Thursday 08/11/18

  1. In MACROECONOMIC NEWS, we look at the impact of yesterday’s midterms in the US while wage rises in the UK put pressure on employers
  2. In UK HIGH STREET NEWS, M&S and Mulberry disappoint while smaller retailers provide hope and London restaurants shut at a record rate
  3. In INDIVIDUAL COMPANY NEWS, Samsung brings us a foldable phone, BMW takes a big profit hit and Sophos has a nightmare
  4. In OTHER NEWS, I bring you an interesting new ad. For more details, read on…



So life could get a bit harder for Trump whilst UK employers face wage pressures…

Donald Trump now faces an almighty battle with Congress (Financial Times, Edward Luce) takes a look at the implications of yesterday’s midterm election results. The fact that his opposition, the Democrats, now have control of the House of Representatives will mean that Trump is more likely to have to face criminal investigations into his administration and make any kind of measures he wants to pass more difficult to get through in their original form. On the other hand, Republicans increased their majority in the Senate, making it easier for Trump to appoint his favoured candidates to top judicial posts. * SO WHAT? * Democrats are taking control of the House at what looks like the peak of economic growth and any slowdown will be blamed on them although, in reality, this is what is expected to happen anyway as the rosy glow of tax cuts fades away. They are likely to search for evidence to prove Trump is a criminal and that he colluded with Russia in the 2016 presidential campaign so it is eminently possible that the next two years of his term could see impeachment, the firing of special counsel Robert Mueller (who is the one heading the Russia report) and a Supreme Court defending the right of Trump to keep his tax returns 

private. This election has opened a whole new can of worms for Trump so things are likely to get quite interesting.

UK’s rising wages eat into companies’ profits (Financial Times, Sarah Gordon and Naomi Rovnick) shows how many employers are feeling the pinch of rising wages. Shares in JD Wetherspoon fell by 12% after it issued a profit warning due to the wage hike it was implementing from this week and G4S shares took a 17.5% tumble in trading as it joined other companies like Royal Mail and Ryanair in blaming profit misses on higher labour costs. * SO WHAT? * These profit warnings just go to show how salaries have started to rise in the UK after years of going nowhere. The rate of wage growth hit its highest level since the financial crisis in the three months to the end of August and it is the first time that the headline rate of pay growth has exceeded 3% in ten years. If you couple that with the fact that unemployment, at 4% in August, is at its lowest rate since the mid-70s, you can see why labour costs are rising. Despite this, though, higher labour costs have NOTbeen passed on to consumers as consumer price inflation fell from 2.7% in August to 2.4% in September. The other interesting thing to point out as well is that despite this recent upturn in wages, they actually remain below their pre-crisis peak when adjusted for inflation – so there is, in theory, plenty of upside potential. But will it feed through to the embattled high street soon enough to breathe new life into it??



In UK high street news, M&S and Mulberry disappoint, small retailers could spark a revival and London restaurants are closing down at a rapid rate…

Marks’ turnaround fails to spark as sales fall (The Times, Deirdre Hipwell) highlights some pretty anaemic results announced yesterday and showed that the performance of its once-reliable food division was particularly disappointing. Despite having been in a seemingly perpetual state of being revamped over the last ten years, the company’s annual profits have almost halved from £1bn to £580m over that time period. In the latest turnaround plan, its top management team has been almost completely changed and there are plans to close at least 100 stores by 2022, although it sounds like this number could go higher. The new initiatives in the food business include cutting prices, broadening its family appeal and removing confusing multibuy promotions. In clothing, they include a review of which sub-brands need to be culled. It is also investing in its online business and targeted £350m of cost savings. * SO WHAT? * These all sound like good ideas, but they need to come to fruition fast IMHO otherwise this “turnaround” will prove to be as beige as all the others. It was a long time ago, but I remember a very dramatic revamp at the beginning of the 2000’s where M&S started exciting “new” sub-brands such as Per Una and Autograph which were very well received at the time and helped to get the company out of a rut. It doesn’t sound to me like we’ll get such a dramatic kick-start, which is a pity because I think that’s what it needs. FWIW, I believe that M&S needs to dramatically refresh its format (which I think should include simplifying its offering), decide EXACTLY who its core customer is and make a real statement with a co-ordinated ad campaign that gets away from what has become the rather formulaic food soft-p0rn-with-massive-hit-of-the-moment (surely it must have cost loads to use Bruno Mars and Ed Sheeran hits, no?). I worry that if they don’t make a real distinction between the past and present that customers will just make assumptions on their offering and go elsewhere.

Mulberry blames hard times on high street as loss widens (The Guardian, Zoe Wood and Sarah Butler) shows another story of gloom on the high street as the UK’s biggest manufacturer of leather goods reported an £8.2m loss before tax in the six months to 30th September versus a small profit of £600,000 in the same period a year ago. Chief exec Thierry Andretta observed that “the group’s UK business remains profitable although sales have been

affected by the House of Fraser administration, softer UK demand and lower tourist footfall”. The shares are currently down 72% since the start of this year, but rose by 4.5% in trading yesterday as it struck a new deal to open concessions in John Lewis stores.

There is a glimmer of hope for the future of the high street in Small retailers expected to lead revival on the high street (Daily Telegraph, Sophie Christie) as a piece of research from American Express and retail experts GlobalData suggests that small businesses, which are often more agile than their larger counterparts, will be able to meet increasing needs in entertainment services, beauty and fitness over the next few years. The report predicts various categories with growth potential including escape rooms (+81%), barbers (+22%), beauty salons (+24%), hairdressers (+13%) and tattooing and piercing (+20%) and GlobalData’s Maureen Hinton said that growth in online shopping means that the high street needs to make greater efforts to be a service-led and social space. * SO WHAT? * I couldn’t agree more. IMHO, just selling stuff isn’t enough any more. Online retailers often do it at lower prices and with ever-increasing convenience (delivery used to be a real sticking point, but this is much less of an issue nowadays) and so I think that high street survivors need to concentrate on providing what their online brethren can’t – and that’s the CONSUMER EXPERIENCE. Any retailer who can get THAT right stands a decent chance of long term survival in my opinion.

Further to all those chain restaurants having problems these days, London restaurant closures at highest level in decades (Financial Times, Conor Sullivan) would imply that this tide isn’t going to turn any time soon. According to Harden’s London Restaurants guide, 40% more independent restaurants closed in London in the 12 months to September 2018 than last year as the whole industry has suffered from overcapacity and increased costs (both in terms of labour and raw materials because of the weaker pound). The restaurant frenzy was driven in part by property developers who seized on restaurants as a sign of vibrancy, making developments attractive places to locate staff and offices. It has also been driven by the phenomenon that being a restauranteur is “cool”, meaning that there has been a glut of restaurant openings that has been driven by love rather than the bottom line, meaning that returns for everyone have been capped. * SO WHAT? * Although this doesn’t make for comfortable reading for budding independent restauranteurs, there still appears to be life in the industry as recent research from Visa showed that spending on restaurants, hotels and bars rose by 7.7% in September versus the previous year – which I think reflects the whole desire for “experiences” that I was referring to above. It’s just that you have to be extra good to survive a highly competitive marketplace.



Samsung announced a bendy phone, BMW unveils a profit slowdown and Sophos has a shocker…

Those of you who love the latest gadgetry might be interested in Samsung’s new foldable-screen smartphone is 7.3 inches when open (Wall Street Journal, Timothy W. Martin) as the South Korean electronics giant unveiled a new mobile phone with a foldable display – called “Infinity Flex” – that folds like a book and unfolds to reveal a tablet-sized screen. The company said it would be ready for mass production in the coming months. * SO WHAT? * Samsung makes 20% of the world’s mobile phones and it is, like everyone else, suffering from smartphone saturation. A new concept like this – which really breaks the design norm – is obviously intended to break consumer indifference and get them excited about something that is genuinely new (although bendy screens have been around for a while now). The company has held discussions with Netflix and YouTube to see how to optimise content for a folding screen device. Other companies including Apple and Huawei have sought patents for folding models, so it seems like we are definitely on for something new in the coming months and years!

Carmaker BMW suffers 24% decline in net profits (Financial Times, Patrick McGee and Peter Campbell) heralds disappointing news for the German carmaker as

spending on electric cars and costs related to new emissions rules (WLTP) start to bite into margins. This fall in margins has been expected since BMW warned back in September that it wouldn’t be able to sustain its 33-quarter streak of meeting its 8-10% automotive margin target, but the shares fell by 2% in trading yesterday as problems were “even more severe than the market expected”. I just wonder whether all the bad news is already in the price…

Sophos value down by 39pc as forecast bucks trend set by rivals (Daily Telegraph, Hannah Boland) shows a serious cratering in the share price as it shocked investors by cutting its forecasts for the second half of the financial year, having previously said it expected growth in the six months to the end of March to hit the mid-teens. This goes against the upward trend being experienced by competitors, which makes this contrast all the more stark. Sophos stated that “The year-on-year growth rate was impacted by a challenging comparable in our Enduser business [which sells software that guards against hackers], given the dramatic acceleration in demand we witnessed in the comparative period as customers urgently invested in protection against high-profile, global ransomware outbreaks”. Basically, the company saw a MASSIVE boost in orders following the WannaCry outbreak in May 2017 and now they have come back to more realistic levels. I guess they need another big hacking incident to panic customers into spending…



And finally, in other news…

I thought I’d run this one by you today: Vodafone’s new Voxi advert looks like a ‘field of c***s’ say viewers (The Mirror, Steve Myall I don’t know what they’re talking about – it all looks perfectly innocent to me. What do you think??

Some of today’s market, commodity & currency moves (as at 0756hrs 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 **
7,155 (+1.64%)26,180 (+2.13%)2,814 (+2.15%)7,57211,656 (+1.51%)5,162 (+1.73%)22,086 (-0.28%)2,641 (-0.68%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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