In this week’s Commercial Awareness update, the highs and lows for the retail sector in January, the Coronavirus’ impact on the market, record mortgage approved in December, Boeing’s troubles and Flybe’s need of government support.
10,000 Retail Jobs lost this year already
Earlier this week, retail analysts broke the news that almost 10,000 retail jobs have been lost this year already.
The news follows the British Retail Consortium’s announcement that 2019 was the first time retail sales fell in 25 years, with November and December being particularly poor, falling 0.9% year on year. Stores traditionally make their biggest gains over the festive period, and with this being particularly disappointing for many companies, has led to announcements of store closures and redundancies in the last few weeks. Asda, Debenhams, HMV, Game and Arcadia are among those who have announced job losses, with Mothercare having closed UK shops for good, and Hawkins Bazaar teetering on the brink of collapse.
There’s a multitude of factors that have been put forward to explain the 2019 decline, with uncertainty over Brexit, along with fluctuating consumer confidence, as contributing factors. However the most pervasive theme has been the rise of online retailing continuing to overtake the high street as the way consumers shop for goods. It’s likely we’ll see this trend continue in 2020, along with more store closures of traditionally big named British retail brands.
For many stores it was bad news over the Christmas break, as many reported weaker results in the quarter to December. However, Amazon bucked that trend and this week have reported a 21% jump in revenues compared to the previous year. In the last three months, the e-commerce side of the business made a staggering £66 billion. A key focus for Amazon has been their premium delivery service (Amazon Prime), which they have significantly invested in during the last 12 months; a move which has paid off in subscriber numbers, as well as overall goods bought on the website.
Questions to ask yourself... is the traditional high street in irreversible decline? How can Amazon keep ahead of the competition?
Coronavirus causing financial fear
The novel coronavirus sweeping China and causing uncertainty and panic across much of the world is having a huge effect on the financial markets. China has taken drastic measures to halt the virus spreading, including shutting down cities and workplaces, with major companies including McDonalds, Alibaba, Tesla and Apple leading the way by closing stores and halting operations.
Along with the reduced productivity, which will hit companies’ bottom lines, the World Health Organisation has declared a global public health emergency which will mean restrictions on people, goods and services being transported. With a reduction in China’s productivity, as well as trade starting to slow, oil demand has dropped and the global price has been hit by a ~10% decrease. Hotels and airlines have also been severely affected seeing shares fall, as consumers cancel holidays and reduce their travel to affected areas.
But it’s not just Chinese based firms that are feeling the effects. Luxury fashion company Burberry makes a considerable proportion of its revenue from Chinese buyers, and its shares have fallen 4.8% on the news.
There are still a number of unknowns associated with how the situation is developing, and it’s this uncertainty and fear that is being felt most strongly in the markets. It’s also unknown how much of an impact the global health emergency declaration will have on trade and movement of people.
Record mortgages approved in December
The number of mortgages approved by Britain’s high street banks hit its highest level for five years, with 46,815 mortgages approved in December. The rise bucks the trend of the previous year, which saw the housing market struggle due to political uncertainty, and reduced consumer confidence around the brexit process. However, following the snap election result in December, this confidence seems to have returned, with house prices also seeing the fastest ever rise for the festive period.
The results are welcome news to the Bank of England, which was looking at reducing the interest rate to stimulate the economy by incentivising borrowing, however it’s likely to maintain the current interest rate with the recent recovery. With more confidence in the political stability compared to recent years, it’s likely the housing market will continue to benefit.
Questions to ask yourself... is there a potential downside to more mortgages being approved? Is the housing marketing set to boom or decline in 2020?
Flybe owners ask for £100m government loan
British airline, Flybe, is in the news over its request to the government for a £100m loan to continue operating. The regional airline is currently struggling financially, owing millions of pounds in unpaid landing fees to airports, as well as requesting to defer a £10m tax bill to the government. The government has already agreed to the deferred payment, and ministers are currently consulting experts before coming to a decision on the loan.
The request is controversial given the fact the government did not step in to help when Thomas Cook and Carillion recently failed, and Flybe’s competitors, including Ryanair and British Airways, are against the move, feeling it compromises competition. However the loan for Flybe would be relatively small compared to the level of investment that would have been required to keep Thomas Cook and Carillion afloat, and any loan will be granted subject to business terms which are likely to make the government money, as well as protecting UK holidaymakers from being stranded.
Question to ask yourself... do you think the government stepping in is unfair to their competitors?
Boeing’s struggles continue
In 2019, Boeing recording their first loss-making year for over 20 years as the grounding of the Boeing 737 Max continued to cause problems for the manufacturer. In 2019, two fatal crashes raised serious concerns about the aeroplanes’ safety, which led to the aviation authorities banning and therefore grounding their previously bestselling aircraft. In the final three months of 2019, the company took $17.9 billion in revenues, compared to the $21.7 billion that analysis predicted.
Boeing has estimated the cost of the grounded aircraft to be $18 billion due to a loss of sales and potentially costs associated without The airline is seeking a loan of around $10 billion to help weather the crisis, and have now said that it could still be months before the Boeing 737 Max is safe to fly again. Despite the two crashes and the bad press they’ve had over the aircraft, Boeing doesn’t plan to rebrand the Boeing Max 737 when they start flying again later in the year.
Question to ask yourself... How can Boeing turn it around?