Wednesday 16/01/19

  1. In MACROECONOMIC NEWS, we see what’s next for Brexit and that Germany only just avoids recession
  2. In RETAIL NEWS, India tries to protect the Davids against the Goliaths and we look at more UK retailing winners and losers including Boohoo and Games Workshop with good news and M&S and Paperchace with bad
  3. In CARS NEWS, Ford and VW announce a tie-up and Volvo buys into a wireless charger
  4. In INDIVIDUAL COMPANY NEWS, Netflix hikes its prices (but not in the UK)
  5. In OTHER NEWS, I bring you expensive cauliflower “steaks” and aphrodisiac crisps. For more details, read on…

1

MACROECONOMIC NEWS

So May’s Brexit plan gets the boot and Germany avoids recession…

Theresa May’s Brexit plan falls by 230 votes (Financial Times, George Parker, Laura Hughes and Michael Peel) heralds a rather tricky ending for a deal that was two years in the making as the House of Commons rejected it by 432 votes to 202, making it the biggest defeat inflicted on any government. Jeremy Corbyn immediately tabled a vote of no confidence in the government but May is expected to win the vote tonight because neither the Conservatives nor the Democratic Unionists want a general election. May has until Monday to come up with another plan and announced immediate talks with senior MPs from all sides to decide exactly which changes would win the Commons over. At the moment, Europe is not keen on offering much in the way of concessions and all sorts of possibilities are being mooted. There were suggestions that the government is “running down the clock” until March 29th in order to pressure MPs to change their mind, that Article 50 exit

process could be extended (but that is unlikely unless there is a clear alternative plan in place) and that May could start to try to test a number of different Brexit options to see what would actually fly in the Commons in addition to all the usual stuff like a second referendum, a Norway-style economic partnership or a permanent customs union. The saga continues…

Germany ‘narrowly avoids’ recession as economy slips (Daily Telegraph, Anna Isaac) cites the latest data from the Federal Statistics Office which show that although Germany had its worst economic performance for five years in 2018, it managed to avoid recession thanks to a smidgen of growth in the final quarter. The country, which is Europe’s largest and the world’s fourth largest economy, appears to be slowing down across the board with weakening consumer spending (despite low unemployment and higher wages), sluggish exports due to trade wars and lower global trading volumes. Given the current leadership limbo and prospects of a further hit to Germany’s car industry if Brexit goes ahead, 2019 isn’t looking great right now.

2

RETAIL NEWS

India makes moves to protect smaller retailers and we see more winners and losers amongst UK retailers…

India’s ecommerce crackdown upends big foreign players (Financial Times, Simon Mundy) highlights efforts by Indian Prime Minister Narendra Modi, four months before the general elections, to address complaints by mom-and-pop-shops who feel they are getting unfairly undercut by the likes of Amazon and Walmart-owned Flipkart. New restrictions announced late last month will come into force next month which state that no seller on foreign-funded online marketplaces can get more than 25% of its inventory from a wholesaler linked to the marketplace (a loophole used by the giants thus far to buy in bulk and sell at a loss by using their respective massive balance sheets) and that no entity will be allowed to sell on these marketplaces if any of its equity is owned by the marketplace or by any of its group companies. * SO WHAT? * This is going to be a headache for the likes of Amazon and Flipkart because they are likely to get lumbered with a lot of inventory in the short term, plus this rule change moves the goalposts for them considerably making it harder for them to operate freely in this potentially enormous market. On the flip-side, this is likely to benefit local companies such as Reliance, which operates the country’s biggest retail chain, and Snapdeal, which is an online marketplace for small vendors. As the latter’s co-founder Kunal Bahl, pointed out, “If they were providing great pricing while generating a profit, it would be a different conversation. But everyone knows that these companies are haemorrhaging cash while giving out all these promotions, and at some point they’ll want to pull this back. They’re not charitable organisations”. Walmart bought Flipkart for $16bn last year while Amazon committed $5bn to its Indian operation, so this is a big deal for both companies. Their plan of squeezing out the locals by charging artificially low prices appears to have backfired in spectacular fashion.

What recent trading updates reveal about UK retailers’ health (Financial Times, Jonathan Eley) does a good roundup so far of the winners and losers on the UK high street and it starts off with the conclusion that, overall, the reality has been a lot less gloomy than everyone had been expecting – although spending has been driven largely by discounts. Generally speaking, retailers that were already looking shaky continued along the same lines (e.g. Debenhams, Mothercare, Halfords and Footasylum) although DFS and Dunelm managed to turn things around a bit. Those at the top of their respective markets, such as Selfridges and Fortnum & Mason did well from tourists bagging bargains because of the weak pound and even Ted Baker managed to shrug off pre-Christmas concerns over its founder’s alleged behaviour towards employees. Most recently, Boohoo bucks trend with jump in revenues (The Times, Deirdre Hipwell) and Record Games Workshop sales cheer investors (Daily Telegraph, LaToya Harding) are further examples of retailers doing well whereas M&S deals latest blow to high street with closure of 17 stores (The Guardian, Zoe Wood) – the equivalent of one in three of its main stores selling clothing, homewares and food in the same shop – and Paperchase hires advisers KPMG for store closures (Daily Telegraph, Ashley Armstrong) are two examples of retailers who are feeling the pinch. It sounds like Paperchase is considering a Company Voluntary Arrangement (CVA) but there has been no official confirmation of this. * SO WHAT? * Consumers are spending less overall, but it seems that Christmas wasn’t actually as bad as everyone expected and those who did well saw chunky rises in their share prices as a result (as per what I said last year). The whole sector got mullered, so winners stood out. Anyway, IMHO, now would be a great time for retailers to “kitchen-sink” their problems (i.e. bunch them all together and get rid of them) and do some major strategic overhauls because they can blame everything on the currently sluggish consumer and Brexit uncertainty. If things turn up unexpectedly, then they will have a cushion to implement new measures, but if they go bad at least they will be doing something about it – and pronto! At the end of the day, consumer behaviour and tastes are changing and so I think that senior management will be much more open to radical change than they otherwise might be.

3

CARS NEWS

Ford and VW team up and Volvo invests in wireless vehicle charging…

Ford and Volkswagen pair up in face of technological revolution (The Guardian, Dominic Rushe) heralds a new alliance between the two companies who will share resources on autonomous vehicles, mobility services and electric vehicles. This alliance would be the largest of its kind in the industry and Ford CEO Jim Hackett even suggested that VW could be building Ford-branded cars in Europe. * SO WHAT? * Both companies are having a hard time (as are other car manufacturers) what with sales slowing down globally and the cost of meeting tighter regulations. Both of them have electric ambitions and it seems like a reasonable idea to pool their resources to find what works. I suspect that there will be more alliances – and maybe even mergers – to come as auto 

manufacturers collectively brace themselves for sea-changes in their industry in terms of product and trends in car ownership.

Sweden’s Volvo invests in wireless vehicle charging company (Financial Times, Kate Beioley) highlights the announcement that Volvo is investing in Momentum Dynamics, a high-power wireless charging company, as it continues its efforts in the electric vehicle market. The Philadelphia-based company develops high-power wireless charging systems for trucks, buses and construction equipment. Systems currently in development by other manufacturers include BMW and Daimler’s induction pads, which can be installed in conventional garages, whilst Renault is looking into under-road charging which works via pressure points in the road which detect the vehicle and pass electricity up into the car, charging it as it moves. * SO WHAT? * This all sounds great, but I suspect that we are years away from any of them becoming reality. In the meantime, charging networks need to see exponential improvement (although I would say that wireless charging should help that enormously) in order for electric vehicles to get wider adoption.

4

INDIVIDUAL COMPANY NEWS

Netflix ups its prices…

Netflix slaps biggest ever price increase on US subscribers (Daily Telegraph, Margi Murphy) heralds subscription price hikes of 18% for its “unlimited”

streaming package from $11 to $13 a month, with its cheapest service price rising from $ 7 a month to $8. A company spokesman said that “Price increases are specific to each country and the US increase does not influence or indicate a price change in the UK”. Phew! Netflix is due to publish its fourth quarter results tomorrow.

4

OTHER NEWS

And finally, in other news…

Someone is clearly taking the p!ss here in Pub chain ridiculed for selling two cauliflower steaks for £28 during Veganuary (The Mirror, Natalie Evans https://tinyurl.com/ycpffm9v) as punters are given the choice of paying £28 for two Aberdeen angus sirloin steaks with chips or two CAULIFLOWER “steaks” with mash, mushrooms and tomatoes. Hilarious.

AND FINALLY, here’s an idea for something classy on Valentine’s Day: Aphrodisiac crisps are now a thing – and they have ‘provocative’ effect on body (The Mirror, Courtney Pochin https://tinyurl.com/yclws9cf). We all know that nothing says “I love you” more than a bag of (limited edition) crisps ????

Some of today’s market, commodity & currency moves (as at 0826rs 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 **
6,895 (+0.58%)24,066 (+0.65%)2,610 (+1.07%)6,98610,892 (+0.33%)4,786 (+0.49%)20,443 (-0.55%)2,570 (unch%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$52.1844$60.72561,291.541.288701.14128108.571.129093,582.49

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