Tuesday 15/10/19

1. In MACRO, COMMODITIES AND CRYPTO NEWS, we look at US/China, US/Turkey, Brexit, falling oil and rising pork prices and Libra problems
2. In NEWS ON RETAILERS & CONSUMER TRENDS, Barneys gets rescued, cashierless tech spreads, Sports Direct seeks an industry review and Loaf looks good while Chinese consumers cool on electric vehicles and Lego looks at renting
3. In INDIVIDUAL COMPANY NEWS, SmileDirectClub ain’t so smiley, WeWork looks to sack 13% of its workers and Sophos gets a new owner
4. In OTHER NEWS, I bring you some snack box art…

So we look at US vs China, US vs Turkey, Brexit stuff, falling oil and rising pork prices and Libra woes…

China ‘keeps champagne on ice’ over fragile truce in US trade war (Daily Telegraph, Tom Rees) signals the rather more cautious tone from state-run newspaper China Daily over a partial trade deal between the two countries than Trump’s typically understated “greatest and biggest deal ever made for our great patriot farmers in the history of our country” assessment of the agreement reached last week.  US Treasury Secretary Steve Mnuchin was also less effusive about the deal and pointed out that tariffs on $156bn of Chinese imports would still come into force on December 15th unless this “phase one” deal was signed off. * SO WHAT? * The latest stats show that trade between the two countries has fallen by over 20% so far this year so clearly there is a lot to play for. Having said that, it sounds like there are still a lot of major issues to be addressed so I would agree with China’s assessment of the situation! Trump’s bombastic tweets are just a way of putting a bit of pressure on the proceedings. It ain’t a deal until it’s all signed off by presidents on both sides!

US imposes penalties on Turkey, aiming to stop incursion into Syria (Wall Streeet Journal, Ian Talley and Vivian Salama) heralds sanctions from Washington on Turkey as the US raised steel tariffs and threatened that there would be more to come if the country continued a military offensive in northern Syria. Trump urged both sides to negotiate, but has been widely criticised for withdrawing troops from the region leaving Kurdish militias – who had helped the US led fight against Islamic State – exposed. He said that “I am fully prepared to swiftly destroy Turkey’s economy if Turkish leaders continue down this dangerous and destructive path” and many have speculated that the sanctions could start small and be ratcheted up to cutting access to US markets, which would cripple Turkey’s economy. Turkish president Erdogan is not known to be a soft touch, so expect a very bumpy (and destructive) ride.

There seem to be differing interpretations on how Brexit talks are going at the moment with Hopes fade for Brexit deal at summit as EU needs ‘more time’ (Financial Times, Jim Pickard, George Parker and Laura Hughes) on the one hand with Finnish PM Antti Rinne, who currency holds the

EU presidency, appealing for more time and Stephen Coveney, Ireland’s deputy PM, implying that talks may have to extend into next week. On the other, Johnson edges closer to a deal (Daily Telegraph, Peter Foster, Gordon Rayner and Camilla Tominey) sounds an altogether more upbeat tone as it notes that BoJo cancelled Cabinet talks scheduled for today to avoid any potential leaks while delicate discussions are in progress. More noise as the drama rumbles on…

Meanwhile, Oil takes hit amid wariness over trade deal (Wall Street Journal, David Hodari and Joe Wallace) shows that oil prices weakened as doubts about the solidity of the US/China trade deal increased. Oil prices rose on Friday after Trump said that major progress had been made in the trade talks. Other commodity prices also reacted – soybean prices shot up initially as Trump said China had agreed to buy a load of US agricultural products, but then came back down again. African swine fever drives up European pork prices (Financial Times, Valerie Hopkins and Emiko Terazono) highlights price rises for pork, but this wasn’t due to trade talk chatter – it was due to massive demand from China who had to decimate its own pig herd due to the outbreak of African swine fever. Prices are now at six-year highs, having jumped up by 35% since the start of the year. Better ship in those bacon butties/sausage sandwiches before they hit caviar-like prices 😜 as there is usually a time lag before wholesale prices for pork filter down to consumers! Fun fact: Spainiards consume the most pork in the EU followed closely by the Poles and then Germans.

Then Facebook admits digital currency doubts as regulatory hurdles loom (Financial Times, Kiran Stacey and Hannah Murphy) highlights continued challenges for Facebook’s proposed cryptocurrency, Libra, as the company said that although it has the technology, it will struggle to get regulatory approval in time to launch by the end of next year. Dante Disparte, Libra’s deputy chairman, said that it would not launch anywhere until it gets regulatory approval in Europe and the US. Fresh blow for Libra and Booking.com is the latest to pull out (Daily Telegraph, Matthew Field and Laurence Dodds) shows that Facebook’s troubles were exacerbated by the latest company to pull out, travel giant Booking Holdings (which owns Booking.com). This comes shortly after PayPal, Mastercard, Visa, e-Bay, Stripe and Mercado Pago all abandoned over the last week and just before the Libra Association confirmed its founding members. The only payment firm left is Dutch firm PayU.

Barneys gets rescued, cashierless tech goes to more retailers, Sports Direct complains about Adidas and Nike and Loaf does well sofa while Chinese cool on electric car sales and Lego considers rentals…

Barneys’ new suitor seeks tie-up with Saks (Wall Street Journal, Suzanne Kapner and Juliet Chung) highlights a potential bidder for Barneys New York in the form of Authentic Brands, which owns brands including Nine West and Aeropostale, which plans to licence it to Saks. Saks is currently in talks to open Barneys departments in some of its stores and take over its website while Authentic Brands is in talks with landlords about keeping stores open as part of what is believed to be a $270m bid. * SO WHAT? * Barneys New York has to meet a deadline today to find a buyer but any bid could still be trumped by a bankruptcy auction scheduled for later this month. Since it filed for bankruptcy protection in August, Barneys New York has been trying to stave off liquidation as department stores continue to struggle.

I thought that Silicon Valley takes on Amazon’s cashierless ‘Go’ stores (Wall Street Journal, Sebastian Herrera) was a really interesting article because it shows that there are some start-ups, like Zippin and Standard Cognition, who are making tech similar to that used in Amazon Go’s cashierless stores (where you do your shopping and walk out without having to go to a cashier because the stores cameras and sensors pick up what you buy and charge you wirelessly) and selling it to grocery chains, sports stadiums and convenience stores. * SO WHAT? * Many analysts expect that Amazon will licence out its tech once it has perfected it, but in the meantime these start-ups are arguing that customers should use them because they aren’t retailer competitors. I think that this sounds like a nice idea in theory, but I also think that Amazon will win out here because they can easily absorb the development costs and scale-up very quickly while smaller start-ups could be crippled if things go wrong and they end up being liable for losses and tech blips. It is notable that Amazon has taken what I think is a very careful approach to using this technology and rolling it out. Good luck to the start-ups, but I think they will be fighting an uphill battle to get it right and scalable before Amazon does.

Back in the UK, Sports Direct calls for industry review (Daily Telegraph, LaToya Harding) highlights Mike Ashley’s latest whinge as he complains about the dominance of Nike and Adidas, calling for a Europe-wide investigation into the sportswear industry. He argues that such “must-have” brands dominate the market which gives them oversize power in supply and product prices. There were reports over the weekend that Nike told some independent suppliers that their access to its products will end in two years as they put more effort into promoting their online presence and it sounds like Adidas will be doing something similar. * SO WHAT? * I must say that I think that if Adidas or Nike were doing some sort of dodgy price-fixing, then Ashley could potentially have a point. However, I think that Nike and Adidas are perfectly entitled to supply who they want to supply and if they don’t think that Ashley’s pile-it-

high-sell-it-cheap methods ring true with the image it wants to project, then they should be free to do what they want to. It sounds to me like sour grapes that he’s not getting access to merch that arch-rival JD Sports is getting and unless he does a revamp of his stores, it ain’t going to happen IMO.

Loaf sitting pretty as sofa sales keep on rising (Daily Telegraph, Laura Onita) shows that sofa start-up Loaf is proving to be a rare high street success story as the sofa retailer which targets younger shoppers reported rising turnover for the year to end of March but kept profits flat as it invested in growth and more showrooms. This contrasts with rivals DFS and ScS who both reported a slowdown in recent sales, although Dunelm is still doing quite well. * SO WHAT? * It’s impressive for companies like this to be able to report profits in a market like this. Furniture retailers do very well when there is a buoyant property market and confidence in the economy as consumers are willing to buy big ticket items and move abode – which often necessitates the purchase of new furniture. The fact that they are seeing strong sales at the moment is great – so imagine what they would be if Brexit got sorted and the housing market started to fire up again! We’ll just have to see how the Brexit talks progress.

Then on the consumer side of things, China new energy vehicle sales drop 34% (Financial Times, Christian Shepherd) highlights a rather worrying trend given that China is the world’s biggest market for cars and is mad keen on New Energy Vehicles (NEV). The Chinese government has made development of the electric vehicle industry a priority and has provided a lot of support for it in the form of subsidies and policy for both buyers and manufacturers. * SO WHAT? * The problem is that, back in March, the government stopped support for all but the top-performing marques (such as bus company Yutong and top electric car maker BYD), effectively putting the smaller ones at risk as consumers continue to be very price sensitive. This has been made worse by consumers being less willing to hand over their cash against the backdrop of an economic slowdown but TBH, a drop-off in sales of electric vehicles pretty much always happens when subsidies are taken away. The training wheels have come off and it’s time to see who can keep pedaling!

Lego looks at putting together potential rental service (Financial Times, Peggy Hollinger and Richard Milne) shows that Lego is thinking about offering a rental service as a way to make its products more environmentally friendly. He talked about this as being one of many different ideas being floated by the company at the moment during a Financial Times conference held last week on the future of manufacturing. Lego itself is facing sustainability issues given then massive amount of plastic it uses and although it has promised to phase out fossil-fuel based plastics by 2030 it still has yet to find a material that has “clutch power” – the ability to put bricks together and take them apart easily. * SO WHAT? * I think that the concept of hiring “things” is a very interesting one and Lego isn’t the only Nordic company to consider it. Ikea, the world’s largest furniture retailer, has been experimenting with furniture rental and Volvo Cars has already started a car subscription service where customers can change cars every 12 months and all costs excluding fuel are included. This is a really interesting subject and will be something that more and more companies wrestle with as more efforts are made to be environmentally friendly. 

SmileDirectClub frowns, WeWork workers suffer and Sophos gets a new owner…

SmileDirectClub shares hit low after California Bill (Wall Street Journal, Stephen Nakrosis) highlights a 13% fall in the share price of an already battered SmileDirectClub on news that new legislation in California will make it harder for Californians to buy from the teeth-straighening start-up. Basically, the bill will require a dentist providing orthodontics to review a patient’s recent X-rays. * SO WHAT? * Given that the start-up’s business is built on supplying clear teeth straighteners direct to consumers without the need to see a dentist, this presents a rather serious hurdle. SmileDirectClub floated on the market last month at $23, fell by 28% on its first day of trading and is

now priced at $9.44. This latest development is a big problem and it had better hope that other jurisdictions don’t follow suit, otherwise this company is toast.

WeWork set to sack 2,000 staff as anger towards co-founder grows (The Guardian, Dominic Rushe) shows more problems with the embattled “unicorn” office space supremo as rumours surface about a cull of 13% of its 15,000 staff worldwide. WeWork have not commented. What a fall from grace.

In Bumper payday for Sophos founders as $3.8bn takeover agreed (The Times, Simon Duke) we see that American private equity fund Thoma Bravo has decided to buy the cybersecurity software specialist, netting its two founders almost £500m. Thoma Bravo said that it will be conducting an in-depth review of the company after the acquisition completes sometime in the first quarter of next year.

And finally, in other news…

I thought I’d leave you today with some impressive skills in Japanese snack package craft artist holds first Tokyo exhibition in Ikebukuro, offers autographs (SoraNews24, Katy Kelly https://tinyurl.com/y2t6y9k2). Just. Wow.