Watson’s Weekly 02-08-2020

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

• IN THE US – the latest official figures showed the biggest quarterly GDP contraction since WWII (Friday) which is presumably one of the reasons behind Trump mooting the prospect of delay in US election (Friday). He says it’s because more mail-in ballots due to the coronavirus mean a higher liklihood of fraud. I say it’s because he thinks he can’t win! I have never heard of a politician putting off an election if they think they can win it! The key thing to remember here is that he doesn’t have the power to delay the election – any change have to be put to the vote in both the Senate and House of Representatives
• IN EUROPE – Unexpected travel restrictions were suddenly imposed on Spain (Monday), which caused chaos and bad feeling all round. Share prices of exposed companies such as Tui, EasyJet, IAG (the owned of British Airways) and Lufthansa fell sharply as a result (Tuesday) but Ryanair appears to be in a better financial position than others and has said it will continue to fly to Spain (for now, at least). Although this will probably make many people reconsider any international holiday plans for at least the rest of this year, it may be possible that things will actually be better than the dire predictions suggest because anyone who goes on holiday now who has been predominantly working from home anyway may find that this latest development doesn’t make much difference to them and could actually lead to more bargains being available – assuming, of course, that they can actually get to their destination. I think this will be particularly good for Airbnb as people will still want to get out of the confines of home – they just won’t travel so far to get that escape!
• IN THE UK – BoJo announced junk food ad bans (Monday) that will involve a 9pm watershed and total online bans. This feeds into the general push for getting healthier and there is also a move to put calories labels on drinks and menus. As you can imagine, the smaller chains are complaining (understandably) because it will increase their costs at a tricky time. I wonder that this move was always on the cards anyway (the government has been moving in this direction for a while) and they picked now because the whole industry is not in a strong position to do anything about it. The whole thing about coronavirus sufferers getting it worse if they are obese also gives the arguments extra oomph

• Big Tech chiefs of Amazon, Apple, Facebook and Google testified in front of Congress (Wednesday) and were accused of having “too much power” (Thursday), but Congress can’t really do anything about it apart from vent. Meanwhile, Amazon, Apple, Facebook’s results were stellar (Friday) but Google’s parent Alphabet actually weaker quarterly revenues versus the previous year for the first time ever. Congress will be publishing a report later this year once the hearing is over – and it could be that future regulation covering Big Tech will be based on its recommendations
• The TikTok uncertainty continues (Thursday) as there was talk of groups of US investors trying to buy it out of Chinese parent company ByteDance in exchange for a non-voting minority share. Trump batted away such chat on Friday night, saying that he was going to go ahead with a ban whatever. Interestingly, Microsoft has been in talks with ByteDance for a while. Call me cynical, but this could definitely be portrayed as Trump doing his bit to help an American company buy a Chinese company on the cheap! ByteDance are understandably frustrated, but I wonder if they can really do anything other than take the Trump medicine. In the meantime, Facebook is trying to take advantage of the uncertainty as it is offering TikTok creators money to switch to their copycat forthcoming new service, Reels (Wednesday)
• Spotify announced rising user numbers (Thursday) as it continues to grow its podcast offering – an area that is growing in popularity

I define coronatrends as trends of behaviour that stem from the outbreak of the coronavirus. This week, they have continued to evolve thus:

• WORKING FROM HOME – is set to increase for one major company at least as Google said it expected its staff to be working from home (WFM) until summer 2021 (Tuesday). WFM is also set to have an impact on office demand as the Royal Institute of Chartered Surveyors’s latest survey shows that 90% of estate agents and landlords expect firms to reduce their office space in the next two years (Thursday) and rents are expected to be weaker. Whilst at home, it seems that we are indulging in more DIY (Wednesday), which is helping the likes of Travis Perkins (owner of Wickes and Toolstation) and cooking more as meal kit producer Gousto is taking on 1,000 more staff (Monday) to keep up with demand. We’re ordering more online, which is helping the pricing power of UPS and FedEx (Thursday) and we’re also using more cleaning products that are made by Reckitt Benckiser (Wednesday). Reckitt Benckiser owns brands including Dettol, Cillit Bang, Harpic etc.

• Things are still tough for many of the high street retailers out there. Fortunately, previously deaf landlords are starting to listen as Capital & Counties and Legal & General are increasingly offering rents based on turnover (Thursday) rather than the previous flat rate that rose every year no matter what. Maybe this will become more the norm – although whether or not they will slide back into old practices when the outbreak dies down is another question. Overall, though, the latest survey of business leaders by the Confederation of British Industry (CBI) shows that UK retail sales grew at their fastest pace for over a year in July (Wednesday). There was another interesting development in that the government is thinking about imposing a new online sales tax as part of a major overhaul of the current business rates system (Tuesday). High street retailers in particular have been banging on about the fact that they can’t compete with online retailers on price because of overheads that include business rates. As things stand, the proposals will mean that this is an additional tax on top of business rates, so that is likely to go down like a bucket of cold sick with retailers who are already suffering…
• In the “winning” corner this week, Aldi is hiring (Thursday), B&M reported strong quarterly like-for-like revenue growth and forecasts a decent summer (Wednesday), Games Workshop has been coining it in (Wednesday) and Next delivered a surprisingly robust quarterly performance (Thursday)
• On the other hand, Pizza Hut was flirting with insolvency (Thursday), Selfridges cut 14% of its employees to save cash (Wednesday) and Baird Group, the owner of Ben Sherman, Suit Direct and Jeff Banks announced plans to close over a third of its stores and renegotiate rent with landlords (Monday). It had filed for a CVA last week and was hit particularly badly by store closures at Debenhams, where it had a lot of concessions. Amazon put the fear into supermarkets as it announced free grocery delivery to Prime customers (Tuesday). Meanwhile, John Lewis is trying to think of ways to get out of its current rut (Friday). Potentially radical plans include turning its closed outlets into homes, launching a new gardening business and agreeing new product distribution channels…

• Watson’s Yearly updates: watch this space!

My favourite “AND FINALLY…” stories of this week involved the particularly resourceful individual in Woman casually wears KFC box as makeshift face covering while out shopping (The Mirror, Courtney Pochin) and the unashamedly sentimental Builder leaves heartwarming note for customer’s six-year-old and ‘makes his day’ (The Mirror, Paige Holland). Ahhh 😍!