Monday 28/10/19

  1. In CONSUMER NEWS, UK consumer confidence hits new lows and booming pork prices in China have consequences
  2. In LUXURY RETAIL NEWS, Tiffany mulls a bid from LVMH and Galeries Lafayette targets China growth
  3. In TRANSPORT-RELATED NEWS, Tesla faces hot competition and Virgin Galactic reaches for the (IPO) stars
  4. In OTHER NEWS, I bring you a product you never knew you needed and a painful sandwich…



So UK consumer confidence falls and rising pork prices hit Chinese consumers…

Consumer confidence hits a six-year low (The Times, Gurpreet Narwan) cites findings from a YouGov and Centre for Economics and Business Research (CEBR) survey which shows that concerns about the economy have pushed consumer confidence down for the third month in a row to its lowest level for six years. The same poll suggested that the outlook for businesses hadn’t suffered too badly although job security wavered despite record low current levels of unemployment. * SO WHAT? * Hardly surprising given the current uncertainty, but wage growth is still outstripping inflation and people haven’t stopped spending just yet. This time of year is always important retail-wise, but I get the feeling that many retailers really are running on fumes at the moment and will be praying for a good Christmas in order to survive.

Soaring Chinese meat prices from swine fever threaten retail crisis (Financial Times, Sun Yu) highlights the ongoing effects of the Chinese pig cull following the outbreak of African swine. Wholesale meat prices are through the roof – pork prices were almost 159% higher than in October last year, almost double the retail price rise of almost 73% – and so restaurants, butchers and food retailers are really feeling the pinch. This massive price rise has also led to price increases in related foodstuffs as consumers substitute in other animal protein sources as figures from the Ministry of Agriculture show chicken wholesale prices up by over 33% in October versus the previous year and by almost 17% for beef. * SO WHAT? * The interesting thing here is that while wholesale prices have gone up markedly, retail prices are lagging – with prices for chicken and beef rising by “only” 18% and 12% respectively – meaning that restaurants and retailers are absorbing the higher costs to a greater extent. Larger sellers can probably grit their teeth for the time being, but smaller local restaurants will probably feel the squeeze much more acutely. Time for pork substitutes, no?? Remember what I said almost 6 months ago about Right Treat? If this company can’t make a splash now, surely it never will?!?



Tiffany fields a bid and France’s Galeries Lafayette plans a China push…

In Tiffany receives LVMH takeover bid of about $120 a share (Wall Street Journal, Ben Dummett and Suzanne Kapner) we see that the luxury jeweler is mulling over an unsolicited takeover approach that was made by French luxury group LVMH earlier this month in an all-cash offer at a roughly 30% premium to the price it was trading at before the offer was made. Tiffany is currently worth about $12bn, whereas LVMH (which owns brands including Louis Vuitton, Moet & Chandon, Hennessy, Christian Dior, Bulgari etc.etc.) has a market capitalisation of about $214bn. Buying Tiffany’s would increase LVMH’s share in jewelry, one of the luxury sector’s fastest growing segments. However, Tiffany expected to reject LVMH’s $14.5bn bid (Financial Times, Harriet Agnew and James Fontanella-Khan) shows that the retailer may well push for a higher price, arguing that the current offer undervalues it. The shares have traded higher since the offer was made, narrowing the 30% premium to 22%. * SO WHAT? * It seems to me that this sounds like a pretty good match on a strategic level as it will complement LVMH’s 2011 acquisition of Bulgari and give customers a more “affordable” price point (hey – it’s all relative!). Tiffany has had a bit of a rollercoaster few years what with sluggish sales growth, top management strife and expenses involved in expansion in China and an ongoing overhaul of its flagship New York store. Clearly, Tiffany will be talking a good game to up the price LVMH pays but I think it could

do with the bigger balance sheet for its own good as well as to help it develop new product lines – and even the transition shouldn’t be too much of a shocker considering that the current CEO Alessandro Bogliolo used to work at LVMH. We’ll just have to see what happens. Given the volatility of tourist spending and economic downturn in China, I think that LVMH’s offer should be given some serious consideration.

France’s Galeries Lafayette plans to open 10 stores in China (Financial Times, Tom Hancock) highlights the French department store chain’s plans for expansion as it aims to open ten shops in China by 2025. By doing this, it is betting that Chinese consumers will be spending more than the ones in their own backyard and looking beyond the current US-China trade war. The retailer believes that its China stores will generate around 15% of the group’s overall sales and it seems that Chinese customers are no stranger to its Gallic charms as they apparently account for a whopping third of sales at Parisian outlets! * SO WHAT? * Galeries Lafayette (GL) has generally performed better than department stores in the US and UK by concentrating on providing a superior customer experience. Its Beijing store, which opened in 2013, achieved profitability two-and-a-half years ago and sales are rising rapidly following a refurbishment. Its Chinese stores currently operate via a joint venture with Hong Kong-based apparel maker I.T, which is slightly loss-making (currently down $3.5m). GL puts it down to high initial costs, which is understandable given the size of the stores. Overall, the plan sounds pretty reasonable, especially if the success of its Beijing outlet is anything to go by. However, it will have to keep innovating and improving its customer experience to make sure it stays relevant in the face of online retailing – a threat that every physical retailer faces.



Tesla faces bigger competition and Virgin Galactic charts a course for flotation…

Tesla facing tough test as giants join the charge (Daily Telegraph, Olivia Rudgard) is a really interesting piece on the evolution of the electric car as a mainstream phenomenon. It acknowledges the fact that Tesla has transformed the image of the previously unloved electric cars of yore, but also warns that the “traditional” car makers are now catching up. In addition to this, there are start-ups like Rivian (pick-up trucks and SUVs) and Lucid (luxury cars) who will be putting their own offerings into the market next year – but then there are others like China’s Nio, that are haemorrhaging cash like there’s no tomorrow. * SO WHAT? * There is the theory that many of the incumbents haven’t really been trying that hard until now and, with the likes of VW, Ford and Daimler laying out serious plans for new electric models you can see that they are not just building cars to comply with new regulations – they are trying to make cars that people actually want. I still stand by my opinion, however – that until charging networks are improved significantly, mainstream take-up will be a looooooooong way off. Also, whether our power generation networks can really cope with a major spike in electricity demand remains to be seen. If I were buying now, I would still go for petrol or hybrid.

Virgin Galactic shares start countdown to IPO (Financial Times, Richard Henderson and Miles Kruppa) highlights today as being the day that Sir Richard Branson’s Virgin Galactic lists on the New York stock exchange. Branson is betting on rich people’s willingness to pay for the ultimate “out-of-this-world” holiday one-upmanship of going to space. Apparently, Justin Bieber and Leonardo DiCaprio are among the 600 customers who have put down up to $250,000 on a ticket, but Virgin Galactic has yet to launch a commercial flight. The company is aiming for positive earnings in 2021, which assumes the launch of 115 flights. Companies like Boeing and Lockheed Martin are involved in space flight but Virgin Galactic will be the first to concentrate on space tourism. * SO WHAT? * I am HUGELY sceptical about this venture because success will depend on a steady supply of hugely flush space tourists for some years to come plus the fact that it is just one of those companies that faces delay after delay (and this is assuming that there are no incredibly expensive technical issues). It seems that Branson’s Virgin Galactic is nosing ahead of other similar vanity projects by Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin, but talk about a waste of money. I think that it won’t be like taking a lighter to cash – it will be more like having truckloads of cash and pouring it continuously into an industrial furnace. Branson is good for the craic but this venture is just ridiculous IMO. I’ll be really interesting to see if this IPO “flies” and achieves a “stellar valuation”, badumtish 😁



And finally, in other news…

You know those exercise balls you see at pretty much all gyms these days? Well if you find them too intimidating (🤔) then here’s something for you: Turn your exercise ball into your furry best friend with cute pet character covers from Japan! (SoraNews24, Oona McGee Who knew there was a market for this kind of thing?? If, on the other hand, you think this is a bit namby-pamby, then you just have to admire this: India: Daredevils set new record for most layers in bed of nails ‘sandwich’ (SkyNews, I warn you – this last story is not for the squeamish! Youch in the extreme!

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Some of today’s market, commodity & currency moves (as at 0906hrs 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 **
7,324 (-0.05%)26,958 (+0.57%)3,023 (+0.41%)8,24312,895 (+0.17%)5,722 (+0.67%)22,867 (+0.30%)2,980 (+0.85%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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