Langton Capital – 2020-09-02 – PREMIUM – Working from home, footfall, EOTHO, TUI, Gym Group etc.:
Working from home, footfall, EOTHO, TUI, Gym Group etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
A lot of talk about empty town centres out there.
There’s a difference between Bognor and Birmingham, Llandudno and London, of course, at least while the sun’s shining & the kids are off school but, as Langton has proved itself to be both depressingly and reassuringly ‘average’ during the lockdown, we decided to examine our own behaviour.
We’ll comment on ‘EOTHO – The Langton Experience’ perhaps tomorrow but as regards city centres, we’ve been out and about a bit, seaside, Hull, York & rural towns – but haven’t been to London for six months.
Having said that, we’re down twice this month.
We’ll bolster the 15% office occupancy rate in the capital by a couple of fractions of a hundredth of a percent, and might even visit a Pret. That’s if we can find one that’s open and, you know what, we’re quite looking forward to being down.
However, there’s not much merit in having the only telephone in the world as you wouldn’t have anybody to talk to.
And there are no meetings planned and, apart from watering the office plants (or rather chucking them out after all this time) and detoxing what must by now be a truly disgusting fridge, it might be an exercise in futility but, at this stage in the game, we feel like we should be doing our bit.
On a sobering note, the negatives of coming down are financial cost, commuting hassle, time-wasting travel, wearing a mask for 3hrs (mainline + tube) and futility (nobody to meet, nothing to do). The positives are intangible and elusive.
Meaning that this could be a very sticky & jerky return to ‘normal’ as the world & their dog have been put at a life-crossroads not of their own making and behaviour could change going forward.
See Premium Email but enough of that for the moment, on to the news:
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WORKING FROM HOME: How much of it, how long will it last and what will it mean for city centres. Big questions. 3 Sept 2020:
• In late March, moves were made that led to 9.4m people being furloughed & another 2.0m self-employed people were compensated as they were unable to work.
• Others were told to work from home if they were able to do so.
• This was an expensive and deflating chore for many rather than an enforced holiday but, nonetheless, compliance was very high.
• As the lockdown has eased, it is likely that not all of the 9.4m furloughed and 2.0m self-employed people will have jobs left to go back to.
• This is bad news but it is perhaps the behaviour of the millions of other workers who have not yet gone back to their offices that will determine the trajectory of the economy as a whole and of certain types of businesses in particular over the coming months
• Tinkering with people’s behaviour has consequences
• And ordering people to stay home to save lives whilst showing them images of overloaded casualty wards was more than tinkering – and there may not be much symmetry about behaviour a) going in and b) coming out of lockdown
• If you scare a bunch of cats, they may run in the same direction but, if you then try and coax, cajole or herd them back in a different direction, they may scatter or simply sit on their backsides to watch what’s going on
• Of course, just because the above is 1) interesting and 2) correct as far as it goes, doesn’t mean that it is applicable to millions of sophisticated workers and consumers in the twenty-first century
• But you would be forgiven for thinking that it was
Telling worried people not to worry:
• Worry vs sloth. We’re being a bit charitable here and will consider health concerns. But we accept that there are some people who are comfortable rather than worried & who do not want to now leave their comfort zone
• But they may dress this up internally as ‘worry’ (rather than sloth) in order to retain a positive impression of themselves
• Hence the battleground may be the stats (which have recently got better due to measurement changes) and the body language of politicians
• Because it is all well and good encouraging workers to go back to their workplaces as a part of a government campaign but, if PM Boris Johnson says there is ‘more wretched Covid to come’, then any comforting words may have a reduced impact
• And the fact that Ministers in Scotland, Wales and Northern Ireland are still advising people to work from home if possible, will give further ammunition to those who wish to remain at home.
• This amounts to mixed messaging and, when messages are mixed, workers may simply pick the one that they like best.
• London is, and will remain, London.
• But the companies and institutions within it may not survive if workers do not return to their offices. The Evening standard says ‘unless the Government and Mayor get a grip on what’s happening in London, we are in danger of destroying vast sections of the infrastructure that makes the city so special and individual.’
• It is hard to disagree with this. Though it has led to somewhat disingenuous headlines suggesting that the government is now prioritising Pret over public health and Nando’s over the NHS
• The Standard quotes a report, Homeworking in the UK, as saying that nine out of ten people who worked from home during the pandemic would like to continue doing so
• The UK is also said to have the lowest office occupancy in Europe, at 34% vs 87% in France, for example. London may be as low as 15%. This may be down to mixed messaging – not least because it isn’t clear what else it could be down to
• This will put pressure on rents, office valuations, lunchtime venues, evening commuter bars, TfL and other bodies
An array of opposing voices:
• Whilst some are suggesting that the lockdown should continue effectively ‘for as long as it takes’, others are saying that the UK is committing economic suicide
• Though there doesn’t seem to be much appetite for compromise, the truth may be somewhere in the middle
• Some entrepreneurs are very vocal in telling workers to get back to work and the government to get its finger out
• The Spectator says it’s a pleasure for many not to have to commute – but that this can’t last forever. It quotes a survey showing ‘a third of young people expected to work from home more or less forever.’
• The Spectator goes on to say that ‘because once you are no longer in the office you aren’t really an employee any more. You are effectively a freelancer, and that is a very different relationship with your company.’ Some may dispute this but there will be arguments to come about commuting costs saved vs desk space saved, productivity and the like.
Short term, long term or permanent:
• The diktat that you should not work in the office was temporary – and is gone.
• The inclination to stay at home could be longer-term and, with some, it could be permanent.
• Some say that the mega-office was outdated and that mobile comms, laptops and the cloud have meant that there have been too many of them for some time
• That may be true and, if so, it is likely to be permanent. This is the part of the issue that should and probably will feed through to rental and capital cost – both of the offices themselves and the sandwich and coffee shops located near to them
• This has become politicised with Sky saying ‘Boris Johnson’s ‘return to work’ plea fails’ and others saying that the workers are revolting
• Some trends may have been in place for a while. Sky says even before the lockdown, ‘the Square Mile was beginning to depopulate.’
• Not many people miss commuting. A lot do miss personal interaction (AKA gossip)
• Some 69% of CEOs told accountants KPMG that they planned to downsize their office space in future.
• There are a lot of vested interests out there. It can be hard to disaggregate this from valid points that some commentators might be making
• London, Leeds and Birmingham seem to be quieter than Liverpool & Manchester. Seaside towns are busy (but for how long?) and tourist towns, such as York, are similarly quite active.
PUB & RESTAURANT NEWS:
Footfall & DIY versions of EOTHO:
• New West End reports that West End footfall was up 14% week-on-week on Bank Holiday Monday, the 31 August. This is comparing a holiday with a non-holiday. Compared with the same day last year, footfall was down 49%. As a whole, August footfall was up 13% month-on-month and down 60% year-on-year
• Inception Group founder Charlie Gilkes has tweeted that the nightclub sector will now be ‘paying 10% of all staff furlough wages + NI from today with no idea when they can reopen.’ He adds ‘clarity and support needed ASAP.’
• Eat out to help out: Many operators have been emailing, texting and tweeting contacts to remind them that they are extending EOTHO from their own pockets. Some operators are taking a different line with Hawksmoor saying ‘we won’t be extending the Eat Out to Help Out scheme. A time is coming soon when restaurants have to stand on their own two feet with the conviction that their normal prices are the right ones. For Hawksmoor we want that time to be now.’
• This is a tough call all around. Operators will have to make a profit longer term but the margin that they do it at could be up for debate. EDLP (everyday low pricing) may be the way forward for some. A move back to full price for others will be helpful – but only if it is achievable.
• Hawksmoor stresses quality saying it has ‘confidence that the 14 years we have spent endlessly obsessing about our food, our restaurants and about the people who work in them mean that we can open our doors every day and feel proud that we’re doing things properly.’
• David McDowall, COO of Brewdog, tweets ‘huge thanks to all who’ve visited a Brewdog bar during EOTHO. It’s been so good to see our teams buzzing, doing what they do best. We’ve a long way to go, but this has been a step forward. Please don’t stop supporting your fave hospitality spots, of all shapes and sizes!’
• The scheme will have been less of a driver for wet-led operators.
• The MA has quoted operators saying that there has sometimes been a lack of ‘common courtesy’ shown by the public. No-shows have been a feature for some, particularly during EOTHO.
• The struggle vs Covid-19 rumbles on with the hospitality industry turning to landlords for more help. The temporary ban on commercial evictions ends this month and there has been no mandatory forgiveness of debt. The FSB has called on the government to examine ways to protect small businesses.
• Chairman Mike Cherry says ‘a lot of small firms have long leases, some with personal guarantees, and it is wrong for otherwise-viable small businesses to go under just because they’re tied into paying high rents that their landlords would not be able to charge new tenants in the current climate.’
• Landlords will claim that operators were not willing to share profits in the good time and that there should be some reciprocity. The government, at this stage, is not keen to get involved. Observers reckon commercial landlords will have lost around £3bn by the autumn on missed rent.
• Analyst Peter Backman writes ‘high street operators – restaurants, quick service,take aways, pubs – are engaged in a rapid process of reviewing what their business will look like in the future. Some are pivoting to delivery because that seems to be an important component of the future. But it doesn’t suit all; perhaps they are in the wrong part of the country or the wrong location or sell the wrong range. I doubt whether there is enough demand for delivery to allow all operators to pivot in that direction.’
• Backman says ‘other operators are downsizing to focus on those sites that are profitable, or that are likely to be profitable when the dust settles.’ He says prices may go up adding ‘customer pricing has not got much attention when operators have been talking about their business over the last few years. Yet it is one area over which they have control.’ He comments on the “the lump of spend” hypothesis which holds that a consumer has so much to spend – and implies that they can be steered towards higher margin products.
• Backman says that a second approach is to ‘get the customer willingly to spend more than they thought they would.’ This does lead to bill-shock and perhaps resentment and tends to be finite. It perhaps shouldn’t be Plan A.
• Tortilla has said that it will carry on with its own version of the Eat Out to Help Out scheme. It says that group sales jumped by 50% during Monday to Wednesday compared to the previous month. Meanwhile M&B brands Harvester and Toby Carvery are offering 50% off mains via Voucher Codes and sister brand Vintage Inns is also offering 50% off mains.
• Amazon has won regulatory approval for drone trial flights in the US.
• Coca Cola has announced a major global restructure that will see the business streamline its operations into nine operating units. Some 4,000 employees across the US, Canada and Puerto Rico will be offered voluntary redundancy terms
• Pragma Consulting has announced that it has been purchased by Handley House. Pragma says ‘after three decades of successful business, Pragma continues to offer market-leading commercial strategy support to our valued clients, and we are looking forward to the new opportunities ahead of us, across new sectors and new geographies.’
• The Inn Collection Group is to roll out its INNtelligent flexible working scheme across its 13 pubs in the North of England. The company says ‘our INNtelligent campaign is all about building a happy, skilled team across our inns. We want to dispel the old school mentality that jobs in hospitality equate to long, unsociable hours, working every weekend and low rates of pay.’
• William Lees-Jones, MD of Manchester brewer JW Lees, has been announced as the new President of local charity Forever Manchester. Forever Manchester raises money to fund and support community activity across Greater Manchester & has delivered over £39 million of community funding across the ten boroughs in the last 30 years
• Ann Summers is reported to be considering a CVA. Yesterday, we commented on landlord accusations that some companies have been ‘weaponising’ the process in order to secure improved terms.
HOLIDAYS & LEISURE TRAVEL:
• TUI has said that it is ‘confident’ that its cabin crew followed Covid-19 secure guidelines regarding masks on the flight from Zante to Cardiff last month that has attracted some criticism. TUI says ‘passengers are informed prior to travel and via PA announcements on the flight that they have to wear masks throughout and are not allowed to move around the cabin. Masks can only be removed when consuming food and drink.’
• TUI says ‘following an initial investigation with our cabin crew, we are confident that multiple announcements via the PA and individual conversations with customers to try to reinforce protocols took place and other customers on the flight have confirmed these findings to be correct.’
• TUI has nonetheless cancelled holidays to the party resort of Laganas in Zante as a result of the above issues. The company says ‘the health and safety of our colleagues and customers is our primary concern and recent cases shows that some customers are not following social distancing and Covid safety measures.’ The Welsh Government has asked holidaymakers returning from the island to self-isolate for 14 days because of fears about Covid-19 infections.
• Travel Weekly quotes Haslemere Travel MD Gemma Antrobus as saying that uncertainty over quarantine restrictions has led clients to drop any holiday plans they may have had for 2020.
• IATA is calling on the government to work with it to find a way of re-establishing air travel without encouraging the spread of Covid-19.
• Carnival Cruise line-owned Seabourn has cancelled boyages on the Seabourn Ovation, Seabourn Encore and Seabourn Quest until 3 Jan, 6 Jan and 10 May next year respectively.
• The former owner of Saga is to invest £100 million in bolstering the company’s finances. Sir Roger de Haan sold Saga for £1.35 billion in 2004.
• Gym Group has reported H1 numbers to end-June saying that ‘the results reflect a period of significant disruption in which the Company’s gyms were required by the UK Government to close on 20 March 2020 due to the COVID-19 outbreak. The gyms remained closed for the remainder of the reporting period before gyms in England re-opened on 25 July 2020.’ Sales were £37m against £74m for the same period the prior year.
• Gym Group reports an adjusted loss before tax of £26m (2019: profit £7m) with an adjusted loss per share of 14.9p (2019: positive 4.0p). The company says its estate has now reopened nationwide with gyms in England re-opening on 25 July, Wales on 10 August and Scotland on 31 August 2020.
• Gym Group CEO Richard Darwin says ‘following our decisive actions during lockdown to minimise costs and secure additional liquidity, we have reopened as the strongest capitalised company in the sector.’ He says ‘we anticipate the long-term structural growth of low-cost gyms will continue to be driven by the underlying interest in health and fitness, which is accelerating as a result of COVID 19 and the Government’s initiative to reduce obesity.’
• The company concludes ‘with the likelihood of a challenging economic environment in the coming months, gym-goers will increasingly look for great value and as the lowest-priced high quality gym operator we are well placed to meet this demand.’
• Conservative Home has carried a piece by Philip Booth suggesting that the BBC should be owned by its subscribers. Booth says ‘in the UK, 18-34-year-olds watch seven times as much Netflix and YouTube as BBC1 content, and spend more time watching Netflix and YouTube than all other public service channels put together.’
• Apple’s stock market valuation has now exceeded that of all companies in the UK FTSE100 combined.
• Bauer Media has closed a number of radio stations in the UK, including Minster FM in York. All areas will now be serviced by the single brand Greatest Hits Radio.
• Samsung has launched its most expensive phone ever. At £1,799, Langton could be giving it a miss.
FINANCE & ECONOMICS:
• IHS Markit reports that ‘August saw UK manufacturing output expand at the fastest rate for over six years, as companies and their clients restarted operations.’
• Markit says its PMI for manufacturing rose to 55.2 in August, up from 53.3 in July. Markit says ‘the recovery of the UK manufacturing sector gathered pace in August. Output expanded at the fastest rate in over six years as new work intakes rose to the greatest extent since November 2017, led by an upturn in domestic demand and signs of recovering exports.’
• Markit says ‘business optimism also remained encouragingly robust and close to July’s recent peak.’ It says ‘the downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply.’
• India’s economy shrank by 23.9% in the quarter from April to June – its worst performance since records began being collated in 1996.
• The Australian economy has entered its first recession in 30yrs. GDP shrank by 7% in Q2.
• Sterling down vs dollar at $1.3378 but up vs Euro at €1.1236. Oil higher at $45.96 and UK 10yr gilt yield down 2bps at 0.30%. World markets mixed with London set to open around 45pts higher.
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 embattled luxury group Mulberry has announced that its finals for y/e March are being delayed again, until the end of September (even though the AGM is booked for Sept 28th). And the embattled Motor group Pendragon has come out with a bullish Strategy update, ahead of its interims due on Sept 28th, announcing that it wants to “transform automotive retail through digital innovation and operational excellence” and is targeting an underlying PBT of £85m-90m by FY25. And just after 10am yesterday morning the embattled fashion chain Ted Baker announced that Colin La Fontaine Jackson had been appointed a Non-Executive Director, as a Nominee Director for the one and only Ray Kelvin, the founder of Ted Baker and c12% shareholder, to bring “the benefits of access to Ray’s unique brand experience and insight”.
News Flow This Week: After Bank Holiday Monday, this week is quiet, but this evening brings the latest FTSE quarterly index review (with B&M expected to get into the FTSE 100, with a market cap at last night’s close of just over £4.7bn) and tomorrow lunchtime the Signet Q2 results will be published in the US.
JLP Watch: We had been expecting the John Lewis Partnership interim results on Thursday next week, in their usual slot along with the Morrisons interims, but JLP confirmed yesterday that they will be a week later, on Thursday Sept 17th (along with the Next interims)