Watson’s Weekly 11-01-2020

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.

• There was a lot of fallout and aggressive rhetoric from both the US and Iran regarding the US bombing of Iranian commander Qassem Soleimani (Monday, Tuesday), followed up by Iranian’s missile attack on US bases in Iraq (Wednesday) and then Trump tried to de-escalate the situation (Thursday). The edge was taken off Iranian fighting talk, though, as they admitted to “accidentally” shooting down a Ukranian passenger plane, killing everyone aboard. They admitted this only a few days after flatly denying it
• Pedro Sánchez became Spain’s Prime Minister at last (Wednesday) after winning a parliamentary vote by a paper-thin margin (Monday). Getting anything done, however, will become a very tall order given he had to rely on the support of parties that he’s not normally that keen on
• Venezuela took another turn to the ridiculous as the “official” president, Nicolás Maduro stopped the “rightful” president, Juan Guaidó in a vote for the leader of the National Assembly (Tuesday) although many countries continue to recognise Guaido as the true leader (Wednesday) despite all this. The farce continues…
• India cut its official GDP growth forecast to 5% (Thursday), its slowest pace in over a decade due to weakening private consumption, industrial activity and investment. The government is trying to counter this with corporate tax cuts and more infrastructure projects, but these measures will take a while to feed through

• Supermarkets didn’t have a great Christmas (Wednesday) although Aldi and Ocado actually did quite well
• John Lewis shocked with a profit warning (Friday) with departures leaving a huge leadership vacuum for the new incoming chairman, Dame Sharon White, to deal with. White is highly regarded but has zero retail experience, so things are bound to get quite interesting over the course of 2020 and beyond. M&S suffered from the overstocking of certain items (Friday), which hit profit margins, but Selfridges actually did quite well (Friday) by surfing the meatless wave with vegan hampers and confectionary and Fortnum & Mason had a good Christmas (Friday) helped by sales of its hand-carved smoked salmon, champagne and non-alcoholic sparkling tea
• A couple of high street retailers are currently considering their futures as Boots didn’t deny rumours that its owner would be taking it private (Thursday) while Ted Baker brought in FTI consulting (Thursday) to do a business review following its disastrous performance
• I highlighted a few interesting retail trends this week – and even learned some new words! Clothing retailers – especially online ones – are suffering (Monday) from “bracketing” (where customers order three items – one which they think will fit and the size either side of that) and “wardrobing” (where customers buy the clothes, use them and then return them for a refund) and are trying to stamp it out because it is playing havoc with sales figures and inflating costs massively as customers abuse the option of free returns. I thought it was interesting to note that the world’s biggest warehouse operator, Prologis, bought a North London retail park from investor M&G to turn it into a warehouse space (Tuesday). It’s thought that this is the first time this kind of thing has happened, but I think there will be more of these deals in the future as landlords race to cut their exposure to retail property. On the subject of landlords selling off retail property, Ikea announced the purchase of a shopping mall in London (Friday) as part of its plans to have smaller shops in more central locations. There will no doubt be more of this from Ikea as they now have a special team dedicated to hoovering up retail space which is currently going cheaply as it is a buyers’ market at the moment. FWIW, I think that Ikea could potentially be an ideal buyer for some of the centrally located department stores that are being sold off at the moment…
• IN OTHER NEWS OVER THE WEEKEND, It seems that there’s actually another retail trend gathering pace at the moment – and that’s dodgy accounting! Joules announced a profit warning at the end of the week that shocked everyone because, up until then, it has been one of the rare shining lights of the high street! The company admitted that a shortage of stock for online orders had been caused by “a wrong number incorrectly entered into a spreadsheet”. Chief exec Nick Jones said that the problem had been sorted out but profits would be “significantly below market expectations”. The share price plummeted by 25% (but then again, if everything else is going OK, you do wonder whether some investors will see this as a buying opportunity). Staying on fashion retailers, it appears that Superdry had a rubbish Christmas due to rivals’ discounting and warned that its profits could be wiped out as a result in an unscheduled trading statement. Ouch.

• Tesla started to deliver Shanghai-made Model 3 cars this week (Wednesday) to great fanfare and announced plans to make the upcoming Model Y there as well
• There was some interesting news on raw materials for batteries as efforts to reduce reliance on cobalt continues (Monday) and falling lithium prices hit lithium producer Livent (Thursday). Meanwhile I saw that palladium prices are going through the roof as demand for catalytic converters (which contain the metal) continue to rise. Prices have surged by a whopping 25% since October alone – which has resulted in a major rise in thefts of catalytic converters from cars as palladium is now worth more than gold! Some drivers are being advised to prevent theft by buying a “Catloc” device which prevents the converter from being cut out!
• There were contrasting fortunes for luxury vehicles as Rolls-Royce benefited from sales of its hideous SUV (Wednesday) while Aston Martin announced its second profit warning in 12 months (Wednesday). What a disaster that IPO was!

• Beyond Meat got closer to seizing a McOpportunity (Thursday) as rival Impossible Foods dropped out of the bidding to supply McDonald’s with a vegan burger. Impossible Foods already supplies Burger King, but the chief exec said that the company just doesn’t have enough capacity to up production

• In the “Consumer” section of “Themes for 2020”: Meat alternatives continue to see strong demand as evidenced by the success of Selfridge’s vegan hampers (Friday), the size of McDonald’s demand for vegan burgers (Thursday, which scared off Impossible Foods) and the ongoing change in the global market for meat since the African swine fever outbreak (Friday). So far the culling of pigs affected by the disease has reduced their number in China by about 40% (around 100 million 😱), which led to pork prices shooting up to record highs and prices of beef and chicken going higher as consumers ate them instead. China’s meat imports were up by 63% in the first 11 months of 2019 versus the previous year and suppliers have struggled to keep up with demand. Brazilian, European and Australian producers have been diverting a lot of their product to China meaning that other markets such as Japan, Indonesia, Canada and the Philippines have lost out. Swine fever has now spread to Vietnam, the Philippines, South Korea and Mongolia with recent outbreaks in Serbia and Slovakia. In the UK, pork producer prices have risen by 12% but suppliers and retailers haven’t yet passed this on to customers. Surely this is going to happen during the course of 2020…

My favourite “alternative” story of the week this week was Woman uses asparagus to predict Trump will win election but will be impeached (Metro, James Hockaday https://tinyurl.com/yjoeynry). Superb work!