So much has happened of interest in the past week that we have to be disciplined to ensure we don’t overdo this introduction. Last week we concluded the NIB with the potential impact from the Costa Concordia on the Costa brand, and cruising generally. What we predicted turned out to be accurate. The various cruise companies were very quick to assure their existing and potential clients of the high level of safety that is in place. It begs the question, however, of how quickly in good times we can lose the focus of key elements of our business.
In the past week, there have been reversals of fortune for many companies, including Michael Hill, Pumpkin Patch, retailing in Auckland and Christchurch CBDs, Megaupload.com, and South Canterbury Finance to name just a few, and a reversal of the performance of the Dow Jones. It’s appropriate we comment on each.
First off, and briefly, the SFO have 5 unnamed individuals lined up in respect of a $1.7 billion action. Interesting isn’t it that the “picketers” who were vigilant in defence of the late Mr Hubbard are now nowhere to be seen? Pumpkin Patch has closed its UK stores, due effectively to compounding problems driven by the economic pressure that has hit Europe. Is this a surprise? No, as many retailers have experienced the wind of change. However, is there a signal here that things are not well in the group? To retrench to Australasia does not answer shareholders who are left pondering why the group expanded to the UK in the first place. Think of the competition that already exists there. Is this another example of getting too big for your boots? The consequences for the brand could be considerable and some work in the trenches will be required before Pumpkin Patch recovers.
Michael Hill indicated that their Australian operated stores were not trading as well as expected. In fact the results of all MH outlets in the half year to 31/12/2011 were not flash. Same-store sales increased by just 2.3%. Australia accounted for 65% of total revenue and its sales were down 0.5%. It doesn’t sound a lot, but the Aussie market is far and away the largest proportion of the group’s performance and the results will be a little nerve-wracking for the company’s investors. We are always a little perplexed at the commentary given to this group. At the end of the day, it’s the publicly listed companies that are covered in the media while private companies tend to fly beneath the radar. It seems to us that the privately owned James Pascoe Group would be a pretty strong competitor. They have more than 450 jewellery stores across Australia, including the major Prouds, Goldmark and Angus & Coote chains. They also operate some 60 Pascoes, Stewarts Dawson’s and Goldmark stores in New Zealand. Conversely Michael Hill has 150 stores in Australia and 50 in New Zealand, plus another 40 in the US and Canada. So is there a pending bubble bursting in MH? We doubt it, the revenue generated is still very significant across all countries, but Australian revenue is very important to the total group’s survival over time. However, there must be a question mark over Canada and the USA being viable. These are stores in very large countries. The ability to maximise the brand and the cost of doing so must be very significant.
Some of you may have also read over the holidays that there is a pending move in Auckland from the CBD to the Britomart area for some powerful apparel fashion brands. We don’t think this is isolated; it is a move which may encourage others to do the same. The RWC demonstrated the desire of Aucklanders and visitors to support the food and entertainment facilities in the Britomart, Viaduct and Wynyard Quarter areas. The result is that not only food and beverage operators but also genuine retailers want to promote their wares in areas where people are going to be. In Auckland, that’s the waterfront or nearby. It does demonstrate yet again to us, the lack of foresight of the previous ACC and ARC by not supporting the creation of a new stadium on the waterfront rather than just tarting up Eden Park. The location simply would have been much better for all concerned, and it’s where people want to be.
While we give great support to our friends in Christchurch relative to the ongoing shaking of this wonderful city, isn’t it now timely to abandon any idea of rebuilding the city in its present from and to move forward with a simpler resolution. It’s a fact of life that the bars and restaurants and retail in the suburbs of Christchurch are trading very well. This is where people want to be. Safe environments in low-level structures. The people of Christchurch have adapted themselves and are over the CBD. Isn’t it time for the city fathers to do the same?
Finally we must comment on Megaupload.com and the Dow Jones. Most of you will be aware of the legal process underway with regard the former. This whole “web world” environment is almost too much for most of us to understand. Do we as individuals have the time available to “tweet”, and do most of us really care? Has the communication of our lives jumped into an age that we no longer control? Are we all robots who just follow the lead of others? Unfortunately we are all caught up in it, but it’s an individual decision as to how long or how much we want to dedicate to the Internet and its relative connections.
With all that comes the realisation that some parts of our world are out of our control. So why would we comment on the Dow Jones? This past week was the third week in a row where the Dow Jones experienced successive gains. Is there a signal here? Most definitely. Watch the Dow jump over 13,000 points in the next couple of weeks. Despite the last couple of years of financial decline of the USA market, the country is now starting to respond. With that will come an economic recovery. So that’s a positive note to end on and to start our New Year. All is not gloom.
SHAREWATCH – TRADE ME
Today Share Watch takes its first look at Trade Me, the well-known online auctions business. Actually, there’s more to Trade Me than just the auctions – in the 2011 year, “general items” made up 48% of Trade Me’s revenue, with the rest coming from Trade Me Motors, Trade Me Property, Trade Me Jobs and other businesses.
Trade Me’s come a long way since Sam Morgan started it in 1999 – it was sold to Fairfax Media in 2006 for $700 million, and Fairfax sold off around one-third of their shares in December, when the company was listed for the first time. Based on current share prices it’s now worth more than $1.1 billion.
Trade Me had revenue of $128.8 million for the 2011 financial year, with EBIT (earnings before interest and tax) a very respectable $93.5 million. Trade Me is not a retailer itself, unlike Amazon.com, but there are plenty of retailers who sell through the site, and that means that it’s worth looking out for.
IN THE PRESS
LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 16 – 23 JANUARY 2012
Wool prices drop
New Zealand commodity prices fell to their lowest levels in a year, guided by declines in skins and wool.
(Source: NZ Herald)
Korea enticed by pizza from Hell
New Zealand pizza chain Hell Pizza will open its third retail site in Seoul next month, with a further seven outlets planned.
(Source: Inside Retailing)
Rotorua forest grows mountain biking trend
A study by Crown Research Institute Scion shows the economic value of recreational mountain biking in Rotorua’s Whakarewarewa Forest is close to five times greater than annual timber revenue and looks set to rise as promotions increase awareness of what is on offer.
(Source: NZ Herald)
Auckland CBD heart’s New World Metro
Foodstuffs Auckland has marked Valentine’s Day as the official opening date for Auckland central business district’s second biggest new supermarket. The New World Metro store of just over 1000sqm is located on Queen St opposite the intersection with Shortland St.
(Source: NZ Herald)
