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In this week’s Commercial Awareness update, we discuss the upcoming Brexit vote, the continuing US shutdown, what's happening to Chinese exports and Greggs innovative marketing campaign.
Heading into uncertainty
With the papers and business news full of the latest updates over Brexit, it’s hard not to discuss the week’s developments in this update. Today, the House of Commons holds a ‘meaningful vote’ on Theresa May’s deal and it looks certain that MPs will reject the deal. When this happens, the country is likely to dip into further uncertainty. Leader of the opposition, Jeremy Corbyn, will likely bring a motion of no confidence to the house in the aim to dissolve the government if the motion passes. The last successful motion of no confidence removed Labour’s James Callaghan in 1979, who was then replaced by Margaret Thatcher. Beyond this, it looks likely that the government will attempt to delay Brexit. A majority of MPs agree that leaving without a deal on 29th March would be a disaster and will prevent this at all costs - delaying or even putting Brexit on hold. However, this risks alienating the majority of people who voted for Brexit and expect Parliament to manage leaving the European Union.
There are regular reports of business confidence declining as the Brexit deadline approaches, with BDO’s Optimism Index recently dropping to a two year low. Investment in business has also fallen in the last three quarters - something that hasn’t happened since the height of the financial crash in 2008/9. Despite this, the FTSE 100 has actually risen in January, dipping slightly in the last few days, largely due to trade worries in China (see below). The pound has also risen against the dollar over the last week and reacted well to May’s threat that Brexit may not happen if her deal is voted down in Parliament. The markets will have already factored in that May will lose the vote later today, so there’s unlikely to be fluctuation over the vote alone. However, developments over the next couple of weeks is likely to cause large fluctuation, especially if the uncertainty intensifies.
Large parts of the US government have been shut down for just over three weeks over a feud with the Democrats in Congress about the latest spending bill. President Donald Trump is demanding that $5.7 billion is included in the budget for a new border wall and has said he will not approve the bill without it. Shutdowns are common in America, but this is set to be a record. Experts estimate that the shutdown impacts 800,000 workers, who are currently not being paid, and many services have halted. There haven’t been any meaningful talks between Trump and congressional Democrats, so many are worried this could continue. Trump last week threatened to declare a national emergency in an attempt to force through funding for his wall, however this is likely to face legal challenges and Trump has backed down from this threat for now.
It’s difficult to exactly work out how much a shutdown affects the US economy. Some economists suggest it wipes $1 billion off the value of the US economy each week due to a dip in the country’s gross domestic product (GDP). The bill covers about 25% of money allocated to fund the government, so it isn’t as widespread as some previous shutdowns. S&P Global believes if the shutdown continues for another two weeks, it will cost more than the money Trump wants available for the wall.
China has seen its biggest fall in exports for two years after announcing that there was a 4.4% decrease in December. This, combined with a 7.6% monthly import decline, has suggested a weakening of the world’s second largest economy. However, data released last week revealed that the country’s trade surplus with the US was at a record high in 2018, reaching $323bn as traders rushed to export orders ahead of rising tariffs in the trade war.
The results from the US-China stand off were felt as monthly imports of US goods fell 36% as China stopped purchasing American commodities and monthly exports to the US fell by 3.5%. However, China’s overall trading results for last year highlighted that exports were up 10% from 2017 and imports were up almost 16% year on year. China is expected to announce their full year estimate of economic growth next week, which is anticipated to show that the economy met or exceeded the 6.5% full year growth target the government had set. Next year’s target is predicted to be slightly more flexible ranging between 6 and 6.5%.
Companies to watch
Jaguar Land Rover
The UK’s biggest car firm, Jaguar Land Rover (JLR) has announced that it will be cutting 4,500 jobs this year. The majority of cuts will be from the 40,000 workforce in the UK, across almost all levels of the business, and is on top of the 1,500 jobs that were cut last year. JLR has faced several challenges lately as it revealed total annual sales were down 4.6% to 592,708 vehicles from 2017, with December figures decreasing 6.4% to 52,160 vehicles sold. JLR has faced several challenges lately, including a significant decline in demand for diesel vehicles. Further pressure has come from a slump in car sales in China. As the market conditions in both China and Europe began to decrease, the sales of Land Rover models fell to 411, 875 - a decrease of 6.9% from the year before. JLR has stated that Brexit will undoubtedly have an effect on the UK market for global manufacturing. Furthermore, the car company has warned that a no deal Brexit will cause the company over £1.2bn in profit each year. With the prospect of a no deal Brexit looking increasingly likely, this may spell trouble for the car manufacturing company.
In a tumultuous period for the British High Street, Greggs has succeeding in turning its sales around. It has been quite the comeback for the bakery chain who issued a profit warning in spring after freezing weather dented their sales. The launch of their vegan sausage roll propelled Greggs to an all time high with the CEO unveiling a 5.2% increase in sales. The clever marketing campaign surrounding their new product was labelled “a master class in public relations” by magazine PR week. The video campaign, mimicked one of Apple’s advert launches, was a humorous attempt at engaging the vegan community and was viewed by over 5.2 million people. This propelled Gregg’s share prices to an all time high, and last week they were up 16% since the start of the year consequently meaning the chain was worth more than £200 million.
Online fashion retailer successfully managed to navigate its way through a tough Christmas for retailers as it saw its revenue rise 44% to £328.2m from £228.2m in the previous year. Boohoo has focused on providing its customers with fashion at an unbeatable price. The fashion giant has now adjusted its predicted revenues for the year to the 28th February to rise between 43-45% compared to its previous predictions of 38-43%.The fashion company, also owns PrettyLittleThing which saw revenues almost double by 95% to £144.2 million, and Nastygal which also saw a 74% growth to £20.6 million.
The retailer must now remain innovative to sustain their growth, with similar online retailers in distress, including ASOS who issued a profit warning before Christmas. However, the joint chief executives Mahmud Kamani and Carol Kane have stated that the ‘global growth opportunity is significant’. With the British high street in trouble and online sales rising, Boohoo has headed into 2019 in a strong position.
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