Wednesday 02/10/19

  1. In MACRO NEWS, BoJo considers three Brexit scenarios and UK manufacturers stockpile
  2. In RETAIL & CONSUMER GOODS NEWS, John Lewis cuts deep, M&S fiddles about, Ikea targets smart home tech, Amazon expands grocery stores, Rip Curl gets sold and luxury brands suffer from Hong Kong exposure
  3. In CLEAN ENERGY NEWS, funds outperform and Bombardier signs a deal to make battery-powered trains
  4. In INDIVIDUAL COMPANY NEWS, Libra backers get the wobbles and Revolut’s losses double
  5. In OTHER NEWS, I bring you some coffee art…



So BoJo faces a few options and manufacturers get stockpiling…

PM Boris Johnson weighs three potential scenarios (Financial Times, George Parker) identifies three scenarios facing the PM as the Brexit deadline approaches. Scenario one is a deal, which will fulfil his “do or die” promise to get Brexit happening on Halloween. In this scenario, getting a deal done would mean that he would go into an election where he would probably be able to neutralise the threat of the Brexit Party (who want a clean break from the EU) on the one hand and the Liberal Democrats (who want to stop Brexit) on the other. This may well put the Conservatives on track to win another election as “do-ers”. The tricky thing here is that he hasn’t got much time. Scenario two is a no-deal Brexit where BoJo could potentially ignore the legislation intended to prevent such an outcome and take it to the courts, which could potentially result in a delay to Brexit and the third scenario of a second Brexit referendum, which could result in an almighty clash between politicians and the electorate, according to BoJo’s

team. They are currently putting together a formal legal proposal for a Brexit deal in the hope that this will form the basis of negotiations scheduled for later on this month. It is expected that we’ll know by the weekend whether this latest attempt has legs.

UK manufacturers start stockpiling for no-deal Brexit (again) (The Guardian, Richard Partington) highlights the rather unsurprising fact that British manufacturers have been ramping up stockpiles ahead of the latest Brexit deadline of October 31st, according to the latest findings of the IHS Markit/Cips Purchasing Managers’ Index (PMI). * SO WHAT? * Stockpiling is probably masking the trend that many clients are re-routing supply chains away from the UK but many UK-based companies are having to make their contingency plans. Greggs said yesterday that it is building up supplies of key ingredients, but it is not possible to replace everything so it is having to think up alternative recipes and offerings. Stockpiling occurred ahead of the original Brexit deadline and inventories have been declining ever since. However, James Smith, an economist at ING, made the interesting observation that “Inventory levels are still perceived to be fairly high, but also warehousing space is becoming more constrained given the close proximity to Black Friday and Christmas”.



John Lewis cuts, M&S fiddles around, Ikea eyes smart home tech, Amazon expands grocery stores, Rip Curl finds a new parent and luxury brands face Hong Kong fallout…

John Lewis to cut a third of managers in £100m cost-cutting push (Financial Times, Jonathan Eley) shows how seriously the John Lewis Partnership is taking the current high street downturn as it announced that it will cut about a third of management roles in bringing together its department stores and supermarkets as part of cost cutting measures. Both divisions will be run as one from next year onwards under an eight-person team reversing the separation that was introduced in 2001 to help each side grow faster. The changes will come into force from February 2020. News of the dramatic overhaul came just after John Lewis unveiled a first half loss amid tricky market conditions. * SO WHAT? * This sounds like a logical move, especially when you consider that there is major cross-over between the two brands – 80% of those who spend the most shop at both John Lewis AND Waitrose. The group really needs to evolve quickly in order to meet the ongoing challenges of changing consumer behaviour and I think it is notable that such changes are taking place NOW rather than waiting for the new chairman, Sharon White (who is currently head of telecoms regulator Ofcom) to wield the broom and the axe when she takes over from Sir Charlie Mayfield. Time will tell whether the changes are dramatic enough or whether more will have to be done.

M&S to launch ‘buy now, pay later’ option to reverse slide in clothing sales (The Guardian, Zoe Wood) heralds part of a wider plan to modernise the high street stalwart’s ailing clothing business, which is still the UK’s biggest clothing retailer. Sales have been falling for seven years and other retailers, such as Next, have benefited from customers using credit in the form of things like Klarna. * SO WHAT? * This sounds like using a sticking plaster to cover a gaping wound. The fact is that M&S sells boring clothes in a boring format that just doesn’t inspire. This is a perennial problem for M&S that it seems to address from time to time before slipping back into blandness. I think that the company needs to narrow down its customer avatar and focus right in on that – either that or have distinct offerings targeting different groups under one roof. This is what happened with the original launch of brands such as Per Una and Autograph – but that happened AAAAAAGES ago. M&S has already been sweeping out the upper echelons of its management – it’s time to stop p!ssing about and get the right products on the shelves. If it can put some magic into the format as well, then that would be perfect! Anything less will be just fiddling around at the edges IMHO. The good thing, from M&S’s point of view, is that the competition isn’t exactly having it easy either – so maybe this gives it breathing space to do something proper without competitors nibbling away at its customer base while it rings in the changes.

Ikea assembles software engineers in smart home push (Financial Times, Richard Milne) highlights the latest development in Ikea’s continued self-reinvention as the

chief exec of parent company, Inter Ikea, said that it is making its biggest investment in twenty years in smart home technology. It has so far launched speakers in partnership with Sonos and smart blinds that can be controlled via an app and believes that it can add to the “smart party” via its deep understanding of the home. * SO WHAT? * It sounds like an interesting idea that I think will be increasingly commoditised – and Ikea are well-placed to take advantage of this. The focus on “smart homes” is just part of the biggest overhaul the business has had in its 76 year history as it has boosted internet sales, broadened its services offering and experimented with smaller formats in city centres to reduce its reliance of its traditional big-box out-of-town model. This is all great, but sooner or later it will have to stop tinkering about and come up with a solid roadmap. Mind you, at least it is having a go now and has enough money to throw at its own evolution rather than waiting around and only doing something when its back is against the wall.

Amazon’s grocery store plan moves ahead with Los Angeles leases (Wall Street Journal, Esther Fung) signals the e-tailer’s intentions to open a chain of US grocery stores starting with outlets in Los Angeles, Chicago and Philadelphia. As things stand currently, it has 16 Amazon Go stores (these are the ones that have no checkouts), four Amazon 4-star stores (the ones which stock products with a 4-start-or-above rating) and 18 Amazon book stores. * SO WHAT? * It’s interesting to see how the etailing giant is going against the trend in beefing up its offline presence while traditional stores are going the opposite way and trying to increase their online presence. I guess the main conclusion we can draw from that is that it is important to have a BALANCE between offline and online offerings to ensure continued success whichever side of the retailing divide you come from.

Then in Iconic surf brand Rip Curl sold to New Zealand camping retailer (Financial Times, Peter Wells) we see that the iconic Aussie surfing equipment and apparel company has agreed to be taken over by New Zealand-based retailer Kathmandu for $236m (A$350m). * SO WHAT? * This is a major development because Rip Curl has been a private company since it as founded fifty years ago. Kathmandu said that the acquisition will give it a presence in North America and Europe. Rivals Billabong and Quicksilver went bankrupt before being saved in the last few years, so at least Rip Curl has avoided a similar fate!

Luxury brands hammered by upheaval in Hong Kong (Daily Telegraph, Hannah Uttley) shows that the ongoing protests in Hong Kong are having a serious impact on upmarket retailers’ sales as some analysts warn that they could be up to 60% lower as shoppers and tourists stay away – visitors from China alone fell by 40% versus the previous year. If you combine that with the ongoing trade war between the US and China you’ve got a recipe for sluggishness. RBC Capital Markets analyst Rogerio Fujimori pointed out that “The smaller you are in Hong Kong, the better. Brands will have to reassess how many stores they need, maybe close some or make them smaller. This is such an extreme situation where all the visitors have disappeared and rents are very high”. The other thing is that no one knows when this situation is going to end – and as we all know, businesses hate uncertainty. Luxury goods company Richemont, which owns Swatch Group and Cartier, gets between 11 and 12% of its sales from Hong Kong and is particularly exposed to the current unrest.



Clean energy funds outperform fossil fuel stocks and Bombardier lands a deal for battery-powered trains…

Clean energy shares streak ahead of fossil fuel stocks (Financial Times, Henry Sanderson) shows that it pays to be clean as the iShares Clean Energy exchange-traded fund has gone up by 32% so far this year versus the oil-dominated Vanguard Energy ETF, which has only risen by 1% over the same time period. Many renewable energy developers have been benefiting from continued falls in the cost of wind and solar in the last few years to the extent that they are now cheaper than coal and natural gas in some markets. For instance, the cost of solar has fallen by

a whopping 85% since 2010 and renewables have also been boosted by generally low interest rates (making the funding of alternative energy projects cheaper) and more government support for renewable energy development.

Staying on the alternative energy theme, Bombardier signs deal for battery trains (Daily Telegraph, Oliver Gill) shows that the train maker has signed a deal worth €100m with the UK government to power trains with lithium batteries as part of a wider commitment to increase the electrification of Britain’s railways by one third. The company will be using Swiss batter specialists Leclanche as its preferred supplier for the next five years. * SO WHAT? * Ministers have promised to have full electrification of our rail network by 2040 and electric batteries will drastically reduce the need for overhead wires and poles, which could result in cost reductions of about 30%. This deal will come as very good news for Bombardier, especially at its UK HQ in Derby.



Libra’s partners get the wobbles and Revolut’s losses double…

Visa, Mastercard, others reconsider involvement in Facebook’s Libra network (Wall Street Journal, AnnMaria Andriotis and Peter Rudegeair) shows that partners in Facebook’s cryptocurrency project are having the wobbles as they reconsider their support in the face of massive backlash from politicians and regulators around the world. Policy execs from its backers in the Libra Association are being summoned to a meeting tomorrow in Washington DC ahead of an October 14th meeting in Geneva where the group is supposed to appoint a board of directors. * SO WHAT? * If the wobbles turn into defections, Facebook’s

plans could be thrown into jeopardy. Regulators appear to have been leaning on the likes of Visa, Mastercard, PayPal and Stripe by looking deeper into their own compliance plans, so you can see why they could potentially get cold feet. It really looks like Libra could be dead before it is fully born – or maybe it will just have to morph into something less widespread and more akin to “Disney Dollars” that you spend in a theme park…

Following on from yesterday’s big announcement, Revolut’s losses double after it expands user base to 7m (Daily Telegraph, James Cook) brings the challenger back down to earth with a bump. The losses were due to rising customer acquisition costs, but the number of new customers helped to drive revenues up from £12m to £58.2m in the last year. * SO WHAT? * Clearly, Revolut still has a great deal of work ahead of it in order to be a success long term.



And finally, in other news…

Today, I thought I’d leave you with some examples of impressive stuff you can do with coffee in These photos of coffee art will make you want a cuppa ( The 3D ones are my favourites!

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Some of today’s market, commodity & currency moves (as at 0907hrs 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 **
7,360 (-0.65%)26,573 (-1.28%)2,940 (-1.23%)7,90912,264 (-1.32%)5,598 (-1.41%)21,779 (-0.49%)Holiday
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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