Thursday 17/08/23

1. In RETAIL, LEISURE & CONSUMER NEWS, Target faces a backlash, Home Depot makes ground, M&S’s revival continues, Aldi aims to add more jobs, Jamie Oliver goes upscale and UK consumers face the steepest rent rise in seven years
2. In FINANCIALS & SERVICES-RELATED NEWS, Aviva benefits from NHS issues, Admiral does admirably, PayPal moves to stop crypto buying and EY rejects TPG’s plan for a break-up
3. In TECH & GAMING NEWS, the UK’s AI summit is set for November, China rejects Intel’s deal, Tencent gets squeezed and games consoles try to adapt
4. In CAR & BATTERY NEWS, VinFast gets a huge valuation, Tesla cuts prices in China and battery technologies compete
5. AND FINALLY, I bring you a good Tube prank…

So Target suffers, Home Depot consolidates, M&S triumphs, Aldi employs, Jamie O goes upscale and rent rises get ridiculous…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

Target sees drop in sales after rightwing backlash to Pride merchandise (The Guardian, Lauren Aratani) highlights the travails of the American retailer as poor sales of its Pride Month merchandise hit its Q2 earnings and it cut its full-year forecasts. The company said that customer spending habits were changing as more money is being spent on “experiences” (going to the cinema, concerts etc.) but there was also a strong conservative backlash against its Pride Month collection that it sold over June (something that brewer AB InBev also experienced in response to sponsoring a post by transgender influencer Dylan Mulvaney in the spring). However, Target Customer Backlash May Be Least of Its Problems (The Guardian, Jinjoo Lee) questions just how long this backlash is going to last for and how it can keep market share among cost-conscious shoppers, particularly as its product mix is more geared to discretionary items. * SO WHAT? * It looks like the backlash effects might be fading already but the market share issue is likely to remain more problematic as successful sales of discretionary items at TJX and Dollar Tree show that there are still sales in this segment if the price is right. Customers are going to be facing more pressure as the student debt-payments holiday implemented under the pandemic is due to end on August 30th, so it’ll be interesting to see whether we see a bit of a frenzy ahead of that date before going quiet.

Then in Home Depot’s Inflation Pressures Ease (Wall Street Journal, Dean Seal) we see that the US DIY retailer’s Q2 earnings came in above market expectations and it was good to hear that inflation in transportation and product costs has been slowing down as had supplier price rise increase requests. * SO WHAT? * It was less good to hear that sales slipped and that the general trend of Americans doing less DIY than they did under lockdown is taking hold. Customers are spending less on major projects, doing smaller reservations and buying fewer big-ticket items but the company is keeping full-year guidance intact.

Nearer home, M&S revival proves it doesn’t need Oxford Street (Daily Telegraph, Daniel Woolfson and Riya Makwana) highlights

the retailer’s strong performance after a protracted period of evolution that involved the shutting down of hundreds of stores, a significant uptick in the number of third-party brands in its clothing business and a crackdown in pricing across its food business. * SO WHAT? * OK, so the turnaround is very interesting in itself but what is perhaps more intriguing is that the government’s refusal to grant M&S planning permission for a hugely revamped flagship store on Oxford Street is being seen as symptomatic of high streets across the country that are having to adapt to the post-pandemic evolution of customer behaviour mired by red tape and planning restrictions. According to research by PwC, high streets have bounced back to a certain extent from pandemic lows but not as much as other locations, including retail parks.

There’s good news in More than 1,700 jobs to be added to Aldi’s expanding UK workforce (The Times, Isabella Fish) as the German discounter announced plans to hire a significant number of workers before the end of the year as it continues to expand at an average rate of one store a week. It already overtook Morrisons last year to become the UK’s fourth biggest supermarket and its momentum is continuing. The latest figures from Kantar show that Aldi continues to be the UK’s fastest growing supermarket. Tesco, Sainsbury’s and Asda continue to be scared!

In leisure news, Jamie Oliver to steer clear of challenging mid-market in London return (Financial Times, Oliver Barnes) shows that the omnipresent telly chef is going to make a return to being a restauranteur by opening “Jamie Oliver Catherine Street”, a posh restaurant that is scheduled to open in Covent Garden in November. This comes four years after his restaurant empire fell into administration and, understandably, he is giving the mid-market casual dining sector a wide berth on his return. * SO WHAT? * I think that avoiding this overcrowded and competitive segment is a wise choice, particularly when you think that The Restaurant Group, Prezzo, Bill’s and Byron have all announced over 100 store closures between them so far this year. I’m sure that the sector will bounce back once pressures on household incomes recede but until then I think it’s all about keeping costs under tight control, taking any opportunities that come up and just surviving.

Talking of embattled consumers, Fastest rise in rents for seven years amid landlords exodus (Daily Telegraph, Ruby Hinchcliffe) rams home the message that we keep getting at the moment – that landlords are selling up and getting out of buy-to-let, leaving fewer rental properties on the market, which is leading to ridiculous price rises. The ONS’s latest figures show that rents rose by an average of 5.3% in the year to July, up from 5.2% in the year to June. This is the biggest monthly increase since January 2016. The hits on disposable income just keep on coming…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Aviva and Admiral do well, PayPal moves to restrict crypto and EY rejects TPG’s offer…

In the wonderful world of insurance, Aviva in robust health as patients snub NHS (The Times, Ben Martin) shows that Aviva has been experiencing rising demand for private healthcare that has resulted from the NHS waiting list crisis. Premiums for its healthcare business have shot up by 58% in the first half of the year as it has benefited from an influx of 170,000 new individual and corporate customers in the last 12 months. The company also reported a “significant” rise in demand for digital GPs and mental health services, particularly from companies seeking to improve employee wellbeing. Fun fact: Aviva is now the UK’s third biggest private medical healthcare provider behind Bupa and Axa. * SO WHAT? * This is clearly a strong performance and this part of Aviva’s business will undoubtedly continue to benefit from the NHS crisis. However, other areas of the business, such as motor insurance are facing challenges (higher costs of handing claims, which is pushing up premiums) but it seems that, for now, Aviva has been coping quite well and appears to be doing better than its competitors.

Talking of car insurance, Admiral profit up 4% despite insuring 380,000 fewer vehicles (The Guardian, Miles Brignall) says that the company managed to turn a profit in the first half of the year after whacking up its premiums by a chunky 20%! This is an additional rise to the 20% rise it implemented in the previous six months, meaning that the cost of cover has rocketed up by around 44% over just one year! Although this sounds pretty outrageous, recent data from the ONS shows that the quoted price of car insurance premiums has actually gone up by 53.4% in the last 12 months, so

Admiral sounds positively saintly! * SO WHAT? * The company is clearly aware of the effect of inflationary pressure on consumers but decided that it had to prioritise profitability – and if that involved shedding some customers, so be it. It is also worth noting that a report found that 2022 was the worst year for UK motor insurers for ten years and that for every £1 they got in premiums, they were paying out £1.10 in claims and costs! Tough times…

Elsewhere, PayPal to stop Britons from buying crypto (Daily Telegraph, Gareth Corfield) shows that PayPal is to stop customers in the UK from buying bitcoin and other digital tokens on its platform as it hunkers down to weather the incoming FCA crackdown on cryptocurrencies. Trading these digital tokens will be suspended for at least three months starting on October 1st. * SO WHAT? * The official reason is that PayPal is taking the time to implement additional steps implemented by the FCA to make would-be crypto traders jump through more hoops. For now, the company says that it is not pulling out of its crypto business in the UK which it launched in 2021, one year after it was rolled out in the US.

Then in EY rejects TPG plan to break up Big Four firm (Financial Times, Stephen Foley, Michael O’Dwyer and Arash Massoudi) we see the latest in the EY saga and its rejection of TPG’s proposal to break the firm up (something which it failed to do on its own). EY: rejected TPG offer revives interest in break up (Financial Times, Lex) suggests that this latest development could be the first of other attempts to revive the break-up of EY’s auditing and consultancy business, particularly as there are a lot of PE firms out there sitting on big piles of cash. Also, EY is in a tricky position at the moment as it has no leader in the wake of the company’s failed bid to split itself, so it is probably more vulnerable to an approach than it normally would be.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

The UK AI summit is set for November, China rejects Intel’s bid, Tencent feels the pressure and games consoles adapt…

UK to host AI safety summit at start of November (Financial Times, Cristina Criddle, Madhumita Murgia and Anna Gross) shows that the UK is going to host the “AI Safety Summit” at the beginning of November at Bletchley Park for “like-minded” countries. Attendees will include the great and the good from the corporate and academic worlds and more details will be forthcoming, according to Downing Street. Google’s DeepMind, Microsoft, OpenAI and Anthropic will be there but the Chinese probably won’t be. It is thought that the summit will address broad concerns over safety in AI rather than focusing just on generative AI. * SO WHAT? * The possibility of a summit was mooted in June by Sunak and shortly after endorsed by Biden. However, the main problem here is likely to be that there are going to be companies representing AI that want to make money from it – and there’s a possibility that they could try to drown out the voices of regulators and lawmakers who are more concerned with safety. At least there’s a date in the diary, though, where stakeholders can have a proper conversation about rules, ethics and guardrails with everyone in the same room.

Meanwhile, China derails $5.4bn Intel deal as tensions rise with Biden (Daily Telegraph, Gareth Corfield) shows that China’s regulator blocked the proposed deal for Intel to buy out Israel’s Tower Semiconductor as they dragged their feet long enough for the deadline to elapse. * SO WHAT? * Intel is now going to have to pay a $353m termination fee for not going ahead with the deal. It hasn’t actually been said out loud officially, but clearly this is the Chinese getting back at ongoing US sanctions that ban supplies

and investment by foreign companies into tech in China. No doubt there will be other examples of this coming soon as the sanctions continue to get tighter, not looser!

Then in Tencent sales squeezed by slowdown in domestic gaming (Financial Times, Eleanor Olcott) we see that Chinese tech giant Tencent managed to boost profits via successful cost-cutting, but fell short of market expectations on revenues thanks to sluggish domestic gaming sales and weakening consumer confidence. On the plus side, international gaming revenues were strong, . * SO WHAT? * This is tricky as Tencent’s domestic gaming business is its most profitable division and failure to grow over Q2 was a disappointment despite overall solid numbers. That said, its advertising business did well, as did its international gaming business (particularly on the back of the popularity of shooter game Valoran) and its spending on short video accounts platform is beginning to pay off as video account numbers continue to rise. It is hoping to take on ByteDance’s mighty Douyin!

Games console industry tries to adapt to rise of free-to-play titles (Financial Times, Tim Bradshaw) looks at how gamer expenditure patterns are evolving as cost-of-living pressures are making more of them migrate towards “free” alternatives such as Fortnite and Apex Legends. Sony in particular is very much geared towards gamers playing on consoles as it has more exposure to exclusive premium titles via its PS5 console. * SO WHAT? * What is particularly interesting here is the longevity of titles like Fortnite (which is not console-based) just keep going and going whereas games like Hogwarts Legacy (which is console-based) get a load of attention at launch which then disappears in ensuing months, providing console makers with the headache of how to stop this drop-off. Are the days of consoles now numbered? Will there even be a PS6? Or will it just have to adapt?

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

VinFast gets a heady valuation, Tesla cuts prices in China and battery technologies compete with each other…

In a quick scoot around some of today’s other interesting stories, Loss-making carmaker VinFast valued at more than Ford and BMW (The Guardian, Jasper Jolly) shows that the loss-making Vietnamese car manufacturer had a storming debut on the NASDAQ yesterday as it was valued at $85bn and saw its share price triple on its first day of trading, giving in a valuation higher than that of BMW ($69bn), Ford ($48bn) and General Motors ($46bn)! VinFast, which is part of the Vingroup conglomerate, has never made a profit and lost $2.1bn in 2022! * SO WHAT? * Well if this is anything to go by, SPAC-backed IPOs have just got their mojo back! Mind you, VinFast/Vietnam: founder is main beneficiary of EV company listing (Financial Times, Lex) cautions that all the debut hype does not equate to investor confidence in the company, however, as owner Pham Nhat Vuong owns 99% of the company’s shares! This does sound pretty ridiculous and we’ve seen it all before. Will VinFast disappear within the next 6-12 months?? Vuong probably won’t care as he’s already sitting on a massive gain from the IPO! As we all know, the carmaking (and especially EV-making) business is incredibly expensive to get right and is extremely competitive. It’ll be interesting to see where it goes from here…

Meanwhile, Tesla slashes model prices in China as electric vehicle price war accelerates (Financial Times, Gloria Li) shows that Tesla is getting aggressive again as it cut prices of its China models this week, putting rivals under pressure in a price war. It cut prices of its Model S and Model X by 6.9% yesterday and follows markdowns of other models earlier this week. * SO WHAT? * Given that domestic rivals have already cut prices and that China accounts for about a

third of its annual sales, it is important for Tesla to stay in the game and attract customers via lower prices. There may well be more price cuts to come. Ultimately, you’d think that this may prompt industry consolidation in future if this continues…

Then I thought I’d include this article from a few days ago – Rival battery technologies race to dominate electric car market (Financial Times, Harry Dempsey, Peter Campbell and Christian Davies) – because it does a great job of giving us the story so far on battery technology! It talks you through the invention of the lithium-ion battery in the 1970s, its commercialisation in the 1990s (initially in its Handycam video cameras) and evolution into two different cathode chemistries (cathodes are the main determinant of how much a battery costs and how much energy it can store) – NMC (which uses nickel, manganese and cobalt) and LFP (which uses lithium, iron and phosphate). The South Koreans rein supreme in NMC cathodes, although Chinese companies still account for 75% of global production, while China dominates LFP batteries with a 99% market share of world output! * SO WHAT? * The battle between NMC and LFP technology will have major repercussions on the global supply and demand of lithium, nickel, cobalt and manganese – which will in turn have huge repercussions on Indonesia, DRC and Chile, who supply the materials. Another thing to consider is increasing disquiet about China’s dominance in LFP in particular. Companies like China’s CATL have been able to make LFP batteries at scale and cheaply, which makes them much more compelling for car companies keen to keep a lid on costs. Will the west stick with NMC or will it just put all its efforts into LFP in the coming years?? Whatever happens, it would be prudent for the West to reduce its almost complete reliance on China for batteries otherwise there could be major consequences, as I’m sure Taiwan would agree.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

Just imagine if you were on the Tube minding your own business and then this happens 🤣. This must be a lot of fun! The possibilities are endless…