In this week's Commercial Awareness Update, we discuss the stock market's biggest fall since the financial crash of 2008, Flybe's collapse into administration, Tesco selling off their Asian supermarket chain, Nissan continuing manufacturing in the UK, and Amazon launching a new automation business.
FTSE 100's worst day since financial crash
The UK stock market is facing its worst day since the financial crash in 2008, with billions being wiped off the valuation of the UK’s biggest companies. The dramatic fall comes after a weekend where fears surrounding the coronavirus were exacerbated, as the spread across Europe continued. The fall is the UK’s 4th biggest one day stock market drop on record.
Part of the reason for the stock crash is due to the price of oil falling by 20%. With fewer people travelling and less manufacturing in China, demand has dipped across the globe. Compounding this, two of the world’s biggest oil producers, Saudi Arabia and Russia, are causing more uncertainty in the markets by competing on supply, therefore driving the price lower. OPEC, the organisation of oil exporting countries, of which Saudi Arabia is a member, agreed to cut production as demand drops to help stabilise prices, however Russia, a non-member has rejected these plans. This tension in the market is causing increased volatility.
It’s likely that stocks will rally - however last week we saw the markets enter correction territory, and if the trends continue, we could enter a bear market (a condition when the markets fall more than 20%) of which there have only been two in the last two decades. These events can precipitate a financial crash, and with countries like Japan and Germany, on the verge of recession already, the uncertainty around coronavirus could push them closer to the edge.
Questions to ask yourself... Is this a short term depression in the market or a long term trend? Which companies are seeing the biggest falls in share price and why?
Flybe collapses into administration
Europe’s largest regional airline, Flybe, has collapsed into administration after teetering on the brink of bankruptcy for the last couple of years. The airline hit the headlines in recent weeks after being granted a delay from the government on their £100m tax bill. However with fears surrounding coronavirus reducing travel, these measures were not enough to save the firm.
Flybe is being touted as one of the first business victims of the COVID-19 virus however in truth they had been struggling for a while and reflect the trend in the UK airline industry of smaller firms being unable to compete. The airline nearly collapsed last year before being saved by a consortium of investors including Sir Richard Branson, but it continued to struggle in a competitive industry which has seen increasing taxes levied by the British government to combat global warming. With other British airlines including Monarch and Thomas Cook collapsing in recent years, it’s clear that some of the smaller mid-market airlines are struggling to keep up.
Financial services firm EY have been appointed as administrators, and will now begin to assess the company's assets and pay off their creditors. Passengers have been told not to travel as their flights will not be running, and the government may have to repatriate people who are stranded due to the collapse.
Questions to ask yourself... Do consumers benefit from less competition/options in the aviation industry?
Tesco sell their Asian supermarket chain
Britain’s biggest retailer, Tesco, has announced it will be selling its stores and operations in Thailand and Malaysia in a deal that amounts to £8bn. The supermarket supports over 2,000 stores and 60,000 employees across the two countries under the Tesco Lotus brand. The sale is part of the businesses aim to simplify its operating model and consolidate the markets it’s strongest in. Tesco operates in the UK and Ireland, as well as central european countries including Poland and Hungary.
Dave Lewis, the outgoing CEO of the Tesco group, has overseen a number of simplifications to the company's business since he took over at the helm 5 years ago, including selling underperforming areas of the business and scrapping product lines that aren’t profitable. Shareholders will be receiving a dividend of £5bn from the sale.
Questions to ask yourself... What are the challenges involved when a company becomes international?
Nissan pushes on with investment in UK
Nissan have announced it will be continuing with it’s £400m plan to build their latest SUV vehicle at their Sunderland factory in the UK. The company had huge concerns over the effects that Brexit would have on tariffs to export its cars, so this move is a strong vote of confidence in Britain’s economic prosperity moving forward.
The scale of investment and the number of people it employs makes Nissan a hugely important part of the economy in the North East. The Sunderland factory employs over 7,000 people and produced over 350,000 cars last year, 70% of which are exported to Europe. Nissan have however reduced the number of cars it produces at the factory by a third, as it looks to mitigate any risk should a trade agreement not be agreed with the EU.
Questions to ask yourself... how does Britain continue to compete globally in the manufacturing sector?
Amazon lauch an automated self checkout business
Amazon have announced they’re launching a new business selling automated checkout technology to retailers. The newly named ‘Just Walk Out’ technology underpins the Amazon Go stores and enables you to pay and leave the store without going to a till.
The company says it has signed ‘several’ deals with customers, and expects to have more interest as retail chains look to cut costs and simplify their operating models. With Amazon starting to create more ‘brick and mortar’ stores, as they move into selling fresh produce in America, the move is particularly interesting as it means they’re likely to be selling to businesses they could see as their competitors.
The move further demonstrates how savvy Amazon are at developing their own internal tools, and selling them on as they have done with some of their warehouse solutions, as well as their cloud based server system Amazon Web Services (AWS). Their technology is so integral to a wide range of sectors, making it difficult for businesses to stop using (and therefore paying for) the services Amazon provides.
Questions to ask yourself... How do Amazon benefit from increasing their competitors' reliance on them?