Wednesday 22/05/19

  1. In RETAIL & UK HIGH STREET NEWS, US retailers brace themselves for tariff fallout, Home Depot posts solid results, Urban Outfitters looks at clothing rentals, Sephora ramps up openings and we look at Jamie Oliver’s restaurant collapse and Halfords’ woes
  2. In FINANCIALS NEWS, Nationwide highlights the tight mortgage market while Tesco Bank abandons
  3. In INDIVIDUAL COMPANY NEWS, Tesla’s nightmare continues and British Steel nears total collapse
  4. In OTHER NEWS, I bring you a new anti-procrastination device. For more details, read on…



So there’s a ton of retail news today! Here goes…

Big retailers’ sales lag as they gird for tariffs (Wall Street Journal, Suzanne Kapner and Sarah Nassauer) shows that sales for a number of big retailers lost momentum in the latest quarter, indicating an uncertain outlook given that higher tariffs on Chinese imports will start to have an impact. Department stores Kohl’s, JC Penney and Nordstrom all showed falling sales and Kohl’s – which imports about 20% of its goods from China – decided to cut its expectations for the full year, sending its share price down by 12% on the announcement. * SO WHAT? * These results are quite disappointing, but not all retailers have been doing badly – Walmart, Macy’s and TJX (parent of TJ Maxx – known over here as TK Maxx – and Marshalls) all saw decent growth in comparable store sales. OK, so the tariff thing is going to be a pain, but the labour market in America is tight and consumer confidence is still riding high – so things could be a lot worse for retailers.

Home Depot warms up after long, cold winter (The Times, James Dean) shows that the world’s biggest home improvement retailer took a knock from wet weather and weaker timber prices but still managed to announce an  increase in comparable store sales of 2.5% in the latest quarter. This was below market consensus of 4.2% and is the slowest growth rate for the last three years. Having said that, the average sale per customer and number of transactions rose in the first quarter. * SO  WHAT? * Given its size and significance (the company is worth around $210bn at the moment and employs around 400,000 people in the US, Canada and Mexico), many look at Home Depot as a proxy for the health of the US housing market. It didn’t exactly knock it out of the park this time, but it wasn’t a complete disaster either. Given the unusually cold and wet weather for a number of states in the quarter – and the delaying effect it has on usual customer spending patterns – I don’t think that the company has done too badly.

I think that it would be fair to say that clothing retailers are suffering mixed fortunes at the moment and Urban Outfitters to start renting clothes (Wall Street Journal, Khadeeja Safdar) looks at an interesting new potential solution to the problem. Basically, the owner of Urban Outfitters, Free People and Anthropologie stores will launch a service this summer whereby customers pay $88 a month that will let them borrow six items from their own brands plus outside labels Gal Meets Glam, Levi’s and Reebok among others. The customers choose six items of clothing on the website, receive delivery with a reusable bag and prepaid posting label, keep the clothes for a full month and then return them to get six more, although they also have the option to buy. Returned garments are then washed, dry-cleaned and inspected before being sent to another customer. The new business is called Nuuly and is clearly trying to catch the retail wave that is gaining momentum at the moment – apparel rental. * SO WHAT? * According to GlobalData Retail figures this area has been growing by 20% per year, was valued at $1bn in 2018 and is projected to be worth $2.5bn in 2023 (although obviously this is a projection and should only be seen as a guide). The hope is that this will attract new customers and boost existing per-customer spend rather than cannibalise sales.

Rent the Runway is the biggest player in clothing rental currently, but other mall retailers like Ann Taylor, Express and American Eagle have all starting rental offerings using a retailer web platform called CaaStle which also handles the logistics side of things including shipping and dry cleaning. I really quite like this idea and wonder whether it will continue to grow as fast as the projections would suggest. Clearly, this isn’t going to be great for everyone (I have short arms and legs, for instance, and so often have to get clothes adjusted) but I think that the idea behind it is quite clever in theory – especially considering that this will feed into the whole desire for some to have a new outfit on every Instagram post! The problem is that the company is going to have to be very careful that the idea is not abused by customers, otherwise losses could start to mount up. 

In other high street news, Sephora ramps up store openings as it taps ‘beauty revolution’ (Financial Times, Harriet Agnew) shows that the French beauty and make-up retailer, which is part of luxury giant LVMH, is looking to accelerate its global expansion as it continues to open up to 150 stores a year. Unlike many, Sephora believes that investment in physical stores is an integral part to engaging with its customer base as part of a multi-channel approach. It will focus its expansion efforts in North America and Asia, with the number of stores in China set to double in the next few years. The company has benefited in the last few years because of rising demand for beauty products (presumably stoked by YouTuber make-up stars etc.).

Yesterday’s big news (in the UK, anyway!) was Jamie Oliver’s restaurant chain falls into administration (Financial Times, Jonathan Eley) and shows the ongoing tough conditions in mid-market casual dining. The final death knell sounded only one year after the chain used a CVA to slim down and will result in the closure of 23 of 25 eateries operated by Jamie Oliver Restaurant Group – including Jamie’s Italian, Barbecoa and Fifteen – will 1,000 immediate job losses. Depite all the efforts to keep it going – Jamie himself injected £12.6m of his own money into it in 2017 – it has come to this. * SO WHAT? * Basically, it seems to me that he expanded too quickly and it lost the initial freshness that people liked as other chains came (and went) in the market. They also suffered as customers increasingly opted to staying at home and ordering takeaways via companies like Deliveroo and Just Eat. Local authorities in Glasgow, Cambridge, Cardiff, Exeter and Oxford will lose out as landlords as will major real estate investment trusts including Shaftsbury, Hammerson and Land Securities. Everyone will be asking who’s going to be next – and with a list including the likes of Carluccio’s, Giraffe, Gourmet Burger Kitchen, Byron Burgers and Prezzo all having problems, it’ll be interesting to see who survives.

Veering away from food, Halfords revival set to be uphill struggle (The Times, Simon Duke) highlights weakening profits and a tricky outlook for the bicycle and car parts retailer which operates 316 Halfords Autocentre garages, 451 Halfords stores and 26 specialist bike shops including Cycle Republic and Tredz. The current chief exec, Graham Stapleton, plans to invest more in its online capabilities, open more specialist bike shops and garages whilst simultaneously cutting costs. * SO WHAT? * Good luck with that lot. It seems to me like cycling experienced a glorious boom after Wiggo won in the London Olympics, but now things are on the wane and Halfords is right in the middle of it. 



Nationwide and Tesco Bank both suffer from a tight mortgage market…

Nationwide’s profits hit by mortgage price war (The Times, Patrick Hosking) is a headline which says it all as Britain’s biggest building society saw its profit margins hit by the continuing price war in mortgages and scrap for deposits. Its net interest margin (NIM) – the difference between the rate it pays deposits and the rate it lends at – has narrowed from 1.31% to 1.22% in the year to April 4th – and pre-tax profits fell by 15%. * SO WHAT? * Chief exec Joe Garner expects things to get worse in mortgages and is also facing a squeeze on the deposits side with competition from new-kid-on-the-block Marcus (Goldman Sachs’ retail

bank) as well as old-new-kid-on-the-block National Savings & Investments which has been put under pressure by the Treasury to get new deposits. Tough times.

Tesco Bank falls victim to UK mortgage price war (Financial Times, Nicholas Megaw, David Crow and Naomi Rovnick) shows that the mortgage price war got too much for Tesco’s banking arm as it announced yesterday that it will be pulling out of the market altogether. It blamed “challenging market conditions” for abandoning new home loans and will look for buyers of its existing £3.7bn loan book. * SO WHAT? * A price war generally benefits consumers for a period of time, but if things get too much for lenders, more of them will abandon the market leaving less choice and a potential for rates to rise again. At the moment, it seems to me like the tiddlers are suffering and the big players will just hoover up their loan books at a discount.



Tesla’s nightmares continue and British Steel nears collapse…

I mentioned Tesla’s share price woes yesterday but Tesla: robocall (Financial Times, Lex) does a really good job of laying out the problems that face the company. Basically, they can be classified into product problems and financial problems. Product problems include crashes involving Autopilot, spontaneously combusting batteries and unreliable delivery schedules. Financial problems include the frightening rate at which Tesla continues to burn cash, which contrast sharply with a share price that projects huuuuuge future growth expectations. Elon Musk has tried to divert everyone’s attention to a near-future of robo-taxis, but this seems to be very unlikely given that no-one has yet made a completely driverless vehicle. It has high hopes for selling a ton of vehicles in China, but THAT is going to be a rather delicate subject at the moment given current US-China trade tensions. To add insult to injury, Tesla could

crash to $10 in ‘worst scenario (The Times, James Dean) is a possibility outlined by Morgan Stanley’s latest report as concerns increase about disappointing demand for the Model 3, which is expected to transform the company’s fortunes. * SO WHAT? * IMHO, Elon Musk needs to talk less about robo-taxis and more about how Tesla is going to live up to its lofty promises. If it can’t do that, all the existing car makers will just fly by in the fast lane.

British Steel on verge of collapse as government talks stall (The Guardian, Jasper Jolly) is something I spoke about yesterday on my YouTube channel, but the essence of this story is that the company is waiting for a handout from the government. If it doesn’t get it, it will be toast and put 5,000 jobs (and an estimate 20,000 more down the supply chain) at risk. Some are calling for nationalisation, but I don’t think that’s the solution given that they will face restrictions on selling steel because being owned by the government would be deemed, under various regulations, to give it unfair advantage.



And finally, in other news…

I thought I’d leave you today with a new gadget to help all you procrastinators out there! Easily distracted? Have no fear, a new gadget to the rescue! (SoraNews24, CJ could be the answer ????

Some of today’s market, commodity & currency moves (as at 0837hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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