Tuesday 11/10/22

1. In MACRO NEWS, we look at the latest in UK government U-turns
2. In CONSUMER & RETAIL NEWS, late mortgage payments rise, households cut spending (but businesses plan to raise pay), retailers see footfall drop, Joules has good and bad news and retailers in America begin sales early
3. In CONSUMER SPENDING TRENDS, Netflix posts £1.4bn in revenues from UK subscribers, Hollywood Bowl bowls everyone over, Getir comes to the rescue of Gorillas and spending on PCs drops sharply
4. In INDIVIDUAL COMPANY NEWS, Tesla smashes it in China and DS Smith posts a surprise update
5. AND FINALLY, I bring you a superb doormat…

So it’s U-turns galore for the government at the moment…

Liz Truss shows a newfound belief in economic orthodoxy (Financial Times, George Parker and Chris Giles) shows that Truss, having spent the summer banging on about burying Treasury “orthodoxy”, is now bringing it back in response to the hugely negative backlash against the mini-budget as Veteran picked as top Treasury mandarin in Truss U-turn (Financial Times, George Parker) highlights her appointment of 20 year+ Treasury veteran James Bowler as the finance ministry’s new permanent secretary as part of a broader effort to calm financial markets. Bowler will be Kwarteng’s top adviser.

Kwasi Kwarteng warned he faces £60bn bill to stabilise UK finances (Financial Times, Delphine Strauss) shows that the chancellor will have to find over £60bn from somewhere in order to convince investors that he can balance the UK’s finances,

according to the Institute for Fiscal Studies think-tank, while Kwasi Kwarteng gives himself three weeks to come up with debt-cutting plan (Financial Times, George Parker, Adam Samson and Tommy Stubbington) highlights the chancellor’s plan to bring forward his plan to cut debts to October 31st, amid much scepticism. He was due to announce this on November 23rd, but the chaos that followed his mini-budget announcement has clearly pushed him to announced more detailed plans earlier to cut short a potential damaging period of limbo. * SO WHAT? * I said before that the government was going to have to announce additional measures as the ones announced originally were just so bad – and here we are. I do not think – at this stage – that “it’s all over”, but I think that the way Truss and Kwarteng swept in with measures that just didn’t chime with the public (which is putting it mildly!) has given them a mountain to climb in terms of credibility. Still, it IS possible, and at least this shows that the government is listening (albeit belatedly). We will just have to see how this unfolds.

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!

Consumers feel the pinch and retailers are feeling nervous…

Rise in UK borrowers falling behind on mortgage payments, says Santander (The Guardian, Kalyeena Makortoff) shows that Santander UK is allocating more money to cover potential defaults as the cost-of-living crisis is resulting in increasing numbers of people falling behind on their mortgage and loan payments. Rising interest rates and economic uncertainty are combining to hit borrowers coming off fixed rate mortgages particularly hard. The bank has about an 11% share of the UK mortgage market and has upped the amount of money it keeps aside for defaults from £52m in Q1 to £66m in Q2. * SO WHAT? * This isn’t surprising, but Santander isn’t going to be the only bank doing this!

Meanwhile, Households cut back on spending (The Times, Emma Taggart) cites the latest report from BRC-KPMG which shows that sales volumes continued to drop through September. Households reduced spending on big ticket items like PCs but sales of blankets and warm clothing, along with back-to-school clothing and footwear, were strong. Another report, this time from PwC, highlighted a decline in consumer confidence for the fifth quarter in a row. It was also interesting to see that the latest Barclaycard figures shows that spending on essential items rose 3.3% in September, which is the narrowest increase this year. * SO WHAT? * I think it’d be fair to say that we all know this, but such releases give this “feeling” more substance. Will there be an end-of-year “Hail Mary” spending surge as consumers try to cheer themselves up??

Fortunately for some, One in three businesses to lift pay in line with inflation (Daily Telegraph, Tim Wallace) highlights a survey by the Confederation of British Industry (CBI) which shows that 75% of businesses have been hit by labour shortages over the last year, with 50% of those reporting they were unable to meet customer demand as a result. Companies are trying to increase pay to hang on to workers in a tight labour market and a third of respondents said that they are planning to boost pay by at least the rate of inflation in the next pay round. * SO WHAT? * This sounds good – but then I would have thought that it is likely that this will lead to more inflation as prices will need to rise in order to take into account all of these pay increases.

Retailers hit by drop in footfall as energy bills rise (The Guardian, Sarah Butler) shows that footfall at retailers fell in the week commencing October 2nd versus the previous week across all UK retail destinations, with the biggest drop being felt at shopping centres and retail parks, according to monitoring group Springboard. * SO WHAT? * This is a bit of a shocker given that

now is the time that footfall generally starts to increase in the run-up to Christmas. I referred to Barclaycard’s figures earlier, but there seemed to be a shift towards staying in, with spending on takeaways up by 10% and a turnaround for subscriptions, gaming and sports streaming, which were up by 1.6% after a number of months where they fell. I think that everyone will be waiting to hear what the government says about any kind of bailout/aid measures in the coming days and weeks.

Joules lines up rent cuts after cash aid failure (Daily Telegraph, Hannah Boland) shows that things are getting more desperate for the embattled retailer who was going to get a cash injection from Next, but then didn’t. It’s now about to start talks with landlords about cutting its rent bills and is considering “a range of potential options” to keep going. Having said that, help might be on the way in Joules’ new car-dealer investor sparks hopes of turnaround (The Times, Russell Hotten) shows that a multi-millionaire car dealer called Richard Teatum has been building an 8.9% stake in the retailer that has cost him around £1m so far, but there has been no official statement from the company. * SO WHAT? * What a nightmare! It is pretty amazing to think that the company that was worth £140m when it listed in 2016 is now worth around £10m! Still, it all went back to it missing a gaping hole in its accounts and it just hasn’t been able to recover since. I thought Next would have been quite good as it could have given Next yet another brand to sell on its platform and it could have given Joules the benefit of its expertise – but I guess that Next now has problems of its own to deal with.

Over in America, Retailers kick off Black Friday in October again, this time with too much stuff (Wall Street Journal, Alyssa Lukpat) shows that retailers are getting so desperate to bring the customers into their shops that they are already offering deals six weeks before Black Friday! Target and Walmart are already offering cut-priced goods and it’s likely that they were among those prompted to take action after Amazon announced last month that it was going to offer another Prime Day event – due this week. * SO WHAT? * It seems like Black Friday is getting earlier and earlier these days and I guess that retailers want to make these offers for two reasons: firstly, to get the punters in and secondly, to get rid of excess inventory built up in response to supply chain problems. The problem is that having so many sales could eventually lead to consumers deciding not to buy at full price because they know another sale is going to be around the corner! Everyone will be watching sales events like Amazon Prime Day, Black Friday, Cyber Monday etc. even more closely than usual to discern trends in consumer behaviour.

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!

Some spending trends are becoming apparent…

Netflix reports £1.4bn revenue last year from UK subscribers (The Guardian, Mark Sweney) shows that Netflix unveiled annual revenues from US subscribers for the first time – £1.4bn in 2021 – after re-jigging its accounting practices. It usually lumps them in with other divisions and jurisdictions to minimise its tax spend. I wonder whether it will be using the opportunity of strong dollar to make more content in the UK and Europe.

It seems that we’re still spending on fun times in Hollywood Bowl smashes profit expectations despite living costs crisis (The Guardian, Mark Sweney) as the UK’s biggest tenpin bowling operator said it has managed to increase annual revenues and profits to levels that are way above pre-pandemic levels! It’s also confident that it will continue to appeal to families who are cutting household spending. * SO WHAT? * I’m not so sure. Having taken my family out bowling recently (admittedly to another tenpin bowling venue at the local leisure centre – NOT Hollywood Bowl), it is NOT a cheap way of spending time together – especially if you buy food there. It’s fun, but I just don’t think it’s an option if you are on a budget. I hope it continues to do well, but I don’t share its optimism if the economy continues to worsen.

On the other hand, we’re spending less on super-fast food delivery, which has resulted in Getir in talks to buy Gorillas as instant grocery boom slows (Daily Telegraph, Matthew Field) where Germany’s Gorillas has struggled. It raised $1bn last year, has now burned through its cash pile and is now looking for more! * SO WHAT? * I always said that there were too many operators and that there would be consolidation in this industry. I just think that, in order to survive for the long term in this space, you need scale – and scale costs. There has already been consolidation – Weezy was acquired by Getir and Dija was purchased by GoPuff – and I think there could be more. As this occurs, barriers to new entrants will get VERY high.

PC shipments plunge nearly 20%, steepest drop in more than 20 years (Wall Street Journal, Kathryn Hardison) shows that US consumers aren’t spending so much on computers (something that Barclaycard echoed above, with UK consumers) as data from Gartner pointed out that worldwide PC shipments have fallen by a chunky 19.5% versus a year ago. This is a massive fall. Supply chain disruptions have largely eased, but now the problem is high inventory. Even back-to-school sales were weaker than expected. * SO WHAT? * I suspect that two things have happened here – firstly, that the sudden boom in PC sales under lockdown as more people set up home offices reset the replacement cycle, which means that they won’t pick up again for another couple of years at least and secondly, that inflation means that households just don’t want to fork out on big ticket items in general. I don’t really expect this state of affairs to improve any time soon…

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!

Tesla is back in favour in China and DS Smith surprises the market…

In a quick scoot around other interesting stories today, Tesla hits China sales record as Beijing praises Musk’s Taiwan proposal (Financial Times, Edward White and Gloria Li) shows that Tesla’s sales in China made a new monthly high at the same time Musk was praised by Beijing for his China-friendly proposal for Taiwan to be placed in a special administrative zone, as per the case with Hong Kong. The new high suggests that supply chain problems have now eased and upgrades at its Shanghai factory are starting to kick in. * SO WHAT? * This will come as welcome news for Tesla as the last few years have been trickier due to friction with Beijing

and increasing competition from domestic rivals. Re Taiwan, though, I wouldn’t have thought the remarks would have gone down well with Taiwanese. Given how the pro-democracy movement was snuffed out in Hong Kong, it doesn’t bode particularly well for Taiwan…

Meanwhile, Keeping a lid on costs lifts cardboard box maker (The Times, Robert Lea) shows that British corrugated cardboard supremo DS Smith gave the market a surprise trading update – and it was very positive! The share price jumped by 12.1% on the news that it had been successful in controlling costs and putting through price rises. It is confident going into the end of the year. It’s nice to get some good news for a change, isn’t it!

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…

This really is very good. It gives me so many ideas about possibilities for a Watson household doormat 😁: Friends fans go wild over epic doormat asking postman to solve Ross and Rachel debate (The Mirror, Amber O’Connor). Clearly, if you like Friends, you’ll love this!