Monday 18/03/19

  1. In RETAIL NEWS, US retailers profits get downgraded and own brands take on the big names
  2. In INDIVIDUAL COMPANY NEWS, Commerzbank and Deutsche Bank get the official blessing to engage in merger talks, Interserve proves to be a mess and Disneyland Paris makes its first profit in a decade
  3. In TECH NEWS, the New Zealand shootings bring Big Tech’s shortfalls back into focus
  4. In OTHER NEWS, I bring you a very unusual in-flight safety video. For more details, read on…



So US brokers downgrade retailer profits, US own brands dent household names and the UK toy market continues to be challenging…

Wall Street cuts profit forecasts for US retailers (Financial Times, Alistair Gray) shows that Wall Street is feeling rather downbeat about the prospects for US retailers after a weaker-than-expected holiday season. According to FT analysis of Bloomberg data, estimates for the current quarter have been cut for 62 US retail companies in the last three months and increased for only 16 as retailers have been facing rising transport and logistics costs as well as a slowdown in demand. Those who have had the biggest estimated earnings cuts include L Brands (owner of Victoria’s Secret), Barnes & Noble (books) and JC Penney (department store). On the other hand, earnings estimates have increased for the likes of Amazon (up by almost 12%) Best Buy (up by 5%) and Foot Locker (up by 4%). * SO WHAT? * Although wages are increasing and the wider economy appears to be doing well, recent macroeconomic data showed that US retail sales fell by 1.6% in December – which is the sharpest drop in ten years – and then only recovered by a measly 0.2% in January. Commentators are saying that this is due to a combination of rising costs, bad weather, a late Easter and smaller than usual tax refunds. The pressure is certainly intensifying on US retailers.

US retailers trump Warren Buffett with push into own brands (Financial Times, Alistair Gray and Shannon Bond) looks at a very interesting phenomenon that’s happening at the moment in the US – the shift in the balance of power between big retailers and their suppliers. New data from Nielsen shows that retailers including Walmart, Costco and Target are increasing sales of their own brands almost four times faster than household brand names as increasingly cost-conscious consumers are seeking out good quality at cheaper prices. Kroger, Costco and Target are among those to have put a lot of work in on their own brands with successful outcomes and others, such as Walmart, are putting a lot of effort into this area as well. * SO WHAT? * There is a risk here for companies like Campbell Soup and General Mills that this isn’t just a blip – that it’s actually a trend that could continue to gather momentum. Stats from Euromonitor International show that sales of own-label products in the US are behind Europe – for instance, in tissues, own-brands only have a 27% market share versus a 55% share in Europe – so there is plenty of room for own-brands to make further inroads into the American consciousness. And that’s not even including the potential effect that Aldi and Lidl could have as they expand in the US – look at what’s happened over here! The biggest threat, however, comes from Amazon as its Amazon Basics label covers a vast array of products and obviously its distribution power is excellent. It looks like it’s up to companies like Kraft Heinz and the rest to up their game otherwise they are all going to lose out.



The Deutsche/Commerzbank combo gets the green light for talks, Interserve’s nightmares continue and Disneyland Paris makes a profit…

I did mention this last week but German banks see way to €25bn merger (The Times, Deirdre Hipwell) shows that talks between the two are now “official”, according to a statement made yesterday. Deutsche has lurched from scandal to nightmare over the last few years and investors have been scathing about the bank’s ability to cut deeply and quickly enough to stop the rot. Deutsche’s chief exec, Christian Sewing, has previously thought that a merger Germany’s two biggest banks wouldn’t get enough political and union approval (given that it would result in massive job cuts). However, a statement made by Olaf Scholz, Germany’s finance minister, in an interview with Bild am Sonntag over the weekend was interpreted as giving tacit government approval for this potential merger. * SO WHAT? * Germany is in a right mess at the moment and its banks aren’t looking too clever either. Merging the two would create a national/European champion, but merging for merger’s sake (or just doing it to survive) generally isn’t the best recipe for success. Sure, both of them could cut overheads by sacking thousands of workers (German service sector union Verdi said that up to 30,000 jobs could be on the line!), but there is a risk that this would just kick the can down the road when a root-and-branch strategic overhaul is what’s really required. Having said that, if they are going to merge now would be as good a time as any to give it a go as I would have thought it would encounter less resistance given the overall weakening of the German economy. It’s not a done deal, however, but everyone will be watching with interest.

In Interserve’s suppliers face losses from outsourcer collapse (Financial Times, Gill Plimmer) we see the fallout from the outsourcer’s ongoing problems in the wake of it going into a “pre-pack” insolvency arrangement on Friday. The takeover by its debtholders means that the company’s 69,000 staff worldwide will be able to continue working but around 200 companies that provide IT, HR and property management services face losing their contracts or not being paid for work. Interserve is one of the UK’s biggest providers of privatised public sector services and has contracts to clean and maintain jobcentres and army bases as well as building hospitals and schools. Just to give you an idea of the scale of the problem, it has 45,000 staff in the UK – double the number of employees that Carillion had when it collapsed. * SO WHAT? * Expect a massive bun fight on this one as accusations have been flying around about the government awarding Interserve big contracts despite them knowing that it was in big trouble. It sounds like Carillion all over again and will turn the spotlight once more on all major outsourcers to prove they won’t be the next in line…

Disneyland Paris in profit for the first time in 10 years (Daily Telegraph, Christian Sylt) heralds some good news for the Magic Kingdom as increases in attendance and customer spending helped to increase revenue by 12.9% to a level not seen in a decade. It is Europe’s most visited tourist attraction but has struggled with making profits since it opened in 1992. A lot of this has been due to it having to make interest payments on loans for its construction, but things have been improving and Bob Iger, Disney’s chief exec, announced last year that the company will invest an additional £1.8bn, which will see new attractions inspired by Star Wars, Marvel Comics and Frozen. * SO WHAT? * Disneyland Paris is the largest private employer in the Paris region and the latest expansion is expected to boost job numbers by 1,000. British firms could also benefit as a 2016 study said that over 25% of Disneyland Paris’ European suppliers were British businesses (although obviously that might change with Brexit).



The New Zealand massacre shines the light on Big Tech once more…

New Zealand terror attacks spark fresh criticisms of Big Tech (Financial Times, Tim Bradshaw, Martin Coulter and David Bond) shines the light once more on the failings of big tech companies such as Facebook and YouTube over their inability to control footage of Friday’s terror attacks. The shooter used Facebook Live to livestream his actions and Facebook, along with YouTube, Google and Twitter are now under increasing pressure to take ownership of the problem and do something about it. However, the danger is not just confined to these sites as it turns out that there

has been a proliferation of smaller sites that are harder to monitor – the shooter used an anonymous messageboard called 8chan to publish his “manifesto”. * SO WHAT? * I think that most people would agree that the majors should do a lot more to stop spread of hate, false news and bullying, and incidents like the one in New Zealand continue to highlight the increasingly important roles they play in the way society behaves. Social media companies have been on a roll after recovering from last year’s bad publicity – but I would expect this momentum to at least falter as they will undoubtedly have to show they are addressing these problems by throwing a lot more money and resource at them. They just can’t pretend to be innocent bystanders any more IMHO.



And finally, in other news…

I thought I’d leave you today with what must be the most bizarre in-flight safety video ever in Japanese airline ANA promotes traditional culture with kabuki-theme safety video (SoraNews24, Koh Ruide Strap in, people – this is very weird!

Some of today’s market, commodity & currency moves (as at 0833hrs 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 **
7,228 (+0.60%)25,849 (+0.54%)2,822 (+0.50%)7,68911,686 (+0.85%)5,405 (+1.04%)21,585 (+0.62%)3,096 (+2.47%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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