Wednesday 31/10/18

  1. In UK RETAIL NEWS, the high street continues to look shaky, Amazon makes moves into fashion, WH Smith goes stateside, Sports Direct buys Evans Cycles and Wagamama gets a new owner
  2. In TECH NEWS, Apple unveils shiny new stuff, Sony and Nintendo look to new games launches and Facebook user growth slows down
  3. In INDIVIDUAL COMPANY NEWS, VW and General Electric disappoint
  4. In OTHER NEWS, I bring you the origins of Halloween. For more details, read on…



So the UK high street continues to look dodgy, Amazon fashions a new service, WH Smith makes an overseas acquisition, Sports Direct buys Evans Cycles and Wagamama gets a new owner…

Retail sales growth cools as company insolvencies rise sharply (The Guardian, Richard Partington) cites the latest figures from the Confederation of British Industry (CBI) which show that UK retail sales growth slowed down markedly after a mini-spending spree over the summer. Reasons to be fearful on the high street (The Times, Patrick Hosking) appears to back up this sentiment as the closely followed GfK consumer confidence index continued to fall in October, which doesn’t bode well for the upcoming Christmas season. * SO WHAT? * We already know this anyway, but the two surveys just provide further evidence of a slowdown and sets the scene for a not-particularly-great Christmas.

Amazon takes on UK retail sector with ‘try before you buy’ fashion service (The Guardian, Sarah Butler) is a story that should make other fashion retailers quake in their winter boots as the online retailing behemoth is bringing its “try before you buy” fashion service to the UK. Basically, its Prime Wardrobe service delivers a bag of between three and eight items of clothing with no upfront charge and the shoppers are then offered discounts relating to the value of the items they keep – 5% on orders worth £100+ and 10% on orders worth £200+. Unwanted items can then be returned for free. The Prime Wardrobe service was rolled out in the US in June, then Japan last week and now it’s come to the UK. * SO WHAT? * Amazon has been selling clothing in the UK for the last ten years and, although it doesn’t specifically split out fashion sales in its reported numbers, it is thought that they are rising at a rate of over 7% per year as high street operators are closing down. Could Amazon do to fashion retailers what it has done to bookshops, I wonder?

Having talked about a US retailer making further inroads over here, WH Smith acquires US presence (Daily Telegraph, Jack Torrance) highlights WH Smith’s first foray into the American market as it announced the acquisition of InMotion for $198m which will, at a stroke, double the size of its international business. InMotion is the largest airport electronics retailer in the US (it sells

things like headphones, plug adaptors and various travel accessories) and its acquisition will also help WH Smith to launch its own stores in the US. * SO WHAT? * This deal represents further evidence of WH Smith’s evolution away from its traditional high street shops towards airports and railway stations where they have a captive audience!

Meanwhile, in Ashley buys Evans Cycles and plans to shut half its stores (Daily Telegraph, Jack Torrance) we see that Sports Direct CEO Mike Ashley has successfully added to what I term as his “Retail Bag of Cr@p” (because he seems to like buying troubled retailers that no-one else would touch with a barge-pole) by buying the troubled bike chain out of a pre-pack administration. Rather ominously for the employees, he said that “in order to save the business we only believe we will be able to keep 50pc of stores open in the future”. * SO WHAT? * The bike boom that followed London 2012 has definitely been coming off the boil in the last year or so and Evans is not the only one to suffer difficulties – Halfords is not having a great time of it at the moment and Rapha, the operator at the luxury end of the cycling scale, had to sack 15 people at its London HQ last month. I’m glad for Halfords that it didn’t end up buying Evans as I really think that would have been a recipe for disaster what with the fact that BOTH companies were exposed to cycling. At least with Ashley buying it there may be a slightly better balance. Still, it’ll be interesting to see how he manages to boost sales after doing the easier bit of selling off real estate. As an ex-cyclist myself, I would have thought that Evans could try to shake things up by making outlets less of a showroom and provide better value-added services like PROPER bike-fitting and other services. Rather than having a load of bikes taking up floor space you could have the bikes fitted to the customer using a sizing jig and then they order it offline for delivery to the shop. This means that Evans could have smaller and less-cluttered shops whilst providing a better customer experience. But hey, that’s just my opinion!

And then, following on from what I was saying yesterday, Noodle restaurant Wagamama sold to Garfunkel’s owner (The Guardian) shows that the Restaurant Group, which owns Frankie & Benny’s, Garfunkel’s and Chiquito, has been successful in its bid to broaden its culinary expertise and will finance the £357m acquisition via a mix of cash, debt and a rights issue. Current owner, private equity firm Duke Street Capital, bought it in 2011 for £215m. * SO WHAT? * Cost synergies of £22m have been mooted, but it’ll be interesting to see how that pans out.



In tech news, Apple unveils new stuff, Sony and Nintendo are hoping for gaming hits and Facebook suffers slower user growth…

Apple raises prices on new MacBook Air by 20%, iPad Pro by about 25% (Wall Street Journal, Tripp Mickle) highlights Apple’s efforts to reinvigorate sluggish sales of PCs and tablets by introducing even more expensive versions to tempt customers to part with their cash. The new MacBook Air is the first real re-design of its most popular laptop model since 2010 and Apple has given it a high-res retina display, narrower screen borders, Touch ID and made it thinner and lighter. It starts at $1,199 versus $999 for the existing model. The new Mac mini desktop gets better processors making it five times faster, but then the price for that is $799 versus the current $499. The new iPad Pros start at $799 and $999 for the different sizes. * SO WHAT? * All of these price rises are expected to raise the average sale prices of Macs and iPads and increase revenues just as the higher-priced iPhones did when they introduced them last year.

Sony and Nintendo pin hopes on new games launches (Financial Times, Leo Lewis and Kana Inagaki) takes a look at both companies’ focus on their new game pipelines as they aim for another year of record profits. Both companies reported results for the July-September quarter yesterday and both head into the key Christmas season

under new leadership – Kenichiro Yoshida, who became Sony’s president in April and Shuntaro Furukawa who took over the leadership of Nintendo in June. Nintendo reported a 30% increase in operating profits in the July-September quarter despite a not-particularly-impressive games pipeline and Sony is also expecting a 30% increase in operating profits for the year ending 2019. * SO WHAT? * Game pipelines are absolutely key in terms of driving console sales and it would appear that the near-term line-up for both the PS4 and Switch are strong.

Facebook growth slows as the EU’s data laws begin to bite (Daily Telegraph, Laurence Dodds) highlights the social media giant’s latest financial results which show that its revenue growth has continued to slow down in the three months ending in September as it gained users in the US, lost them in Europe and remained flat everywhere else. * SO WHAT? * The number of daily active users in Europe fell for the second quarter in a row as GDPR continues to have an effect, but CEO Zuckerberg identified video and commerce as areas for future growth. Given that Facebook’s data-related ethics have taken a bit of a pasting with the Cambridge Analytica scandal and its mojo has been chastened by the new European GDPR legislation over the last year, I guess things could have been worse. I still believe that the company is very difficult to compete against and offers services in a way that rivals can only dream of. If you also throw the company’s ongoing strength in digital advertising into the mix, it still makes for a compelling growth story IMHO and I believe that it can emerge from its current difficulties even stronger than before.



VW gets hit by a China slowdown and GE’s nightmare continues…

Volkswagen profits hit by China slowdown and new regulations (Financial Times, Peter Campbell) shows that the carmaker’s share price rose after beating expectations for Q3 despite falling profits due to a slowdown in China sales and new tighter testing regulations in Europe (the Worldwide Harmonised Light Vehicle Test Procedure – aka the WLTP). The group, which owns Seat, Skoda, Porsche and Audi, published an 18.6% fall in operating profit before special items, which wasn’t actually as bad as analysts were forecasting, hence the 5% share price rise. * SO WHAT? * I think that these issues of China and the WLTP are industry-wide and not VW-specific and the fact that VW hasn’t done as badly as everyone was expecting is a positive. VW’s CFO Frank Witter said that he expected the WLTP effect to be a drag on sales until the early months of 2019. 

General Electric cuts dividend to 1 cent after $22bn writedown (Financial Times, Ed Crooks) highlights the continued nightmare at GE as it has had to cut its dividend for the second time in under a year and unveiled a drastic restructuring of its power equipment division which is currently under investigation by the Department of Justice (DoJ) and Securities and Exchange Commission (SEC) for various accounting-related issues. The Q3 earnings are the first to be reported under new chief exec Larry Culp, who took over earlier this month after the departure of previous chief exec John Flannery after only a year in the role. The power equipment division has been hit by the rise of renewables and a slowing of demand in developed countries. * SO WHAT? * GE is in a whole world of trouble and it is up to Larry Culp to ensure a smooth exit from some of its businesses whilst maintaining its existing strengths. It sounds to me like things will get worse before they get better.



And finally, in other news…

Given that today’s Halloween, I thought I’d leave you with a piece explaining Halloween’s origins.

Some of today’s market, commodity & currency moves (as at 0821hrs 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 **
7,036 (+0.14%)24,875 (+1.77%)2,683 (+1.57%)7,16211,287 (-0.42%)4,979 (-0.22%)21,897 (+2.10%)2,602 (+1.31%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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