Thursday 26/09/19

  1. In TECH NEWS, South Korean tech firms benefit from the spat with Japan, Nintendo releases Mario Kart app, eBay’s boss resigns and Amazon does wearables
  2. In TRANSPORT-RELATED NEWS, UK car production hits new lows, Aston Martin’s debt gets more expensive and Wrightbus collapses
  3. In RETAILER NEWS, Sainsbury’s announces slimming plans, Tesco closes its first “Jack” store and Boohoo spends wisely with influencers
  4. In INDIVIDUAL COMPANY NEWS, faces the FTC for dodgy dealings and the PMI/Altria merger goes up in smoke
  5. In OTHER NEWS, I bring you mayonnaise-flavoured ice cream and the all-important sweetcorn debate…



So South Korean firms benefit from supply chain reorganisation, Nintendo launches a new app, eBay loses its CEO and Amazon announces new hardware…

South Korea groups see supply chain boost in trade war with Japan (Financial Times, Song Jung-a) shows that some companies are starting to benefit from the ongoing Japan-South Korea trade spat at the moment. Local start-up BTL Advanced Material is benefiting from South Korean companies forced to re-jig their supply chains to de-emphasise Japan. Thus far, it has not been able to compete on price with Japanese rivals such as Dai Nippon Printing and Showa Denko, but South Korean industry has decided to make a conscious effort to boost its use of domestic suppliers while the government has also come up with concrete measures (like tax breaks and a reduction in bureaucracy) to encourage larger companies help their smaller local suppliers. * SO WHAT? * I think that it is always healthy to diversify your supply chain in order to insulate against any external shocks. This is obviously easier said than done in some areas – notably high-tech areas that need specific expertise as well as quality and delivery assurance – and no doubt the South Korean government is surfing on the wave of nationalist sentiment at the moment. But the thing is, when this all dies down and you are a South Korean manufacturer, do you a) buy local and pay up handsomely for being patriotic or b) buy the way cheaper, better quality and tried-and-tested product from Japan? I suspect that although many companies will want to do a), sooner or later they are going to have to do b) in order to remain competitive – especially in the tough trading environment we are finding ourselves in at the moment. On the flip side, this may be a good opportunity for Japanese manufacturers to diversify their own client base to reduce reliance on South Korean customers, although clearly customers such as Samsung and LG will not be easily replaceable!

Nintendo bets big on mobile with launch of Mario Kart app (Financial Times, Kana Inagaki and Leo Lewis) heralds a major move for the company with its biggest ever mobile game release, Mario Kart Tour, which could change the way it makes money outside of consoles. Nintendo has introduced the option of a $4.99 subscription service that will enable gamers to access benefits such as faster karts and they can also make in-app purchases. * SO WHAT? * This is the company’s third attempt at monetising a mobile game. Super Mario Run, launched in 2016, was free to download but came with a one-time $10 payment for premium content which dampened its success. Dr Mario World was its second attempt, where it swapped the payment model for an advertising one, but the game just didn’t catch on. This third attempt sounds pretty expensive

to me considering that subscribers can get access to 100 games on Apple’s new gaming service Arcade for the price of this ONE game from Nintendo. Without playing, I do not know what the difference is in terms of gameplay and graphics so all things being equal this offering sounds rather expensive. As Flappy Birds, Angry Birds and Candy Crush showed, you don’t need amazing graphics to have a wildly successful game – and if Apple Arcade games are “good enough” for when you are trying to kill time waiting for the bus/train etc. then Nintendo’s Mario Kart Tour will continue its losing run on the mobile platform. Nintendo has been more than fashionably late to the mobile game-playing party and appears to have had trouble getting its head around the use of devices other than its own consoles.

EBay CEO Devin Wenig resigns (Wall Street Journal, Sebastian Herrera and Allison Prang) highlights trouble at the top of the company as its chief exec cited disagreement with the new board for his departure. The board is currently overseeing a strategic review after increasing pressure from activist investors such as Elliott Management Corp and Starboard Value to break up the company. CFO Scott Schenkel will serve as interim CEO until it gets a successor. The share price fell about 1% on the news, but has actually gone up by 40% so far this year. Fun facts: eBay bought PayPal for $1.5bn in 2002 and then spun it off in 2015. PayPal is now worth over $120bn while eBay is worth over $32bn. * SO WHAT? * It seems to me that eBay is suffering from increasing competition and a general maturing of the online marketplace business as both revenue growth and the value of goods sold continue to weaken. Wenig’s departure may pave the way for a sale of StubHub and/or its classifieds business. TBH, his departure has followed a number of senior level exits in the last year or so, including CTO Steve Fisher and RJ Pittman, so maybe the company is due some fresh blood and a new direction.

Amazon extends Alexa’s reach into wearables (Wall Street Journal, Sebastian Herrera) highlights the broadening of Amazon’s product line-up with over a dozen new devices including a high-end speaker, a multi-function oven, a motion sensor and wireless earbuds – all with Alexa built-in. It also unveiled Echo Frames, glasses that will incorporate microphones and speakers to communicate with Alexa. * SO WHAT? * This all sounds good, although a more ubiquitous Alexa sounds slightly creepy IMO. However, it’s important for Amazon to address the fact that its leadership in the home virtual assistants space is continuing to erode, so more devices with more Alexa probably makes sense. TBH, my favourite bit of news from this release is that Samuel L. Jackson is among a number of celebs signed up to be a voice for Alexa. How great is that?? Samuel L in my kitchen! Can you imagine “The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men…” booming out while you wash the dishes?!?



UK production hits new lows, Aston Martin has more woes and Wrightbus fails…

UK car production at seven-year low after Brexit chaos (The Times, Robert Lea) cites the latest figures from the Society of Motor Manufacturers and Traders which show that car production in UK factories fell by 17% year-on-year, to its lowest level for seven years. This is just more evidence of gloom in the sector – and Aston Martin borrows $150m at sky-high interest rate (Daily Telegraph, Alan Tovey) confirms that even more as the high interest rate (a hefty 12%!) it is being forced to pay on its secured bonds reflects heightening concerns about its viability. * SO WHAT? * Talk about hype. The shares listed in autumn last year at £19 a pop and are now trading at 550.8p – and the S&P ratings agency cut the company’s rating to “junk” yesterday because it felt the company has “reached its debt ceiling in terms of amount of term debt and the cash interest burden it can sustainably service”. I’m a fan of the

cars as much as anyone, but it sounds to me that if the forthcoming DBX SUV isn’t a success, the company may not survive. Given the current global slowdown, poor car sales in every market and a perceived move away from “gas guzzlers”, Aston will have its work cut out. It will be hoping that its moneyed customer base will prove to be fully insulated against the buffeting of external economic forces.

More than 1,000 jobs lost after talks to save bus-maker collapse (The Guardian, Simon Goodley and Jasper Jolly) shows that one of Northern Ireland’s biggest employers – and (in)famous maker of the double-decker “Boris bus” – has collapsed into administration. The company is based in the county Antrim town of Ballymena and is now the latest employer, following the departure of Michelin, Gallaher and Blackbourne Electrical over the last few years. As always with these things, it’s not just the jobs at the failed company that disappear – there are thought to be another 1,700 hanging in the balance down the supply chain. * SO WHAT? * It seems that the company has suffered with a weaker order book following a “boom” of large orders for vehicles meeting stricter emissions standards in recent years. The company’s administrator is looking for buyers.



Sainsbury’s announces cuts, Tesco closes a “Jack’s” and Boohoo cries with joy…

Sainsbury’s to close up to 125 outlets as boss ‘tweaks’ plan (Daily Telegraph, Laura Onita) shows that Sainsbury’s is now embarking on a cost-cutting spree following its failed bid to buy Asda. Chief exec Mike Coupe announced the closure of up to 125 (as yet unspecified) outlets over the next five years including large shops, convenience stores and stand-alone Argos outlets. It said that it will also stop any new mortgage sales and capital injections into its banking arm after already putting £35m into it this year. * SO WHAT? * Tough times after its failed bid which would have provided Mike Coupe with potentially easy wins if it had gone ahead. It hasn’t, so the next best thing he can do is to slim the business down. I wonder how long he is going to last in the hot seat without any exciting new strategy to fight back against the rise and rise of the German discounters.

Talking of discounters, Tesco shuts pioneer shop in sign that Jack’s not all right (Daily Telegraph, Laura Onita)

shows that Tesco’s lukewarm foray into taking on the likes of Aldi and Lidl at their own game isn’t goint particularly well. Its first “Jack’s” discount store in Rawtenstall, Lancashire, which only opened earlier this year is going to close down! Tesco currently has 10 “Jack’s” discount format stores and aims to open three more by the end of the year. Still, closing one down so soon after opening it doesn’t say much for management shrewdness or success for the brand! I continue to believe that this is a brand that is destined to fail (it’s cannibalising Tesco and is a new format that it has no track record in).

On a more positive note, Boohoo’s £90m marketing spend pays off (The Times, Elizabeth Burden and Ashley Armstrong) highlights a strong performance for online fashion retailer Boohoo, which has vindicated its £90m spend on marketing over the last year – an amount equivalent to 9% of annual sales. Its revenues were up by a whopping 43% in H1 with pre-tax profits up by an even chunkier 83%. Concerns that the (fire sale price) acquisitions of Karen Millen and Coast last month as well as Miss Pap and Nasty Gal would cannibalise Boohoo sales generally have not been borne out. It’s a retail star! Well, for now anyway 😜. We all know how fickle fashion can be!


INDIVIDUAL COMPANY NEWS faces scrutiny, the PMI/Altria merger is off and Thomas Cook fallout continues…

Match lured singletons with fake hope of finding ‘the one’, US regulator claims (Financial Times, Hannah Murphy) sounds pretty serious as the US Federal Trade Commission (FTC) is suing online dating company Match, saying that it ensnared “hundreds of thousands” of people to pay for their services by using false expressions of interest. Match has over 25% of the online dating market and as well as Tinder, OKCupid and PlentyOfFish. It said that “We believe that conned people into paying for subscriptions via messages the company knew were from scammers. Online dating services obviously shouldn’t be using romance scammers as a way to fatten their bottom line”. The FTC also alleges that the promise of a free six-month subscription if users don’t “meet someone special” is spurious and that it also made it too difficult for users to cancel subscriptions. * SO

WHAT? * The share price only fell by 3% on the news, but this sounds pretty serious to me. We’ll just have to see how this unfolds, but for now I’d expect a cap on share price upside. Obviously, the company strenuously denies the allegations. I suspect the judgment will be followed closely by other businesses who operate on a subscription model.

Then Philip Morris and Altria snuff out merger amid vape alert (The Times, Alex Ralph) shows that all the e-cigarette negativity around the world has been too much for the proposed £200m merger between the two tobacco companies to survive, just one month after mooting it. Given the huge amount of negative publicity surrounding vaping at the moment (not to mention the resignation of Juul’s chief exec Kevin Burns) this is not that surprising. PMI/Altria: the vape escape (Financial Times, Lex) says it is just as well given the diverging fortunes of the two groups – especially now in vaping. Philip Morris has less debt, superior margins and a strong e-cigarette offering of its own in IQOS, which should benefit from the vaping crackdown. Altria, on the other hand, is looking like a rabbit caught in the headlights wearing its 35% stake in Juul like a massive lead weight.



And finally, in other news…

Today, I thought I’d leave you with something weird in Morinaga Milk Industry unveils Japan’s first mayonnaise-flavored ice cream! (SoraNews24, Shannon McNaught and something to ponder and discuss in Is corn a fruit, a vegetable, or a grain? (Popular Science, Sara Chodosh Hmmm.

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Some of today’s market, commodity & currency moves (as at 0910hrs 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 **
7,290 (-0.02%)26,971 (+0.61%)2,985 (+0.62%)8,07712,234 (-0.59%)5,584 (-0.79%)22,048 (+0.13%)2,929 (-0.89%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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