Wednesday 05/12/18

1. In POLITICS AND MARKETS NEWS, May suffers more defeat, Macron U-turns on fuel tax, France and Germany chicken out of digital tax and US markets tumble on lack of tariff clarity
2. In RETAIL-RELATED NEWS, Kroger gets with Walgreens, UK department store spending slides, Travis Perkins mulls shedding Wickes and Thomas Cook’s nightmare continues
3. In SECTOR NEWS, UK construction is actually looking OK
4. In OTHER NEWS, I bring you a food challenge. For more details, read on…

So May and Macron taste respective defeats, France and Germany back down on an EU-wide digital tax and US markets stumble on tariff wobbles…

The day May lost control (Daily Telegraph, Gordon Rayner) shows that Theresa May lost three Brexit-related votes in the space of an hour yesterday, making her the first PM in 40 years to be defeated three times in one day. Firstly, she was told that she would have to hand control over Parliament if her Brexit deal was voted down on Tuesday next week (to formulate a “Plan B”) making a no-deal Brexit is almost impossible and secondly, she lost two votes that mean she will have to publish the full legal advice she had on Brexit from the Attorney-General rather than get away with a “highlights” version. * SO WHAT? * There’s still a lot of jockeying for position ahead of next week’s vote, but interestingly the defeats May suffered yesterday could actually help her campaign as she could say to Eurosceptics that if they DON’T back her Brexit plan, there won’t be a Brexit. The drama continues…

Following on from what I said yesterday, French government suspends fuel tax rise after riots (Financial Times, Harriet Agnew, David Keohane and Demetri Sevastopulo) shows that Macron has just bought himself some time by postponing the fuel tax rises by six months following violent protests over the weekend. * SO WHAT? * This is the first time in Macron’s 18-month presidency that he has backed down on proposed measures and it is estimated that this action will cost about €2bn. However, Emmanuel Macron fails to buck trend of French Presidential U-turns (Financial Times, Ben Hall) suggests that this is just the tip of the iceberg with analyst Nicolas Bouzou saying that “the troubles are much deeper than fuel tax increases…we have a real problem with living 

standards and there is real hatred for political elites and authorities. The fuel tax increases were nothing more than a trigger”. Given that the weight of taxation in France is the highest in the EU – at 48.4% of GDP – you can see why many French are feeling disgruntled, especially given that they feel that the fuel tax would have disproportionately hit poorer people in rural areas. On the one hand, Macron could use this public anger over tax to streamline the public sector to fund tax cuts, but then on the other, his blinking in this game of fuel tax chicken with the French public could be the beginning of the end for him as he still has contentious reform programmes to push through. Given that his approval rating BEFORE the riots was only 26%, his rivals will be circling…

In Technology giants to escape Europe-wide digital tax plans (Daily Telegraph, Natasha Bernal) we see that France and Germany have proposed a much-diluted version of an EU-wide digital tax which would impose a 3% levy on advertising sales. Originally, the tax was supposed to include activities from data sales and online marketplaces, but this latest digital tax-lite would not cover these areas meaning that advertising-focused entities such as Facebook and Google will be affected while Amazon and Apple won’t be. * SO WHAT? * I think that this is a sign of weakness and a general unwillingness of Europe to bite the hand that feeds it and provides so many jobs. It is understandable in many ways, but it does show that for all the previous European posturing on a digital tax, it all proved to be BS when it came to the crunch.

US markets tumble after trade war truce weakens (The Times, Callum Jones and Tom Knowles) shows how US markets fell sharply last night on renewed concerns about the apparent ceasefire in the ongoing US-China trade war as Trump stirred things up again by saying he was a “tariff man” and that imposing levies was the best way to impose America’s economic power. I suspect that there will be a lot more market volatility over the next 90 days as trade talks continue (if they last that long without either side abandoning, that is).

US retailer Kroger teams up with Walgreens, UK department store spending continues to shrink, Travis Perkins mulls a Wickes sale and Thomas Cook’s nightmares continue…

Kroger to sell groceries in Walgreens Stores (Wall Street Journal, Heather Haddon) shows how US retailers are trying to address changing consumer tastes as Kroger the supermarket plans to sell groceries in branded sections (called “Kroger Express”) at Walgreens Boots Alliance the pharmacy. Kroger won’t sell own-brand items that compete with Walgreens’ private label products but it will take over its supply for branded goods. * SO WHAT? * I think this smacks of desperation as two retailers try a tie-up to diversify revenue streams and attract more customers. Interestingly, this mirrors an attempted merger earlier this year between grocer Albertsons and pharmacy chain Rite Aid that failed mainly because of price. I guess a tie-up is less risky than a full-blown merger and, hey, if it works out maybe a merger can happen further down the line. For now, though, I think this is p!ssing in the wind because it doesn’t really address fundamental problems fully – that consumer behaviour is changing and they have to provide what online retailers can’t. I don’t think that a little light cross-selling is really going to cut it.

Spending at UK department stores falls for 13th month in a row (The Guardian, Sarah Butler) cites figures from Barclaycard which show that spending at department stores across the UK fell for the 13th consecutive month. On the other hand, spending at pubs, restaurants and on entertainment such as concerts, films and shows, was up. * SO WHAT? * This is going to give Sports Direct’s Mike Ashley ammo to justify the closure of more House of Fraser stores. It also shows that EXPERIENCES are what people are after at the moment and this is something that dying areas of the high street need to take note of IMHO. Customer experience will be key to long term retailer survival. 

Travis Perkins mulls Wickes’ sale to focus on trade customers (Daily Telegraph, Ashley Armstrong) highlights the possibility that builders’ merchant Travis Perkins could sell its Wickes DIY chain in a move to focus more on trade customers and cut costs. * SO WHAT? * Ongoing competition with B&Q as well as the overall decline in the DIY market has proved to be a drag on profits, hence the possibility of a Wickes disposal as chief exec John Carter said “We have developed a clear plan to focus on delivering best-in-class service to our trade customers”. UK DIY stores: their Wickes’ end (Financial Times, Lex) points out that Wickes has had its own sales cannibalised by ToolStation, which is also owned by Travis Perkins, as well as other online competitors such as Screwfix, which is owned by B&Q-owner Kingfisher. Travis Perkins may not be able to get a great price for this troubled business at the moment, but the sooner it gets rid, the better.

Thomas Cook to slip out of FTSE250 index in quarterly review (The Guardian, Jasper Jolly) highlights the coup de grace for the travel agent, whose shares have fallen by 70% in the last three months, as it is on the verge of dropping out of the FTSE250, according to index provider FTSE Russell. Changes to the latter’s indices will be announced later on today after a quarterly review that was finalised by yesterday’s closing prices. Other FTSE250 fallers look like including fellow travel agent On the Beach and motoring services, insurance company AA and outsourcing and construction company Kier Group but companies that will take their place include peer-to-peer lender Funding Circle, retirement housebuilder McCarthy & Stone, Restaurant Group and Aston Martin Lagonda. Royal Mail looks likely to drop out of the FTSE 100 to be replaced by insurance firm Hiscox. * SO WHAT? * This is worth knowing as companies that are promoted often see a share price boost as index funds have to buy them and those that are demoted suffer share price weakness as they fall outside fund remits. This is obviously a bit simplistic (as there are other factors at play) but is a general rule of thumb. TBH, there’s probably more of a move leading up to the announcement as investors bet on the changes.

It looks like UK construction is doing OK…

Construction sector enjoys eight months of growth in a row (Daily Telegraph, Helen Chandler-Wilde) cites the latest Purchasing Managers’ Index (PMI) figures which show that the construction industry increased output to its highest level

since July. IHS Markit, which conducts the survey, said that there was some evidence of future spending being put on hold pending Brexit and Duncan Brock, group director at the Chartered Institute of Procurement and Supply, cautioned that “This rise in the overall index was small. Even with optimism at a three-month high, there is currently no indication that this will become a sustained rise as we approach the end of the year”.

And finally, in other news…

I brought you one kind of challenge yesterday – well here’s news of another one: Astonishing moment food blogger takes on 50oz burger in epic restaurant challenge (The Mirror, Courtney Pochin https://tinyurl.com/yauhlsju). Yuck.