Retail Wreckage

[SirRumpole]

The only solution I can see requires a broad reset. Throw out most of the ideological stuff, focus on real efficiency instead of theoretical stuff, and end the practice of taking with one hand and simultaneously giving to the exact same people with the other.

Power prices are the real killer (followed by insurance) . The ideological stuff you mentioned is that the private sector can do a better job of delivering services like these to consumers. I think that ideology has been showed to be not necessarily applicable considering the rise in prices since privatisation of the power industry.

Someone needs to rethink this industry, but the politicians have too much skin in the ideological game to do it with any degree of open-mindedness.

 

[basilio]

A big mistake which has been made over the past 30 years is to equate moving something off the government’s books with small government.

If you take something that’s done by a team of say 500 workers actually doing the physical work and outsource it to a contractor at what ends up being triple the price then that’s an increase in the size of government not a decrease. You might have 500 fewer workers on the books but the tax which needs to be collected has gone up not down if the overall cost is higher.

Well worth highlighting. The mantra of small government has been a smokescreen to sell effective government or semi government operations to business and effectively destroy an effective competitor.

The sale of the Commonwealth Bank just opened the floodgates for uncontrolled banking costs. While COM was operating bank charges and interest rates could not move too far from the COM benchmark. The only competition between the Big 4 is how much profit they can book and how high they can push Senior Management salaries..

 

[Smurf1976]

Power prices are the real killer (followed by insurance) . The ideological stuff you mentioned is that the private sector can do a better job of delivering services like these to consumers. I think that ideology has been showed to be not necessarily applicable considering the rise in prices since privatisation of the power industry.

I won't derail the thread subject given there's already another thread on the energy industry but I'll summarise the basic problem as this:

*It is entirely possible that someone has their home electricity account in Adelaide with Energy Australia and that should they investigate the technical details at a particular time they'll find that the physical source of electricity to their home is being generated by AGL using gas produced by Origin.

*Alinta operates one coal-fired plant comprising two generating units with combined capacity of 1120 MW. Alinta purchases 100% of the coal used in that facility from rival AGL.

*AGL had a monopoly on gas supply in Sydney south of the Harbour for over 160 years indeed they ran thew whole show and built the reticulation network. Adjusted for inflation, AGL's gas prices were lower then that they are today in a competitive market.

And so on. The notion that there's competition and that this will lower prices is substantially an illusion since there's only one grid and ultimately every power station needs to operate. Secondly, the most important aspect in driving costs down is scale and that's directly destroyed by having multiple operators doing the same thing.

What the faux competitive market does do though is introduce a lot of costs which need not be there. For example it used to be that if one steam plant was running low on demineralised water then they'd just send the tanker (same as a petrol tanker) to the other plant 15km away and bring some back. Etc. Same with spare parts when you've got sites with identical machinery. Same with staff if there's a major problem somewhere. And so on, a lot of resource sharing whereas now that everything's separate it all has to be duplicated. So facilities were duplicated, more staff to make sure there' always enough, more spare parts or alternatively much longer outages and so on plus an incredible amount of administration overlaying all that. .

So costs have been pushed up, same with gas and electricity, and the end result is that AGL (always investor owned) charges more now than it did as a monopoly for gas coming through the exact same pipes they used to own and the remaining government entities (eg in Qld, Tas, WA) are likewise burdened by higher costs and loss of efficiency and have also increased their prices in real terms.

It's hard to imagine a less efficient way of going about it but that's what the politicians insist on so that's how it's done. It all comes down to governments insisting that the industry works in a way that it doesn't. Insisting that a square hole is actually round and that the round peg must fit.

 

[Smurf1976]

Well worth highlighting. The mantra of small government has been a smokescreen to sell effective government or semi government operations to business and effectively destroy an effective competitor.

I once used the analogy of a business owner saying to an employee that things would be so much better if the phone rang more often. They mean of course that the phone rings with customers wanting work done.

Not to worry, our well intentioned employee sets up a device which calls the office number once every 3 minutes. Look boss - the phone's ringing far more often now!

Well yes it is but not in a way that's at all helpful indeed the reverse is true since now it's simply a distraction of no value and there's at least some chance that a real customer won't get through when line's engaged.

Governments have gone down that track basically. Creating the perceived symptoms of improvement, like the business with the phone ringing more often, but not creating the real reasons or benefits associated with them.

All of this comes back to the point that we've lost the focus on genuine efficiency and being competitive to the point that the concept is rarely even mentioned these days. No surprise then to find that the country isn't competitive and consumers and business alike are struggling.

 

[moXJO]

Just to add about the product I am buying. It was originally invented and made in Australia (Tasmania I think). Chinese must have bought it out.

 

[tinhat]

My apologies for the "tone" of that comment.

Whilst I don't agree with the point I was responding to, I could have expressed it a bit more politely than that I think.

My apologies to tinhat.

No worries and no need to apologise to me. I was quick cranky myself when I posted. I am very cranky about a lot of things recently. Really angry. It's a terrible tragic summer, not just for the people who have lost lives, homes and a living but an ecological catastrophe is unfolding on the eastern side of the continent this summer.

I get that the demise of retail is interesting and pertinent to stock market investors, but crikey its not like we haven't been watching this freight train hurling towards us for a long time now (not as long as we have known about the far more existentially significant environmental issues that are now on-top of us, but that's another topic for another place).

I bought some AX1 (Accent Group - shoe distributor and retailer) towards the end of last year based on a technical setup in the chart and sold them just before the end of the year. As good as AX1 is as a business, retail as an industry and as a market sector is challenged.

Information technology is absolutely disrupting and reworking all marketing channels, contractual, contactual and distribution, vertical industry structures and the value of intermediaries and agents across all industries. It's been happening for a long time, so I've been thinking about opportunities elsewhere.

Where there is change there is opportunity. I redirected the funds from selling AX1 into BID (Bidenergy) this morning. The bloody share jumped 10% before I was able to get my order executed. BID is an example of the new economy and where value can be created not just for the consumer but also the sellers within an industry as an information specialist.

Just to leave something positive as a contribution, I came across this great interview with Angie Ellis on livewire just the other day. It was really refreshing to listen to how Angie sticks to good old fashioned basics and follows her nose when analysing prospective companies to invest in. For those who still read newspapers, you might now Angie Ellis as one of the best performing stock tippers in the weekly Sun Herald stock tipping competition.

https://www.livewiremarkets.com/wires/how-an-everyday-investor-competes-with-the-pros

 

[Smurf1976]

Just to add about the product I am buying. It was originally invented and made in Australia (Tasmania I think). Chinese must have bought it out.

I was trying to work out what sort of machinery?

Then I remembered that most things invented here are now in foreign hands....

 

[aus_trader]

Kogan.com Ltd (KGN) which is less of a traditional brick & mortar retailer was punished today despite increased numbers in it's business update. Expectations must've been higher I guess...



I have to agree with the general theme of this thread that retail is probably one of the toughest segments to be in at the moment and there are very few companies that are doing well in this environment. One is JB Hi-Fi Limited (JBH) but it's share price has run hard recently and looks stretched from it's valuations. Shaver Shop Group Ltd (SSG) although a smaller retailer, does have reasonable valuations and an attractive dividend yield at current levels, so may be one of the fewer retailers that may outperform in the retail sector.

 

[Toyota Lexcen]

Retail Super Group released some details yesterday also.

I wonder if people are saying to themselves I don't want this junk anymore? single use tents, chairs, the packaging

Bunnings has a lot of junk in it,

 

[moXJO]

I was trying to work out what sort of machinery?

Then I remembered that most things invented here are now in foreign hands....

Tasmanian patented sixth toe removal machine


I don't want to mention it on here as I'll test the waters on sales and try and make some coin.

 

[Humid]

Tasmanian patented sixth toe removal machine


I don't want to mention it on here as I'll test the waters on sales and try and make some coin.

It's why Blundstone went offshore
Poor local sales

 

[moXJO]

It's why Blundstone went offshore
Poor local sales

It's amazing how many have sold to China. Everyone cashed in.

Australia is a tough market. Some brilliant products get lost. Aussies have invented some ingenious products as well.

 

[fergee]

Bunnings has a lot of junk in it,

100% agree with this. I for one would rather buy German, USA or Japanese quality tools that last 1-2 lifetimes than junk chinese made tools that last 1-2 years.
Its kind of like investing just because something appears cheap it doesn't mean its good value.

 

[tinhat]

100% agree with this. I for one would rather buy German, USA or Japanese quality tools that last 1-2 lifetimes than junk chinese made tools that last 1-2 years.

I'm the same because I hate sending stuff to landfill when it has a lot of embedded energy in it. But it is horses for courses for me. I seem to be a bit hard on my electrical tools. When you are grinding or cutting you just want to get the job done. Regardless of the brand I tend to go through the small angle grinders and I don't find any difference between a cheap $35 ozito and something three times the price. Same with the ozito 1600W rotary hammer drill. Does as good a job as any other far more expensive brand.

Bringing this back to the theme of this discussion, like most things I do most of my research and price searching online and talk to the specialists at the specialty stores for further advice. The problem with Bunnings is that their staff don't know much about what they are selling. Bunnings is the most convenient store for me because my closest one is only half an hour drive whereas most of the other specialty shops are another twenty minutes away. What I am getting at is where a retailer can add value by providing pre and after sales service they still have opportunity.

The other issue is that distributors are often all to willing to compete directly with retailers and sell directly to the public online. I was impressed a while ago when I rang up Aussie Pumps to inquire about buying one of their pressure washers and told the bloke who was giving me technical advice that I was ready to order one. He directed me to their closest stockist, gave me his name and number and told me he would call him ahead of me to let him know what we discussed and that they would honour the special price in their catalogue.

I hope some people found the interview I linked to in my post above useful. One thing that Angie was talking about (not just retail) is looking for ASX listed stocks that have international growth potential. She made some interesting points about the overseas expansion opportunities she sees for fashion jewelry retailer Lovisa. I've never really taken much interest in Lovisa because I am bearish on retail, hate fashion and they don't sell power tools.

 

[Dona Ferentes]

German hypermarket Kaufland says it will make an "orderly withdrawal" from the Australian market to focus on its European investments in another blow to the struggling retail sector.

In a fresh indictment of the dire retail landscape, the $170 billion retailer revealed on Wednesday it had made the decision after "careful and thoughtful consideration".

Aldi and Costco breathing easier?

 

[greggles]

Aldi and Costco breathing easier?

Too much competition in the supermarket sector. Even though Kaufland is out-of-pocket around half a billion dollars, they have probably saved themselves further operating losses down the track.

 

[Smurf1976]

Too much competition in the supermarket sector. Even though Kaufland is out-of-pocket around half a billion dollars, they have probably saved themselves further operating losses down the track.

The real concern isn’t so much that they’re not going to be operating in Australia but that they’ve completely changed their mind, going from expansion to a complete pull out, at the same time numerous other retail and similar businesses are also closing or at least downsizing.

That this is so, yet another one on the list and we’re only three weeks into the year, is not a good sign so far as the national economy is concerned.

 

[Dona Ferentes]

The real concern isn’t so much that they’re not going to be operating in Australia but that they’ve completely changed their mind, going from expansion to a complete pull out...

Ah, the power of incumbency. Kaufland were looking to open with a bang (blitz?); the operation had hired up to 200, including Woolies and Coles middle management, sent many to Germany for training for up to 6 months, scoped out up to 23 sites for their big boxes (5000sq.m. or double the average size supermarket) and turned the sod on the distribution centre outside Melbourne. The amount, as reported, has been $500+ million. And a lot of that was in planning, talking to councils, getting DAs, lining up suppliers and the like.

By letting their Australian employees go, it signals the parent company has little intention to launch Lidl, their 'Aldi' equivalent. Another aspect of this shock may be the "new CEO syndrome", as there are reports an intended move into the USA is on hold.

 

[moXJO]

A lot of German and USA tools are made in China. It's rare to see much made outside of China these days.


Did anyone actually shop in Kaufland?
Was the experience or price better?

Must have been some horror figures for them to pack up and run.

 

[SirRumpole]

Personally I've never heard of Kaufland, but I agree that it's hard to get anything not made in China these days. That doesn't mean that stuff can't be made in China to a high standard, it's a matter of getting QA procedures adopted and not settling for anything less than than the agreed degree of quality.