Confidence, chaos and Christmas
Low confidence and no confidence – This week, I had thought that we would be discussing what’s next, now that Theresa May had resoundingly lost the meaningful vote on her EU deal. We’re not. Until now May has outwardly expressed an unflappable self-belief in her doomed proposition, which had started to become incredulous. Whereas, ‘the taking part’ is fine for school sports days, in the real world winning counts. For May, that led to the unenviable choice of losing or pulling the vote. The latter has kept her middle-of-the-road option alive, but betrays a lack of confidence in her position that may fatally undermine her career. The vultures in the Conservative Party have seen their moment to act, and tonight May faces a vote of no-confidence in her leadership, tabled to the 1922 Committee. The timing might however be misjudged, as she remains favourite to hold onto her post (a majority of 183 have indicated their support), and if successful she cannot be challenged for a further year. In the unlikely event that she does lose, then a leadership election follows, with Boris tipped to be successful. If however she wins, then the battle might not yet be over. Keir Starmer and Co are waiting in the wings with the threat of a no-confidence vote in the Government. That would be more impactful. If Labour can convince the DUP to their position, then a General Election looms. The DUP will need to decide whether it prefers the much maligned backstop, or a Corbyn-led Labour government. Meanwhile, the EU watches from a distance, and remains intransigent in its position. No deal or no Brexit appear ever more likely; the odds of a second referendum are now at evens.
The end of internet shopping? – In proof that disruptive technology can itself by disrupted, m-commerce has almost overtaken internet shopping as the primary form of digital retail. According to a new piece of research released by Mastercard, shopping on smartphones and tablets now accounts for 27% of all consumer spending in the UK. The report found a disparity in the willingness of consumers to buy different products using mobile, with clothing leading the way (55%) followed by food and drinks (45%), books (43%) and healthcare and beauty items (37%). Based on the adopted classification, the combined volume of mobile and online shopping spend stands at 57%, which leaves the high street accounting for a minority of all spend (the lowest in Europe). However, the shift to m-commerce might hold promising news for retail landlords, as this channel tends to be better integrated with physical shopping environments. Alibaba has been a front runner in this space. In its Hema stores, customers can scan bar codes to get product information and pay using Alipay, which is embedded in the Hema app. As more and more retailers invest in slicker bespoke apps, the shift from browser-based shopping to app-based shopping is likely to have an upward trajectory. Therefore, whilst 80% of shoppers have made a purchase from their sofa using a mobile platform (and 6% admitted to doing so from their bath), the added value retail experience of the future is likely to sit at the convergence of mobile and physical, and not on your desktop.
Electrifying – Petrol vehicles are reliant on a dwindling commodity: oil. Meanwhile, electric vehicles are reliant on a commodity which is arguably in shorter supply – patience. The typical electric car takes 4 hours to charge from empty using a 7kW home charging point, and around 30 minutes to achieve an 80% charge from a rapid charging point at a service station. No problem if you are making short trips around town; however, a significant barrier to the adoption of EVs intended to make long motorway journeys. In an attempt to solve this problem, Volkswagen’s Electrify America has begun to install 350kW charge points across America, able to provide a 200-mile range within 10 minutes of plugging in. The interesting point is that the only cars able to handle a 350kW charging point won’t hit the market until 2020. This is a rare case of the infrastructure being in place, without a product ready to use it (chicken vs egg?). The former is an issue in the UK, where a report published by Emu Analytics earlier this year found that by 2020 the UK needs a minimum of 100,000 charging ports (16,600 currently exist) to sustain demand by EV owners. This figure is only set to grow with the Government announcing a ban on the sale of new cars with petrol or diesel engines by 2040. The question is where these points will go. Even with 10 min charge times, the existing petrol station model won’t work – cars would be queuing around the block. The shift needs to be towards decentralised charging, which presents an opportunity for anyone who owns a car park, including of course shopping centre owners.
Tourist trap – Euromonitor International released a report this week detailing the top 100 cities in the world for tourism. The top 10 has been shaped by a swelling Asian middle class as they increasingly travel to other cities within their region such as Hong Kong (1st) and Bangkok (2nd). The usual suspects are also present with London coming in a respectable 3rd place with 19.8 m visitors in 2017 and Paris in 6th with 15.8m visitors. Insights can be drawn from the list once you begin to compare visitor numbers against the population of the cities themselves, with one of the main conclusions being that bigger is not always better. Of the top 100 cities, there is no overlap between the top 10 by population and the top 10 by visitor number. Those with the largest populations tend to be the industrial powerhouses (Shanghai, Beijing, Delhi, Mumbai, Guangzhou and Shenzhen) which lack a strong tourism proposition. On the other hand, the cities with the top visitor count (Macau, Paris, Dubai), perhaps do not have the economic infrastructure to scale. The exceptions, with both size and scale, are London and New York; crowns that they will be keen to hold onto.
Panels – As more people take personal accountability for their environmental impact and technology advances, the generation of solar power in the UK has grown exponentially over the past 10 years (2008-2018: growth by a factor of c. 700). From a consumer perspective this is an environmental, rather than a financial initiative. Yields are still low, and installation costs have until recently been high, which leads to long amortisation periods (up to 25 years), under which many homeowners will register a loss. The Guardian reports this week on the reduction of FITs (feed-in tariffs, paid by the government for energy supplied to the grid). Having fallen by 90%, the payback from solar panels has reduced and the amortisation periods pushed out to up to 70 years. Whilst most companies which profited from FITs have stopped trading, in many cases the homeowner remains obliged to keep the solar panels until the expiry of a lease of the roofspace to the installer (often 25 years). In turn this is impacting on the value and mortgageability of affected homes, with anecdotes of huge payments being made to buy out these contracts. There are some lessons here. Firstly, consider carefully before granting rights over your freehold. Secondly, in a broader sense, with the pace of technological change accelerating, costs coming down and product lifecycles shortening, don’t tie yourself into a long-term position on tech that might look outdated in the medium term. Finally, always read the small print!
Yo ho ho – As the wave of automation sweeping over retail roles and businesses picks up a pace, there are few places to hide, even for those more seasoned players with strong brands and well-oiled supply chains. Consider Father Christmas. He, like most, is presumably under pressure to undergo digital transformation, drive shareholder value, and modernise working practices. So what might ‘the future of Santa’ look like? There are significant questions to be answered about his labour practices (long hours, seasonal gig workers), and non-dom / offshore tax status. He is also in the frame for potential animal cruelty, a huge carbon footprint (frequent air travel), and non-compliance with GDPR (were you asked for permission about the storage of your naughty / nice records?). Add to this Brexit-related currency fluctuations and new border controls, and you have a recipe for a failing organisation. However, opportunities do present themselves. Firstly, by shifting to information products (music, books etc), he can substantially digitise his distribution. The rest can be addressed through a combination of strategic partnerships with last mile operators, AI-driven gift selection, and click and collect options. Next, moving the elves to a BPO in Mumbai, and realising synergies through a merger with the Tooth Fairy should save back office costs; whereas changing the business model to a capital-light franchise, and charging royalty payments to mall Santas should bring in more revenue. And finally, a large sale and leaseback of the North Pole would release the capital for Saint Nick to pursue his real dream of funding a Chris-tech accelerator programme in Shoreditch.