazon, for now (Wall Street Journal, Paul Ziobro) shows that UPS is also wondering whether to keep doing business with a fast-growing competitor or to ditch it now and broaden its client base. For now, it seems, it is content to keep the status quo as UPS gets almost 10% of its revenues from Amazon. Now that FedEx has stepped away, UPS is probably in quite a strong position with Amazon as it heads into the busier second half of the year where Amazon relies more heavily on third party providers such as UPS. * SO WHAT? * FedEx had been weaning itself off Amazon for a while, to the extent that it only accounted for less than 1.3% of overall revenues last year before it decided to cut the cord last week. UPS will no doubt benefit short-term by taking up the slack but you’ve got to admire FedEx’s spirit to step away from Amazon’s volume (at lower profit margins) to free it up to tout its “independence”. This will no doubt be used as a selling point to companies who want an alternative – like Target and Walmart, for instance. UPS will need, however, to ensure that it has a strategy in place so that it won’t be left high and dry when Amazon outgrows it.



And finally, in other news…

I thought I’d leave you today with Darth Vader Hot Air Balloon Floats Over British City — and Mark Hamill Loves It (People, Georgia Slater This must have been an amazing sight!

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Some of today’s market, commodity & currency moves (as at 0835hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,254 (-0.44%)26,287 (-0.34%)2,919 (-0.66%)7,95911,694 (-1.28%)5,328 (-1.11%)NATIONAL HOLIDAY2,815 (+1.45%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)