Tuesday 05/06/18

  1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
  2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
  3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
  4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…



US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.



Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.