Wednesday 28/02/24

1. In RETAIL NEWS, the UK tries to lure Shein, Currys snubs Elliott, Asda falls off the pace, Homebase reports heavy losses and Macy’s shuts stores
2. In CAR-RELATED NEWS, Shenzhen plans to boost car exports, the UK prepares to investigate Chinese imports, Tesla’s gigafactory faces criticism, Tata plans a gigafactory in Somerset and Apple abandons plans for a car
3. In TECH & MEDIA NEWS, Apple shareholders press for more AI info, Big Tech acquisitions insulate, Klarna sings the praises of its chatbot, Universal’s war on TikTok steps up and Bumble reduces headcount
4. In MISCELLANEOUS NEWS, we see that the oil and gas industry prospered under Biden despite Biden, English councils face hard times and EasyJet returns to the FTSE100
5. AND FINALLY, I show you what it’s like to keep up with Kipchoge…

So the UK tries to tempt Shein, Currys holds out for a better offer, Asda falls behind, Homebase disappoints and Macy’s shuts shops…

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Hunt urges Shein to swap New York for the City (Daily Telegraph, Hannah Boland and Chris Price) shows that the chancellor met the boss of Shein last month in order to try and get the company to list in London instead of New York. Shein could boost falling expected valuation with London listing (Financial Times, Lex) contends that a London listing for the world’s biggest fashion retailer could actually work as investors here actually understand fast fashion, so a London listing is not as unlikely as it may first sound. Meanwhile, How Shein has captured the hearts and wallets of Gen Z (The Times, Isabella Fish) is a useful overview of the story so far and shows how the retailer appeals to Gen Z (it’s cheap, it has a huge range and the app is easy to use). * SO WHAT? * It would be a huge coup for the LSE if Shein DID list in London and it would potentially do something to restore some of its credibility following a spate of London-listed companies abandoning the FTSE to head stateside. As things stand at the moment, it appears unlikely that the US SEC will approve an offering due to ongoing US-China tensions – and if Shein wants to have a decent valuation, it should aim to list sooner rather than later as investors are already having doubts about the current valuation. As I’ve said before, I don’t doubt that Shein will be a popular listing, but the main problem as far as I can see it is that there is huge litigation risk as the online fast-fashion retailer just seems to pile up the lawsuits over the alleged copying of other brands’ products. I think that this cloud will continue to hang over it until the company properly addresses these issues or does some kind of mass “amnesty”-type pay out.

Elsewhere, Currys snubs new offer from Elliott Advisors as Chinese bid looms (The Times) shows that the electricals retailer has now rejected a £757m offer from activist US investor Elliott Advisors as it holds out for an offer that may or may not come from Chinese e-tailing giant JD.com, which is thought to be considering an offer. * SO WHAT? * Currys has found it difficult to grow in the last couple of years thanks to the impact of the cost-of-living crisis but in January it forecast annual profit ahead of market expectations thanks to improving consumer confidence and a rebound in its Nordics business. JD.com is thought to be interested in Currys’ store and warehouse network as a gateway to the UK and Europe but it hasn’t made an official statement about its interest since February 19th when it confirmed that it was in the early stages of evaluating a deal. Under UK takeover rules, it’s got until March 16th to make a proper offer or it will have to just abandon it. The drama continues…

UK retailer woes continue in Asda losing out in battle for shoppers as owners cut costs (Daily Telegraph, Hannah Boland) shows that Asda is lagging all of its major rivals on sales growth, according to the latest figures from Kantar. Grocery sector sales were actually 5.1% higher in the 12 weeks to Feb 19th versus the same period last year while Asda’s market shares has shrunk from 14.3% to 13.8% over the same period. The German discounters continue to apply pressure in the space and Lidl was the strongest performer over the latest period.

Then in Homebase reports heavy losses in ‘challenging year’ (The Times, Isabella Fish) we see that the embattled DIY and garden chain posted a loss of £84.2m in the year to January 1st, 2023 versus a profit of £30m the previous year. Its owner, Hilco Capital is believed to be looking to sell this business that it bought for £1 in 2018. It’s going to take a brave buyer to take on this turkey.

Meanwhile, Macy’s to Close 150 Stores, Puts San Francisco Flagship Up for Sale (Wall Street Journal, Suzanne Kapner) shows that the department store chain is going to cut about 30% of its stores over the next three years and focus on upgrading the remaining 350 locations whilst it opens smaller Macy’s at other locations along with branches of Bloomingdale’s and Bluemercury. Its flagship store on Union Square is potentially on the chopping block. * SO WHAT? * The department store model continues to die but I guess at least Macy’s is trying to put up a fight by changing formats and trying to keep up with what it thinks the customer wants.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

The Great Influx From China gathers pace, the UK looks at how to stem the tide, Tesla has giga problems, Tata announces a gigafactory and Apple ditches plans for cars…

Chinese city of Shenzhen rolls out plan to boost car exports (Financial Times, Gloria Li and Ryan McMorrow) shows that the municipal government of Shenzhen, China’s southern tech hub, has just unveiled 24 measures – including support for factory construction, the opening up of new sea routes and allowing an additional 20 companies to export second-hand cars. Shenzhen is also where BYD has its HQ and this is really going to help boost its export capabilities. Britain poised to investigate flood of cheap Chinese EVs (Daily Telegraph, Matt Oliver) shows that officials at the Department for Business and Trade are thought to be about to launch an investigation into cheap Chinese EVs flooding the market and whether they will decimate local manufacturing. A similar investigation has already been launched by the EU and even the US has been getting a bit antsy about it. * SO WHAT? * As you can imagine, Beijing is not best pleased about this and has threatened retaliation against Western products. You would have thought that the most likely outcome from all of this is tariffs on Chinese imports. FWIW, I think that if governments just sit around and do nothing about this, they can say goodbye to their respective car industries. I would expect Chinese retaliation to be stiff, however…

In gigafactory news, Tesla gigafactory is ‘polluting Berlin’s water supply’ (Daily Telegraph, Matthew Field) cites officials from the water authority near Tesla’s factory in Grünheide who want Tesla to close its wastewater line until further notice. The regional water board wants to have a general meeting this Friday to discuss

concerns about Tesla’s factory expelling six times the permitted about of hazardous pollutants in the water system. Apparently, Tesla has been warned about pollution levels exceeding agreed limits five times since last March but the company has failed to take action. This follows recent news about Grünheide voting against an expansion of the gigafactory. Ouch…

Then in Tata to build ‘gigafactory’ in Somerset (The Times) we see that the Indian conglomerate that owns Jaguar Land Rover has now confirmed a site for its £4bn gigafactory that will be off the M5 just outside Bridgewater on the site of an old Royal Ordnance factory. It will be the biggest battery factory in the country and will be expected to supply almost 50% of the forecast battery manufacturing capacity needed for the automotive sector. Let’s hope it’s better at not polluting the local water supply!

Apple Ends Quest to Build Its Own Electric Vehicle (Wall Street Journal, Aaron Tilley and Mike Colias) highlights a momentous development for the tech giant as it has now decided to ditch its efforts to make its own EV. The “secret” group within Apple that had been working on an EV, called “Project Titan”, has been informed of Apple’s new direction and some of the group will be moving into Apple’s AI group while those working on car hardware will probably be laid off. * SO WHAT? * Apple has spent billions on R&D for the car project over the years and car makers were genuinely worried that Apple would do its usual thing, launch a “category killer” and then everyone would have had to just go home. Apple is now trying to pour more resource into AI, which makes much more sense, and I’m sure that some of the engineers will have learned some useful lessons in Project Titan that could be applicable in other areas. I would also have thought that investors will be relieved as well given how much it costs to develop vehicles that are commercially viable! 

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Apple investors want more AI detail, Big Tech invests in AI, Klarna loves its chatbot, Universal takes on TikTok and Bumble cuts employee numbers…

Large Apple shareholders seek AI disclosures (Financial Times, Patrick Temple-West and Michael Acton) shows that two big Apple investors – Norges Bank Investment Management and Legal & General – are asking the company for more information about the AI risks the company faces. They are going to support a shareholder proposal at the company’s AGM today that will ask the company to “disclose any ethical guidelines that the company has adopted regarding [its] use of AI technology”. * SO WHAT? * Apple – and other Big Tech companies – have been facing more and more questions about how they are developing AI. For instance, 21% of Microsoft’s shareholders supported a resolution at Microsoft’s AGM in December demanding more information about the risks posed by misinformation spat out and sent out via AI. Although such resolutions aren’t actually binding, once support hits about 30% or more of shareholders, companies generally tend to act on them. Apple is not keen for AI disclosure because it believes that its scope would be too broad and potentially reveal sensitive information that could affect their competitiveness.

Meanwhile, Big Tech’s jumbled AI portfolios tell a story of self-preservation (Financial Times, Lex) takes a look at the investments of the likes of Nvidia and Alphabet as they try to ensure they stay ahead of developments in AI. Qualcomm, Amazon and Google have a stake in OpenAI rival Anthropic while Nvidia, Alphabet, Salesforce and Intel back Hugging Face, which is an open source alternative to OpenAI. Nvidia also owns chunks of Cohere and Perplexity and just yesterday I mentioned Microsoft investing in French AI start-up Mistral. I imagine that this will continue as companies strive to monetise AI using the latest cutting-edge developments. I also believe that they should also use any investor cash that’s coming in now while the sector is hot to enhance their existing offering!

Then in Klarna talks up chatbot’s success in customer service (The Times, Charlotte Alt) we see that the AI-powered chatbot

that Klarna is now using to handle two thirds of its customer service inquiries is doing the work of the equivalent of 700 full-time agents. It worked with OpenAI to build the AI assistant that it uses on its app. Clearly this is very bad news for call centres and other customer service-type roles more generally. What was also pretty interesting was that Klarna said that the chatbot got similar levels of customer satisfaction as humans but was much faster and more accurate. Klarna’s assistant can handle queries on things like refunds, returns, payments issues, cancellations, disputes and invoice inaccuracies and has the handy ability to speak 35 different languages. It is currently available in 23 countries!

In media news, World’s Biggest Music Company Deploys the ‘Nuclear Option’ Against TikTok (Wall Street Journal, Anne Steele and Megham Bobrowsky) shows that the battle between Universal Music Group and TikTok switched up a notch this week as UMG ordered TikTok to take down songs on which any songwriter signed to Universal’s publishing division has credit. TikTok said that it started doing that late on Monday and will be able to remove all such tracks by the end of the month. This latest development could affect 80% of the current hits across UMG, Warner Music Group, Sony Music Group and independent labels given that top hits can have over 10 songwriters involved. UMG are currently fighting over how much TikTok should pay to UMG to use its massive catalogue of songs. * SO WHAT? * Clearly TikTok is keen not to let UMG win, because if if does EVERY music label is going to want to renegotiate terms – and that could cost it A LOT. UMG has offered TikTok favourable terms, but now it’s calling in its chips. As I have said previously, this is now becoming a battle between content and distribution – and I think that content is going to win! This is a very interesting article that I would definitely recommend you read in full if you have the access and the time!

Then in Bumble to Reduce Workforce by 350 Roles (Wall Street Journal, Denny Jacob) we see that the online dating company is planning to cut its headcount as part of efforts to “rightsize”. It’s just the latest tech/media company to streamline its operations…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

The US oil and gas industry makes money despite Biden, English councils face tough choices and EasyJet bounces back into the FTSE…

In a quick scoot around some of today’s other interesting stories, Oil and gas profits triple under Joe Biden even as industry decries him (Financial Times, Myles McCormick and Jamie Smyth) shows that the oil industry has thrived under Biden despite Republican arguments that he’s restricted the industry and that, if he won re-election, he could put American energy security at risk. Biden pushed the most ambitious climate platform of any US president ever promising on his initial campaign to lead a “transition from oil” but he has since reined in the election rhetoric, encouraged more drilling and LNG exports. Interestingly, it seems that he has not decided to boast too much about how the oil industry has benefited during his presidency for fear of rattling the environmentalists in his party. * SO WHAT? * The main conclusion of this article appears to be that the oil industry is generally not as affected by who’s in the presidential hot seat as many expect. Trump has made a big thing out of saying that he will rip up a lot of Biden’s climate legislation if he wins the election and the oil and gas industry is definitely more minded to support a Republican win. However, it appears that it may not make all that much of a difference…

Nearer home, English councils ‘forced to the pawnshop’ in fire sale of assets (Financial Times, Jennifer Williams and William Wallis) shows that local authorities are looking at selling off

hundreds of millions of pounds worth of land and buildings as a long term funding squeeze is showing no signs of going away. At least ten councils have applied to the government for “exceptional financial support” to help balance the books this year but they’ve been told that they are not going to get any more funding although they will get permission to sell off assets! This isn’t good news for the councils that are struggling – but then again I think you have to go big or go home with this because if you don’t give councils enough funding, you just kick the problem into the long grass. And if you actually give them what they need, it’s going to cost a LOT of money. Critics of the idea that councils shouldn’t sell off assets will say that once you sell the assets, that’s it – you can’t get them back. They will also say that everyone will know that they are forced sellers at a time when the market for commercial property is weak, so therefore they won’t get fair prices. However, something has to give. This is a very tricky problem. I think that any businesses that have a lot of work with councils need to look at protecting themselves from potential non-payment…

Elsewhere, EasyJet heads back to FTSE100 after four-year break (The Times, Tom Saunders) shows that the budget airline is set to re-enter the FTSE100 next week almost four years after it fell out of it. Despite the ongoing cost-of-living crisis, consumers have been loving their holidays (despite higher prices) and bookings have been up, which has all been good for the share price! Despite this, it is worth noting that its share price is still well below pre-pandemic levels…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I really don’t like running – never have! However, I have seen it as a necessary evil to get fitter for things that I actually wanted to do (e.g. triathlon, judo etc). But have you ever wondered how fast you’d have to run in order to win a marathon?? Funnily enough, it’s pretty darn fast – as this bloke will tell you when he tries Eliud Kipchoge’s race pace 😱😅