Tuesday 08/09/20

1. In CONSUMER/RETAIL/HIGH ST NEWS, US shoppers will see an early Christmas, UK consumer spending strengthens and house prices rise while out-of-town retail benefits, Morrisons employs and Pizza Express announces a rescue
2. In TECH & TELCO NEWS, Samsung signs a big deal with Verizon and China’s top chipmaker takes a tumble
3. In NEWS ON CORONATRENDS, IPOs evolve and law firm winners and losers diverge further
4. AND FINALLY, I bring you an unusual day out…

So we look at what’s going on with US and UK consumers, a retail park revival and a mixed bag from Morrisons and Pizza Express…

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Christmas set to come early for US shoppers as Covid-19 forces rethink (Financial Times, Alistair Gray) shows that US retailers are planning to market Christmas before Halloween at places like Macy’s, Kohl’s, Calvin Klein, Guess and Target as a means to boost sales volumes. Although it is thought that an extended promotion period will help sales, it will also hit margins at a key time in the last quarter of the year. * SO WHAT? * OK, so Christmas shopping has been getting earlier and earlier over the last few years due at least in part to events like Black Friday and other “artificial” promotions but it is likely to be spread over a more protracted period this year as authorities want to avoid crushes at stores that could lead to more cases of coronavirus. Interestingly, it is thought that there will be so much e-commerce going on that logistics companies may start to impose additional charges (which will either squeeze retailer margins if they take the extra costs on the chin or they will pass them wholly or partly on to the consumer). Whether consumers will be in the mood to spend come Christmas-time is a moot point, however, as the spectre of rising unemployment looms large.

Meanwhile, UK consumer spending exceeds last year’s level for first time since lockdown (Financial Times, Valentina Romei) cites the latest data from Barclaycard which shows that monthly consumer spending rose above last year’s equivalent month (August) for the first time since lockdown. We spent more on clothing, pubs and bars but not so much at shops as we still got our retail kicks online. * SO WHAT? * This is good news, but August was no doubt boosted by Eat Out To Help Out, we are now heading into ‘flu season and could also be seeing potentially more unemployment as furlough comes to an end. Leisure, hotels and accommodation are still suffering along with airlines and travel agents – the latter two reporting spending down by a whopping 61% in August this year versus last. Given that the Barclaycard figures cover almost half of all credit and debit card spending, the trends they identify are worthy of note. The chief exec of the BRC, Helen Dickinson, was pretty downbeat about the current situation though, observing that “city centre retailers continue to be devastated by low footfall and poor sales, as office workers stayed away for yet another month”.

Retail parks deal is vote of confidence (The Times, Louisa Clarence-Smith) heralds an interesting turn of events as European property investor, M7 Real Estate, has just bought six retail parks for £157m from RDI Reit, a listed landlord. The chief exec of M7, Richard Croft, believes that retail is evolving rather than dying, pointing out that “you still need somewhere to click and collect”. It’s also interesting to note that the fund bought retail property rather than industrial property because it is actually cheaper these days, given that demand for industrial use (for things like warehousing, for instance) is pretty strong. Maybe out-of-town isn’t completely dead after all!

On that front, Primark: UK city centres ‘not dead’ despite Covid crisis (The Guardian, Sarah Butler and Julia Kollewe) shows that the Associated British Foods-owned offline-only apparel retailer is trying to talk a good game about its big city centre stores in London, Birmingham and Manchester despite sales having fallen to 50% of last year’s levels since reopening. On the plus side, out-of-town retail parks actually performed better than expected and took market share from rivals, but then on the other hand, working from home and low tourist levels hit city centre sales. * SO WHAT? * There’s obviously a risk here that stores in central locations will continue to be hit as lockdown = fewer people = lower footfall = lower sales and so there is an argument for the retailer to invest more in out-of-town outlets. Interestingly, it is planning on opening 700,000m² of retail space in the year from mid-September. No doubt it is praying that there won’t be another major outbreak as there still appear to be no plans to build an online presence.

Elsewhere, Morrisons takes on thousands of new staff (The Guardian, Sarah Butler) shows that Morrisons is taking on more employees in line with the expansion of its online service and its increased in-store cleaning requirements. Employee numbers have shot up since the beginning of the year and it joins others such as Tesco, Amazon, AO.com, Kingfisher (owner of B&Q) and delivery firms Hermes and DPD in taking more on as demand increased during the pandemic. The company is to report its numbers this Thursday and it is widely expected that its increased recruitment costs will hit profits.

On the other hand,  Pizza Express hails ‘vital’ CVA but 73 sites are to close (Daily Telegraph, Hannah Uttley and Ben Gartside) highlights the closure of 73 restaurants after landlords overwhelmingly agreed to a CVA, meaning that 1,100 jobs will be at risk. Poorly performing outlets will be closed and it will pay monthly rather than quarterly rent. The tough times continue.

Samsung signs a big deal and China’s top chipmaker suffers…

Samsung seals $6.6bn deal with Verizon as Trump targets Huawei (Financial Times, Song Jung-a) shows that Samsung has just signed a deal with Verizon to build 5G networks in the US in a major snub to China’s Huawei. The contract runs until the end of 2025 and many believe that Samsung will be a net gainer (as well as Eriksson) in the ongoing strangulation of Chinese tech in America. Huawei continues to suffer from US pressure while Nokia is suffering from quality issues. * SO WHAT? * This is a decent win for Samsung, whose presence in the telecoms equipment market is pretty modest with 3% global market share in 2019 versus Huawei on 28%, Nokia on 16% and

Eriksson on 14%. This division could yet prove to be an important growth area for Samsung as the world moves towards 5G, especially as the demand for its smartphones has waned during lockdown.

Shares in China’s top chip maker tumble as US weighs export controls (Wall Street Journal, Joanne Chiu) highlights a massive 23% fall in the share price of Semiconductor Manufacturing International Corp, China’s most advanced chipmaker, after the US government said it was thinking about putting it on the “entity list” (America’s trading blacklist). * SO WHAT? * SMIC relies heavily on US equipment and software and this would be the latest blow to China tech in the country. SMIC rivals Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp may benefit at its expense. Share prices in other Chinese chipmakers – such as Hua Hong Semiconductor – also fell as investors feared further Huawei-like pressure.

The IPO market evolves and law firm winners and losers get wider apart…

This year has upended the IPO in more ways than one (Financial Times, Sujeet Indap) is a really interesting article that looks at the way IPOs have changed during lockdown. Exhausting globetrotting roadshows have been replaced by video calls and traditional flotations have seen more competition from other options such as “direct listings” and “reverse mergers” with “blank check companies” (a Special Purpose Acquisition Company, or “SPAC”) which raise money from investors who then buy other businesses. * SO WHAT? * Although there will always be a place for traditional IPOs, it seems that the rules and available options will continue to evolve.

Pandemic widens gap between law firm winners and losers (Financial Times, Kate Beioley) highlights a widening gap between Magic Circle law firms and smaller rivals such as Travers Smith, Pinsent Masons and Ashurst due to a “flight to quality” and an ability to be more flexible with their cost bases. * SO WHAT? * Work in restructuring, bankruptcy, employment and distressed M&A tends to increase in a downturn and many expect results from many law firms to get worse before they get better because they have yet to fully factor in the effect of the coronavirus. Overall, though, the legal sector has done better than others due to the number of issues that have resulted from the pandemic, ranging from employment law to restructuring.

…in other news…

Today, I thought I’d leave you with what I think is the most unusual idea for a theme park that I’d actually quite like to go to if I could in A chain of “welding theme parks” is opening in Japan (SoraNews24, Casey Baseel). If only they had those over here! I bet the queues are better than Legoland/Disneyland 😂