Langton Capital – 2020-09-07 – PREMIUM – City centres, supply & demand in travel, discounts, late night etc.:
City centres, supply & demand in travel, discounts, late night etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The schools here in York don’t go back until Wednesday, which seems a bit late.
But this gives us another chance today and perhaps tomorrow to get out and about in the rain here in God’s own, to see how the pubs, coffee shops, cafes and restaurants are doing.
It’s all go for the hard-working analyst and we might pop up to Helmsley today.
Whilst it’s not much fun (in our humble opinion) nipping into a shop all masked up to be watched suspiciously by staff in case you touch anything but we can grab a bite to eat, throw twigs in the beck and there are nice walks around Ampleforth and the like.
And, if we get time, we’ll pop up to Sutton Bank where we can imagine, from the comfort of the car, just how much of a grind it would be to walk up it.
In fact, it’s a bit of a challenge to drive up it in a small car with more than three people in it but anyway, with all of that in mind and the coffee percolator just bubbling into life, it’s time to move on to the news:
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PRET AND OTHER COMMENTS ON CITY-CENTRE WORKING: See also below. There are many potential equilibria. Covid is shifting us from one to another. 7 Sept 20:
• It’s tempting to think that there can only be one equilibrium point. But that’s not true.
• An ‘equilibrium point’ and ‘where we just happen to be now’ are often used interchangeably to describe an existing situation.
• The equilibrium point was where the market settled – and where it would stay – unless a force shifts it from that point.
• And that, step forward Covid-19, is what has happened.
• With the above in mind, it is possible, indeed likely, that new equilibriums will be found for (hackneyed phrase) work life balances and the like
The current situation – how to un-press a ‘stop’ button:
• Over the last few days, Pret a Manger CEO Pano Christou and Foreign Secretary Dominic Raab have conceded that there could be more working from home in future than there has been in the past
• And that’s not a statement of genius because there won’t be less, will there?
• Christou takes a stronger position saying there could be a long-term shift to home working as a result of Covid-19.
• Christou says ‘I think there’s no doubt that workers will come into the office less often than they had done beforehand.’
• This is 1) probably true and 2) an entirely sensible thing to say if you are attempting to signal to your landlords
• Langton has said a few times that a decade’s worth of evolutionary change has been accelerated into perhaps six months.
• Christou is of the same mind, saying ‘what we have seen over the last six months in particular is just an acceleration of customer behaviour changes, and lots of these ideas were plans kind of in flight a year or so ago.’
• Raab, on the other hand, has the tough job of facing one way one minute and the other way the next. This was perhaps necessary to get on top of the virus (working from home) but it is not an easy button to un-press.
• The Bank of England has suggested that a swift return to offices is unlikely. Alex Brazier says a “sharp return” to “dense office environments” should not be expected.
• PM Boris Johnson concedes that more people will work from home but maintains that HS2 is still a good use of taxpayer’s money
• Any accelerated evolution is likely to be painful – and this certainly seems to be the case now.
• This distress will extend to hospitality workers, their shareholders and suppliers but, over time, it will also extend to their landlords
• Some, e.g. Lord Adonis, have said ‘the death of the office is massively exaggerated’ and, as regards some extreme comments, this is doubtless true
• But mobile computing, an Internet savvy workforce, The Cloud and other developments have meant that major changes would likely have happened (albeit more slowly), even if Covid-19 had not
• At the micro level, there could be some disagreement about whether wages should go up or down. Bosses are saving money on office space but workers are also saving money on (not) traveling
• Interestingly Bloomberg has given staff a budget of up to $75 a day to travel into its offices saying ‘we are pleased to provide up to $75 USD a day to cover out-of-pocket transportation costs when commuting going forward during the pandemic – whether for car services, tolls, parking or public transportation.’ That seems rather generous.
SUPPLY AND DEMAND IN THE AIR INCLUSIVE HOLIDAY MARKET: Ultimately, S&D will have to be in balance. If they are not, prices will move. 7 Sept 2020:
Introduction – see also below:
• IATA says demand for international air travel remains woefully below capacity. It says global air traffic was 80% down year on year in July and international traffic 92% down.
• IATA says businesses are feeling more confident (the supply side) but consumers (demand side) are not.
The supply side:
• Of course, this could be correct or optimism or over-optimism or simply wishful thinking on the part of suppliers.
• Suppliers have aircraft to fill. They want to, must believe that people want to fly. Otherwise, their business has little purpose.
• Bosses in the airline & holiday industries have bet their career chips. And they are bosses in the airline & holiday industries. To a hammer, everything is a nail, etc….
The demand side:
• IATA says the rise in traffic has been ‘was less than forecast [and] the reason for the weakness is the lack of international travel’.
• It says ‘there is absolutely no growth in international markets. The one market we see growth is within Europe. The main issue for most countries is borders are closed and Europe is the only international market showing growth.’
• There is much upset here that apparently-hastily-imposed quarantines are squashing what demand there is
• Indeed, IATA says ‘confidence is the issue, but policy is not helping. Even when borders are not closed, quarantine is proving a barrier to travel.’
Other demand implications:
• Confidence may well be the ‘issue’ but, with the need to wear a mask in airports and on flights, various restrictions in resort and the possible need to self-quarantine on return, it is not just confidence – but the potential to actually enjoy a holiday – that may be in doubt
• IATA says ‘load factors are at a record low and there is overcapacity because demand is growing so slowly and consumers are booking much later.’
• This would normally (although there is no real precedent) be followed by a) a massive reduction in supply and major layoffs, b) an increase in demand over time and c) a drop in holiday prices whilst supply is greater than demand
• There has been much talk of travel & hospitality being a resilient industry
• And this is correct but banks don’t lend to an industry, workers don’t work for an industry and customers don’t spend in an industry’s outlets.
• It is arguably the firms within the industry that matter and, given the CVA’s, straight administrations, refinancing moves and stony silences from a number of operators, there could be a major shakeup in terms of the companies that survive and thrive compared to those that do not
PUB & RESTAURANT NEWS:
City centre trading:
• Pret a Manger CEO Pano Christou has said that there could be a long-term shift to home working as a result of Covid-19.
• Pret has introduced an innovative £20 per month subscription offer. It’s limited to five drinks per day with a half-hour gap between drinks. Christou told Radio 4’s Today programme ‘I think there’s no doubt that workers will come into the office less often than they had done beforehand, and I think from Pret’s perspective very early on we said: ‘This is not for us to decide.’
• Christou echoes Langton comments that evolutionary change has been accelerated. He says ‘what we have seen over the last six months in particular is just an acceleration of customer behaviour changes, and lots of these ideas were plans kind of in flight a year or so ago.’
• Christou warmed to his theme telling Sky News ‘I think customer behaviour is going to change for good.’ he adds ‘I think flexible working will be more apparent than it’s ever been.’ See Premium Email for comment.
• Dominic Raab has told the BBC that home working, which to be fair was the recommended course of action until recently (and still is in Scotland and Wales) is damaging the economy. He says ‘the economy needs to have people back at work.’
• Raab said the lockdown had led to a ‘massive shrinking of the economy.’
• The latest BRC footfall numbers suggest that footfall across shopping areas in the UK was down by 34.3% in August this year compared with last. This is up 7.3pps on July. The BRC says ‘in-store discounting and demand for school wear helped lure some customers back to the shops, but with many office blocks still empty and much of the public avoiding public transport, footfall is not returning to towns and city centres and this is having a devastating effect on the local economies in these areas.’
• The BRC adds ‘while many businesses have been investing in making workplaces safer, we are unlikely to see significant growth in footfall while government advice remains to ‘work from home if you can’. Unless this changes, more should be done to encourage people to travel and reassure them that public transport is safe.’
• New West End Economics reports that footfall was up 11% week on week in the West End this Saturday. Volumes were still down 44% on last year.
• Betting on at least some more thirsty travellers, Fuller’s is to reopen its Parcel Yard pub at King’s Cross railway station today.
• More train services in England, Wales and Scotland are to be put on for today in the hope that a larger number of people will return to the office.
Eat out to help out reflections:
• Analyst Peter Backman says that the 100m plus number of meals served under the EOTHO scheme ‘seems very positive and the scheme has provided a much needed boost in getting the sector moving again in terms of restoring consumer confidence and driving footfall.’
• KAM Media says ‘the EOTHO scheme has attracted a higher proportion of older customers – the customer group most worried about returning to hospitality. Over 55-year olds made up 18% of hospitality customers during EOTHO, up from 12% on the same weekdays in July.’
• This is ‘great news for the industry that the scheme has helped get these valuable customers back through the doors.’ Particularly during the summer holidays, one might have expected a larger percentage of families.
• KAM Media reports that satisfaction ratings dipped during EOTHO. It says ‘they certainly didn’t plummet but we saw a clear dip in satisfaction ratings across all criteria during EOTHO.’ It says service-related complaints increased during the period with speed of service a particular problem. This could be a feature of the scheme’s success and the increase in workload for staff.
• Carlo Platia, CEO of Feed it Back, says ‘Eat Out to Help Out has been a great success in terms of getting more people through the door.’ He adds ‘September needs to be about driving this new footfall back into venues and proving that service and cleanliness is the top priority. It’s time to take the emphasis away from price and focus on an exceptional customer experience again.’ That would be nice, but customers still have an eye for a bargain.
• M&B is mailing Vintage Inns customers reminding them they only have three more days to participate in the brand’s DIY version of EOTHO.
• Elsewhere, M&B brands Nicholson’s. All Bar One, Toby, O’Neil’s, Sizzling Pub Co, Brown’s, Harvester and Ember are offering 50% off either mains or all food via
Lease forfeiture moratorium:
• The end of the lease forfeiture moratorium is fast approaching & the issue is rising up the agenda. This may be extended but, at liabilities are still being accrued, this may do little to address underlying problems.
• More radical solutions (a move to turnover-based payments or a subsidy from government and the landlord leaving tenants only liable to pay one third of the rent in the short term, are being proposed.
• London Union boss Jonathan Downey comments that an extension could buy time, though there is doubt regarding the government’s willingness to get involved. Downey says ‘whilst an extension won’t cost the Treasury anything, will keep thousands of businesses alive and save tens of thousands of jobs, it will also cause huge problems for, largely Tory-voting landowners.’
• There is a concern that the government may prioritise the survival of larger firms as, at the end of the day, that’s where the jobs are.
• KAM Media says that 17% of beer drinkers chose a lower ABV than they would usually during lockdown.
• Chancellor Rishi Sunak has been urged by union leaders to subsidise wages in order to dissuade employers from undertaking a swathe of job cuts. More than half of workers in the arts, entertainment and recreation industries are still furloughed says the ONS.
• Deltic is consulting on 402 job losses. The tapering of the furlough combined with the time needed to give notice has made these decisions necessary around now. Nightclubs haven’t had any sales whatsoever for almost six months now.
• Deltic CEO Peter Marks says ‘there will be far more job losses if we don’t get something material in the next six weeks. As an industry, we won’t get through November.’
• The Night Time Industries Association says 71% of its members will make more than half their workforce redundant from September
• Beam Suntory has bought cocktail brand On The Rocks
• Yumpingo has launched Yumpingo Central, a new guest engagement platform
• Retailer Jigsaw is to shut 13 stores and make more than 100 staff redundant after the approval of its CVA
HOLIDAYS & LEISURE TRAVEL:
• IATA says demand for international air travel remains woefully below capacity. It says global air traffic was 80% down year on year in July and international traffic 92% down.
• IATA says businesses are feeling more confident but consumers are not. See Premium Email for comment.
• PM Boris Johnson has defended quarantining returning travellers saying that alternatives, such as airport testing, would give a ‘false sense of confidence.’
• Grant Shapps says Scotland ‘jumped the gun’ on quarantining travellers returning from Greece.
• Travel Weekly reports that ‘travel industry and political momentum is mounting on government to overhaul its “chaotic” travel quarantine policy in favour of Covid testing at airports.’ This may be wishful thinking as PM Boris Johnson has recently suggested the opposite.
• Given the number of U-turns recently, however, the industry may have grounds for hope. Travel Weekly says ‘the government is facing increasing opposition from within the Conservative party over its stance on airport testing.’ The Daily Mail says three is a ‘groundswell of anxiety’ within Tory ranks. Tory MP Henry Smith says ‘we are supposed to be looking to be global Britain and yet we are at a competitive disadvantage to those countries like Germany, like France, that are testing passengers. I would urge the government to reconsider.’
• TUI UK & Ireland MD Andrew Flintham has warned ministers that many travel companies will not survive through the winter without ‘sensible solutions’.
• Hays Travel has acquired Tailor Made Travel out of administration
• STR reports that US hotels saw a slight dip in performance last week. It says U.S. hotel occupancy fell for the second consecutive week in the week to 29th August, to 48.2%. It had briefly hovered above 50.0%.
• STR says weekend occupancy was 55%, down from 57% a week ago. It says ‘we have heard anecdotes about people taking longer weekend trips, just because they can work virtually and because their kids’ school is also virtual.’
• China is reportedly enjoying a tourism boom as its citizens are unable to travel abroad.
FINANCE & ECONOMICS:
• Dominic Raab says the UK and EU are entering a crunch week. He says fishing and state aid are the main sticking points.
• Downing Street, which may be managing expectations in order to ‘out-perform’, said there is around a 30-40% chance of a deal.
• Groups representing hauliers suggest the UK could be ‘sleepwalking into a disaster’ of unpreparedness. PM Boris Johnson says the UK is ‘ready for any eventuality’.
• The US added 1.4m jobs last month. Unemployment, which peaked at 14.7% in April, fell below 10.0%.
• Ministers are reported set to introduce new legislation that will override key parts of the already-agreed EU withdrawal agreement. The EU has yet to react. It is unclear how or if this will impact the UK’s claims to be negotiating in good faith. The BBC says it would be an ‘attempt to free the UK of an obligation… to check goods crossing from Great Britain to Northern Ireland.’ Labour says it is ‘sacrificing [the UK’s] international standing at the altar of the prime minister’s incompetence.’
• World markets lower on Friday but London set to open up around 60pts. Sterling lower at $1.3232 and €1.118. Oil lower at $42.13. UK 10yr gilt yield up 2bps at 0.25%.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front page headlines of the Saturday papers were pretty mixed: the Guardian led with the continuing row over the appointment of Tony Abbott as a UK Trade Adviser (“PM appoints “misogynist” Abbott as trade adviser”), but the Daily Mail went with its continuing campaign for airport testing (“The Great Air Revolt takes off”), whilst the Times highlighted “Virus shifts to young as lockdown fears ease” and the Telegraph ran with “Phone 111 instead of going to casualty”. The FT, however, flagged that the Japanese conglomerate Softbank has been exposed as the big buyer of US tech stocks (“Softbank unmasked as “Nasdaq whale” that stoked huge tech rally”) and the continuing sell-off in US tech stocks on Friday was the main Business story in both the Telegraph and the Times.
• Saturday’s Press and News (2): In terms of Retailing stories, the FT had an interesting follow-up on the recent US tech stock boom via an article about the number of fake reviews on the Amazon UK website (“Amazon’s top UK reviewers appear to profit from fake 5-star reviews”), whilst, talking of tech stocks, the IPO of The Hut continued to generate controversy: the Guardian flagged that a previous IPO plan in 2011 was called off after the deal to buy MyProtein for cash and shares exposed an accounting scandal at The Hut Group…and the Daily Mail highlighted that the “private equity baron” Dominic Murphy (who is a non-exec at The Hut) will scoop £50m from his shareholding in the company, whilst also noting the row over the way in which the company has transferred the ownership of its properties to the founder and boss Matt Moulding so he can charge it £19m in
• Saturday’s Press and News (3): In other news, the decision of Pret A Manger to change its business model and the weak SMMT new car sales figures for August got a fair amount of coverage. The Times and the Daily Mail highlighted an interview that the Chairman of Debenhams, Mark Gifford, gave to the BBC in which he boasted about the amount of cash the business has built up (by not paying rents or rates etc), but also warned that more city centre stores would close unless office life returned to normal. The Times also flagged that the CFO of Frasers, Chris Wootton, has accused Debenhams of blocking a rescue deal by “gagging” it from talking to landlords about individual store deals. The Times also noted that the South African owner of the Office shoe chain has decided to close half its stores over the next few years, without resorting to a CVA. Ahead of next week’s interims, Morrisons was
• Sunday’s Press and News (1): The headlines on many of the front pages of the Sunday papers were all about yesterday’s Extinction Rebellion protest outside certain newspaper production plants, eg with the Sunday Times running with “MP’s unite in defence of free speech” and the Sunday Telegraph going with “Extinction Rebellion facing “organised crime” curbs”. The Mail on Sunday went with the Government’s latest ridiculous posturing ahead of the latest Brexit trade deal negotiations: “This time we won’t blink”. The Observer flagged a leaked PHE report that warned that “Covid “could be endemic in deprived parts of the country””.
• Sunday’s Press and News (2): In terms of Retail stories, most of the Sunday papers were a bit thin, but the Business editorial in the Sunday Telegraph flagged that there could be a last-minute bid tomorrow for Asda from the big, privately-owned petrol station group EG. And the “Inside the City” investment column in the Sunday Times looked sceptically at B&M after its promotion to the FTSE 100 index, noting that “B&M might sell bargains but the shares are not cheap”, concluding that the shares are a Hold. The Mail on Sunday, however, had plenty of retail stories, leading its Business coverage with the news that Morrisons will kick off a “recession” price war tomorrow by slashing the cost of 400 products by nearly a quarter. The Mail on Sunday also had an exclusive interview with the new Chairman of Debenhams, Mark Gifford, in which he warned that more city centre stores would
• Sunday’s Press and News (3): In terms of all the Economics and comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“Sunak’s toxic tax problem as spending hits wartime levels”), in which he noted that the current level of Government spending is normally only witnessed during wartime (he also flagged that he found the Bluewater shopping centre packed with shoppers on a recent visit). We would also flag the column by the veteran Economics correspondent William Keegan in the Observer (“The useful idiots of Brexit only make us less secure”), in which he noted that “Brexit is not only about a once-proud nation volunteering to suffer wholly needless and avoidable self-harm; it is also about weakening your country in a world where the geopolitical rivalry between the US, Russia and China is
Today’s News: The food conglomerate ABF has announced its pre-close update for y/e Sept 12th, flagging that its main business, the mighty Primark, traded ahead of expectations in the last quarter, despite its lack of an Online presence. Interestingly, Primark highlight the big underperformance of its major city centre stores, even providing LFL sales with and without those stores, eg in the UK LFL sales since reopening are expected to be 12% lower, but if the four large UK destination city centre stores are excluded the decline is only 5% (in the US LFL sales are expected to be 9% lower, but 2% ahead excluding the Boston flagship store). Primark also flag that it has made big inroads into its stock mountain, whilst keeping stock markdowns low and that current orders being placed are benefiting from recent weakness in the US dollar.
News Flow This Week: As we move further on into September, there is a lot more going on this week and The Hut IPO is still bubbling away in the background. Tomorrow kicks off with the BRC-KPMG Retail Sales for August, as well as the Halfords trading update, the JD Sports interims and the Travis Perkins/Wickes interims. Thursday then brings the Morrisons interims, the Dunelm finals, the Dixons Carphone AGM and the N Brown AGM.