Langton Capital – 2020-06-09 – PREMIUM – Nervous consumers, reopening, 2m rule, rent, Fuller’s, Jet2 etc.:
Nervous consumers, reopening, 2m rule, rent, Fuller’s, Jet2 etc.:
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A DAY IN THE LIFE:
I don’t want to become ‘that grumpy old pedant in the corner’ but, as several of my kids have told me that horse has long-since bolted, I’ll just point out that it’s a close run thing as to which word’s misuse most annoys me, ‘literally’ or ‘decimated’.
Because nobody’s world has ‘literally fallen to pieces’ and nor has their head ‘literally exploded’ but, trying to persuade them to substitute the word ‘somewhat’ is somewhat of a lost cause and in this case it literally falls on deaf ears.
And the lockdown hasn’t ‘decimated’ pub sales. It has centimated them but, as the latter isn’t really even a word, we’d settle for ‘clobbered’ or ‘walloped’ or ‘mullered’ etc because, in a world usually known for its hyperbole, decimated in its modern usage doesn’t usually go nearly far enough.
There, I literally feel better now.
And here, while the Cabinet once again discuss what to do about lockdown, is a quote from The Plague by Albert Camus: ‘Destruction is an easier, speedier process than reconstruction…’
You can say that again Bertie. On to the news:
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Convoy theory. The hospitality industry is based on socialising. If certain members of a group don’t want to come out, what will the others do?
Young people. Surveys suggest they may be the most willing and able to come out but, unfortunately, their ‘intentionally crowded’ units may be amongst the last to reopen.
CONVOY THEORY: The speed of the slowest. Some consumers are washing the food they bring back from the supermarket. How and when can they be persuaded to visit pubs & other leisure venues? 9 Jun 20:
• Long before it became clear that a lockdown was necessary, it was clear that the country’s health and its financial interests could end up in conflict.
• Langton suggested, not very helpfully we have to admit, that the best outcome would be if we could succeed in protecting both health and wealth.
• It was inescapable that the one would come before the other and the population was told, in no uncertain terms, not to go out.
Moving to the next phase:
• Reversing this was always going to be a delicate operation. Project Fear and the various scare tactics may well have been justified – but there isn’t much of an ‘off’ switch.
• Some consumers are washing food that they bring back from the supermarket whilst others are not venturing out at all.
• And a sizeable number of consumers are being advised to shield themselves. They will be amongst the last to be advised to return to ‘normal.’
What does this mean?
• The above people are members of family and social groups.
• At least they are under normal circumstances and, if they cannot or will not go out post lockdown, will other members of their social groups also stay at home?
Time is a great healer:
• Yes, it is, but people get frightened more quickly than they calm down.
• Adrenalin is nought to sixty in zero seconds flat but getting heartbeats back to normal can take time – and it may be similar with regard to socialising.
• And we’re not saying that nobody will go out nor that disturbed would-be consumers will never spend again and nor that their friends won’t dump them and go out without them.
• But this could take time and, in the return to normal, it could be a dampening force.
Garbage in, garbage out?
• The above could be wrong. But how, for example, do you persuade a cautious family member to battle their way through an airport, sit on an aircraft with 200 other people for three hours and sleep in a alien beds, use public cutlery, communal toilets etc.?
• And, even if it is right, it is likely to be temporary. Certainly, but how long can operators go without income?
• And some demographics will be impacted more than others. See below on the youth market. This could be like a Venn diagram where characteristics are overlaid. The cruise market might not look too pretty. Older people take cruises, cruises involve long periods ‘indoors’ in close proximity to others, older people are more impacted by the virus etc.
• Add in the financial characteristics of the cruise industry (high fixed costs, little product flexibility or substitution etc.) and it begins to look like a tricky place to be.
YOUNGER CONSUMERS. Willing to spend but not able? Surveys suggest younger consumers are keener to return to normal but will their venues be open? 9 Jun 20:
• Younger demographics may be more willing to take risks and, in the case of Covid-19, they are at less risk than older age groups in any case.
• Hence, it is understandable that younger consumers seem keen to go out sooner than do older people.
• However, whilst beer gardens, log fires, warm beer and conversation may not do it for them, units that they might prefer to frequent could be amongst the last to reopen.
‘Intentionally crowded’ venues:
• The hospitality industry is meant to be hospitable and, certainly at the nightclub end of the market and where operators seek to create an atmosphere, units can be ‘intentionally crowded’
• And, though times may have changed, 2m distancing on a dance floor is going to struggle to work
For the operators:
• London Union (Dinerama, Giant Robot) boss Jonathan Downey says ‘whilst Government continues to dither about the decision, we’re praying for 1m distancing.’
• He says imposing a 2m distance ‘will mean that thousands of (especially night time economy) businesses can’t re-open and hundreds of thousands of jobs will be lost.’
• Downey says, for business operators, who have to make real world decisions, ‘it’s agonising waiting for every indication of what might happen next, poring over the most recent leaked sneaky peek into the future, trying to figure out what we can and can’t do and by when?’
• He says ‘it’s frustrating having to live with Government by focus group and a ‘leadership’ that is led by opinion poll, but it’s what we’ve got to deal with.’
• Lord Heseltine, speaking in 2018, said of PM Boris Johnson ‘he decides which way the wind is blowing, and that wonderful phrase about a politician – a man who waits to see the way the crowd is running and then dashes in front and says, ‘Follow me’.’
• That can lead, and it clearly has led, to success in politics. But it maybe isn’t so useful for businesses that have to plan their moves many weeks in advance
• It’s been suggested that would-be customers fall into three groups, Rule-Breakers, Rule-Takers and Rule-Makers
• Individuals may have the choice as to which group they put themselves in but companies will have to put themselves in the first category
• They simply cannot make up their own rules or break the ones that already exist
Running out of time yet again but we will write tomorrow on the below. Please ping us any thoughts or suggestions:
1. Administrations. There is a well-trod path (appoint advisors, explore options, advisor becomes administrator, try to sell the business, partially do so, partial shutdown & redundancies) and there are a lot of companies on it.
2. Debt. There is a lot of it about. Some is called, simply, debt (be it bank of government loans) but the rest is masquerading as delayed VAT payments, rolled up rents, unpaid bills and the like.
PUB & RESTAURANT NEWS:
No clear guidance as to dates.
• The trade has been reacting to the surprise news that a 22 June opening was now being considered. That’s not long enough to brew beer and barely long enough to clean up units, brush the rust of kitchens and cut the grass in beer gardens let alone de-hibernate your staff.
• The BBPA has called for ‘urgent clarity and a definitive date for when beer gardens will be allowed to open.;’ It also says that all pubs ‘must be free to reopen from 4th July.’
• This follows speculation that pub beer gardens will be allowed to re-open on 22nd June. A group of MPs is said to be pushing for this, but the timing is now tight.
• The BBPA has reiterated that ‘pubs need a minimum of three weeks’ notice to get ready to re-open. Likewise, beer will need to be brewed in that time and delivered to pubs for when they re-open. If beer gardens are to open from 22nd June, then pubs and brewers need to know now as it only gives them two weeks to get ready.’
• Many outlets would settle for the chance to sell bottled beers, wines, spirits and soft drinks, even if they did not have time to sell freshly-brewed beer. Brewers must also decide when to push the button on real ales as, if the date is pushed forward, beer will have to be literally poured down the drain.
• The BBPA has maintained for some time that around 27,000 of the UK’s c47,000 pubs have beer gardens. But, it says, it ‘is not immediately clear how many of those pubs with beer gardens will re-open without a definitive date, sufficient notice to plan their reopening, and the final safety guidelines, specifically a decision on the two metres versus one metre social distancing rule.’
• BBPA CEO Emma McClarkin says ‘we urgently need a clear decision on whether we can re-open pub beer gardens early. We also seek urgent confirmation from the Government on a definitive date when pub beer gardens will be able to open.’ Ms McClarkin says ‘our industry needs confirmed and definitive dates so we can get pubs ready for re-opening.’ Toilet facilities are clearly going to be an issue at some point.
• The cabinet will meet today to discuss further moves to relax the lockdown.
The 2m rule:
• The FT reports that more than half the cabinet is now in favour of reducing the 2m rule. PM Boris Johnson is also said to be keen on the move. Senior MPs may be trying to judge the public mood. Jobs or health? The FT quotes a ‘government figure’ as saying ‘the scientists have been quite firm on this [the 2m rule]. At the moment Sage is definitely not inclined to reduce the guidance.’
• At some point, this was always going to be a political decision. Various ministers have said they were ‘guided by the science’. It is possible, indeed likely, that there will be some divergence in the coming weeks. Business Secretary Alok Sharma has said that 3.5m jobs would be at risk if the distance is not removed and the economy opened up ‘by the summer’.
• Sky reports that the scientists and politicians may, at some point soon, be at odds as to whether it is safe to reopen the economy. Professor John Edmonds told Andrew Marr on Sunday that it was a political decision as to whether and when to allow free movement. He said that, with a natural R of 3.0 to 3.5, the disease could very rapidly reappear. In March, the number of infections was doubling every 2-3 days.
• Sky says that the ‘new normal’ that we are being led to expect seems to be changing every week. Matt Hancock told Sophie Ridge that ‘the plan and the strategy hasn’t changed.’ That didn’t go down too well for Mrs May when she tried it on the Press at the height of the Dementia Tax row.
• The BII suggests that a quarter of pubs expect to pay up to £3,000 to ensure the safety of their customers.
Other Covid-19 issues:
• Sky News reports that UK Hospitality has called on PM Boris Johnson to support the hospitality industry, particularly when it comes to rents. The Q3 payment is due in a little over two weeks’ time. Hospitality companies have had little or no income since their last rent bills became due on 25 March.
• The landlords for many operators have deferred (perhaps making a virtue out of a necessity, as many tenants simply were not paying it) March rents to the week after next. In many cases, legally, six months’ rent will be due in just a fortnight’s time.
• Needs must when the devil drives and, at the end of the day, the rent due above will, in many, many cases, simply not be paid.
• London Union CEO Jonathan Downey has said that he is writing a second letter to chancellor Rishi Sunak asking for a 12 month #NationalTimeOut on rents. He says this should be comprised of a rent-free period whilst a business is closed + a turnover rent once open again. He says that the terms could be adjusted for units that have been able to open for delivery and collection. He suggests a turnover rent of 10% or a fixed rent of 25% of the prior rent figure. Landlords, clearly, would not be happy with this.
• Foodservice analyst Peter Backman has said that the rate of redundancies in the hospitality industry could pick up over the coming weeks if the 2m rule is not relaxed. The Restaurant Group is to permanently close units, Boparan is not taking all of Carluccio’s sites and the CGA says a third of operators have decided to close sites with another third as yet undecided.
• Mr Backman points out that, given the notice period and redundancy payments that need to be made to laid-off staff, some firms may be counting backwards from the end of the furlough scheme in its current form (August). Having done that, they may decide to lay off workers in the next couple of weeks.
• Interestingly Lookers, not our stock, said yesterday that it would have to delay its full year numbers beyond the FCA’s six month (end-June) deadline because it could not agree numbers with its auditors in time. These discussions will be taking place across a large number of companies. Lookers is going to have to suspend its shares. Lookers says also ‘Deloitte has indicated to the Company that it intends to resign as auditor following the publication of the 2019 Results.’
• The number of consumers out and about in May was up on numbers seen in April. The Cummings row towards the end of the month may have put further pressure on a door that was already being pushed open.
• Springboard reports that retail park footfall was down 55% in May on the same month last year. High Street and shopping centre footfall was down by 78% and 81% respectively.
• Fuller’s has disposed of its pizza chain The Stable to Three Joes for an undisclosed sum. Three Joes says it has not yet decided whether or not to rebrand the sites. Fuller’s paid £7.3m for 51% of the then-six strong site in 2014. It has expanded it to 12 units since.
• Time Out reports that, in addition to the placing it announced to raise £45m, it has raised gross proceeds of around £2.1m from its open offer.
• Wagamama has said it could take it 6-9 months to fully reopen its estate.
• Campari has bought a 49% interest in e-commerce platform Tannico.
• Wahlburgers is to permanently shut its first restaurant in Europe, in London’s Covent Garden, after just a year of operation. Wahlburgers has around 25 sites in the US.
• Mulberry is to cut a quarter of its workforce.
• Retail shops open on Monday. Pragma Consulting comments on the likely performance of High Streets vs Retail Parks vs Shopping Centres and says ‘consumer sentiment and feedback from countries that have exited lockdown suggest that footfall will be significantly lower than prior to lockdown, at least for the first few weeks, but there are encouraging signs of recovery in Asia and Europe.’
• It says ‘the ease and cost of implementing the required [health and safety] initiatives will vary by type and size of destination, but it is those that are best able to make visitors feel safe that are likely to attract repeat visits and make shoppers move from purpose-driven trips to shopping as a leisure activity.’
HOLIDAYS & LEISURE TRAVEL:
• Jet2holidays has postponed the resumption of its summer holiday flight programme to 15 July. It says ‘we know there is a lot of pent-up demand for our award-winning holidays, and we cannot wait to take customers away on their well-deserved holidays again.’
• Travel Weekly has quoted leisure travel accountant Chris Photi as saying that refund credit notes ‘are protected under ATOL’. He says ABTA would ‘have no option’ but to seek a judicial review if the CAA ruled otherwise.
• EasyJet continues to threaten legal action regarding the UK’s now-live quarantine regulations.
• Aparthotel operator Staycity is set to re-open properties to leisure and business guests across its European estate.
• A survey of Advantage Travel Partnership travel agents suggests that 15% fear for the future of their businesses.
• NH Hotel Group is to have 55 per cent of its portfolio of hotels worldwide open during the month of June.
• MSC Cruises has extended the suspension of its operations through to 31 July.
FINANCE & ECONOMICS:
• Sterling unchanged at $1.2702 and €1.1253. Oil lower at $40.83. UK 10yr gilt yield down 2bps at 0.34. World markets mixed. London set to open up around 8pts.
• The US economy slipped into recession in February per data from the National Bureau of Economic Research
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: The small Online fashion business Sosandar has enlivened another quiet day in the sector by announcing a trading update. Unlike its giant rivals Boohoo and ASOS, the stockmarket has not seen little Sosandar as a winner from the lockdown and the shares have been struggling of late, with the market cap down to just £17m. And investors will not be happy to hear that the loss for y/e March is expected to be slightly higher than expected, because of gross margin pressure, but they should be reassured by the 62% sales growth achieved over the last 2 months and by the news that the company has the cash resources to withstand the current crisis.
• BRC Retail Sales figures for May (the 4 weeks to May 30th): We thought that today’s figures, which came out overnight, would show total sales at least 12% down (after the 19% slump in April), despite strong Online sales growth, but the outcome was “only” 5.9% down. Oddly enough, “LFL” sales were well up, by 7.9%, but this calculation excludes all the stores temporarily closed because of the lockdown and the surge in Online sales wasn’t “LFL”, as they clearly wouldn’t have been that strong but for all the store closures…Sticking to total sales, the BRC point to the weak comps in May as a reason for the more resilient sales last month, as last year the outcome was disappointingly weak (-3% LFL) because of the cool weather and a tough comp with 2018. The key Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +5.6% and -21.8% respectively), but
• News Flow This Week: Later today the American owner of the H Samuel and Ernest Jones jewellery chains, Signet, has its Q1 results in the US. Tomorrow brings the interims from the West End landlord Shaftesbury and the finals from Joules, whilst on Thursday we get the B&M finals, as well as the Morrisons AGM and the Dignity AGM.