Commercial Awareness Blog 7th February by Ben Triggs

1. Revised Bank of England growth forecast

Last week it was announced the Bank of England has revised its economic forecast for 2017 and now expect the economy to grow 2% - up from the previous prediction of 1.4%. The central bank has also forecasted lower unemployment and a slightly less sharp increase in inflation for the year ahead, as they react to further signs the public and business is dealing well with the impact of the Brexit vote. Despite this revised forecast, leaders of big firms believe Brexit is ‘already damaging business’. In a survey of senior executives from over 100 of the largest 500 companies in the UK, 58% felt the referendum was having a negative impact on their business.

In a rate setting meeting at the Bank of England, it was decided interest rates will be held at 0.25% and a programme of quantitative easing would continue. Quantitative easing is a process of creating money electronically, for the purpose of buying financial assets and inject capital into the economy. The Bank of England has committed to giving a further £20.7 billion to lenders, who have had profits cut by continued low interest rates. Regardless of the positive signs for the UK economy, it is unlikely the UK will see interest rate rises in the near future.

Questions to ask yourself… How will the markets react when the Government triggers Article 50? What are the potential problems of Quantitative Easing?

2. Tesco’s planned Booker takeover

Tesco stunned the grocery sector in January by announcing a plan to acquire wholesaler Booker in a £3.7 billion deal. The takeover has run into problems lately as the supermarket giant is struggling to convince the Competition and Markets Authority the deal is in the best interest of the customer. Booker is a cash-and-carry wholesaler supplying independent retailers and also owns the Londis, Budgens and Premier brands – shops which are independently owned but run as franchises. The deal would add 5,400 shops to Tesco’s network of small stores, but this could lead to Tesco having too much control of the grocery market in some areas. 

Analysts suggest Tesco may be forced to sell over 600 stores nationwide, which are situated less than 500 metres from a Booker owned store. However, Tesco’s suggest Booker’s franchise network operates independently, playing down the potential problem surrounding competition. Lawyers from Freshfields Bruckhaus Deringer and Clifford Chance have been enlisted to provide expertise on the takeover.

Tesco owns 28.3% of the total grocery market in the UK and the Booker takeover could add a further 2% to this share. According to analysts at Bank of America Merrill Lynch, this deal could trigger a merger between Sainsbury and Morrison.

Questions to ask yourself… Will this takeover have a negative impact for consumers? Could the takeover cause problems for small shop owners?

3. Apple and Facebook post strong results

Facebook has announced another very strong quarter of revenue and profit, as they again beat Wall Street expectations in Q4 of 2016. The social media firm earnt $8.81 billion in revenue – a 51% YoY growth - and profits reached $3.57 billion. Facebook’s ‘stickiness’ and continuing growing is defying expectation, with 1.86 billion active users on the social network last quarter (a 3.9% increase compared to the previous quarter).

It was also an excellent quarter for Apple, as huge iPhone 7 sales over Christmas marked its strongest ever quarter. Their net sales in Q4 were up 3% compared to the previous year, which was helped by record revenues in their Mac and Apple Watch division as well. In 2016, Apple had experienced three quarters of declining revenue, so these figures were a welcome improvement for the tech giants.

Despite strong iPhone sales, Apple last week was overtaken as the world’s most valuable brand by Google, after five years at the top spot. Analysts calculate the brand-worth in the top company each year as part of the Global 5000 rankings. In the report, Lego took over Disney as the world’s most powerful brand. The biggest losers in the ranking were fast food chains, as they struggle to break their association with unhealthy eating.

Questions to ask yourself… Has Apple just experienced a Christmas boost or is this growth set to stay? 

4. Trump to roll back regulation

Last week Donald Trump started the process of scaling back financial regulation by ordering a review into the 2010 Dodd-Frank act. One of Trump’s key election pledges was to roll back what he believes is excessive government intervention in finance.

What is the Dodd-Frank act?

Named after the Congressmen who campaigned for the act, it was created to rein in risky practices by banks and other financial companies, while ensuring the customer was given a fair deal. Its primary aim is to prevent another financial crisis like in 2008-09. The law reduced banks dependence on debt and made them create blueprints for handling future crises. It also led to the creation of the Financial Stability Council and the Consumer Financial Protection Bureau – the latter promotes higher levels of consumer protection.

Is deregulation a good thing?

Trump’s administration suggest the legislation has failed to achieve its goals and has hurt community banks, who have struggled to comply with a number of the new laws. They believe banks will now have better ability to set prices more efficiently, therefore benefitting the customer. Wall Street reacted positively to news of the review, with increases to the share price of leading bank – Goldman Sachs rose by 4%. However, many commentators are apprehensive about deregulation, as it increases the ‘too big to fail’ thinking returning, which prevented the finance sector forecasting the 2008 crisis.

Questions to ask yourself…  Could deregulation be a positive thing for customers? Which sectors could be disadvantaged from less financial regulation?

5. Vegetable rations in supermarkets

Supermarkets have set limits on sales of iceberg lettuce and broccoli, after a harvest drought caused by poor weather in southern Spain. Tesco has stopped customers buying more than three iceberg lettuces, while you can’t buy more than three broccolis from Morrison. The aim is to restrict larger buyers, such as restaurants and caterers, so regular customers don’t lose out. Approximately 80% of the UK’s vegetables comes from southern Spain and the bad weather across mainland Europe has also affected contingency supplies from Greece and Italy.

Leading supermarkets are trying to boost supply by importing vegetables from America. However, this will cost significantly more and is likely to lead to increased prices for the customer. It’s reported that Tesco icebergs now cost 79p, up from 50p.

Question to ask yourself… Is the UK too reliant on foreign imports? 

6. And finally... £1 million prize for engineers who made the selfie possible

The four engineers who created the technology which made the selfie possible have been awarded with the £1 million Queen Elizabeth Prize – the world’s top award for engineering innovation. Working in USA and Japan over many decades, they developed the imaging sensor technology used in all digital cameras and smartphones today. Their work made most film based photography redundant and made Skyping, instant digital photography and streaming digital films possible.

Question to ask yourself… How much impact has this invention had to the modern world? 

16th January Commercial Awareness Update by Ben Triggs

1. Pound falls further ahead of May announcement

The pound fell to its lowest level against the dollar since October amid reports PM Theresa May will outline plans for a ‘hard Brexit’ this week. The pound is currently trading at $1.20, which makes it 20% down since Britain voted to leave the EU back in June. May is expected to signal plans for Britain to leave the single market and regain control of their borders. The announcement is due on Tuesday and is likely to give the greatest insight into the government’s plan for Brexit. The full negotiating strategy is unlikely to be outlined, but the tone and language used will give a strong indication of the current thinking.

The PM has already said Article 50 would be triggered by the end of March, allowing Britain to start negotiating the post-Brexit deal. There has been some good news as the EU chief negotiator stated it was important for the remaining 27 EU countries to have easy access to the City and London’s financial institutions. This is the first time Michel Barnier has softened from his hardline approach, suggesting a ‘special’ relationship could be forged.

In America, President-elect Donald Trump has backed Britain’s decision to leave the EU and believes they are ‘doing great’. During his first UK interview - with former cabinet minister Michael Gove for the Times - Mr Trump has promised the USA and UK will do a quick trade deal. Barack Obama previously suggested Britain would be at the “back of the queue” when it came to a trade deal with the US, but this doesn’t appear to be the case with the new President, who starts on Friday. However, a deal cannot be done until Britain formally leaves the EU in 2019.

Questions to ask yourself… Should Theresa May outline her full strategy for Brexit to the public? Is too much of Britain’s economic power centred on London?

2. Eight billionaires 'as rich as half world's poor'

An Oxfam report has revealed the world's eight wealthiest individuals have a combined wealth equal to that of the poorest 3.6 billion people. The research into inequality found the gap between rich and poor was “far greater than feared”. However, Oxfam’s interpretation of the figures has been questioned, as well as their focus on the super-wealthy. Some suggest Oxfam should more focused on encouraging economic growth and eradicating poverty. The former is more likely to be achieved if they are “making sure the economic cake is getting bigger”, UK economist Gerard Lyons claims.

Labour leader Jeremy Corbyn has proposed a wage cap for the highest earners in the UK, including ‘fat cat’ CEOs and footballers. Corbyn has yet to outline his plan for the cap, but suggests it would be more than the £138,000 he currently earns. Findings from a recent research survey suggest a majority of the public would support this policy, with only 30% disagreeing with it in principle. However, experts suggest it would have disastrous consequences for the UK economy, without guaranteeing reduced levels of inequality. If wages were capped, the top talent is likely to move abroad to seek bigger wage packets – this would force big corporations to do the same to access the best talent for their business - therefore harming the UK economy.

Questions to ask yourself… Is wealth creation the best way to improve poverty levels around the world? Is Jeremy Corbyn’s suggested wage cap a workable policy?

3. Tesco and Morrison’s Christmas boost

British supermarkets Tesco and Morrisons enjoyed strong performances over the Christmas period, as the ‘Big Four’ continue to fight off competition from discounters Aldi and Lidl. Morrisons had their best figures for seven years in the 12-weeks to Christmas, with like-for-like sales increasing 2.9% compared to the previous year. It’s been a good period for supermarkets overall as sales increased by 1% in December. The big winners were Tesco, as they continue to show an increase in sales after recording a loss in 2015. 

Discount supermarket Aldi reported record figures after a 15% increase in December sales. With inflation set to rise and continuing economic instability, more people could turn to the cheaper alternatives - Aldi and Lidl. Many predict the ‘big four’ could become the ‘big six’ by the end of the decade. Aldi aims to double the amount of stores it owns in the UK over the coming years, which is likely to further disrupt the dominance of the current ‘big four’. Asda has been effected most by the rise of the two discounters and struggled this Christmas, recording a 2.4% decline in like-for-like sales.

Questions to ask yourself… Will Aldi and Lidl continue growing their market share? How can Asda turn their fortunes around?

4. The Stoke Central by-election

Labour MP Tristam Hunt is quitting as an MP to take over as the head of the Victoria & Albert museum in London. Hunt will vacate his Stoke Central parliamentary seat and set up a by-election. The constituency is traditionally a Labour stronghold, but UKIP are ready to launch a major challenge. Stoke had one of the biggest leave votes in the UK during last years’ EU referendum and it’s thought new UKIP leader Paul Nuttall could stand for the seat they have a genuine chance of winning. In 2015, the Stoke Central constituency was notable for its low turnout - just 49.5% - which gives plenty of scope for Labour’s competitors to engage the disengaged voters.

Hunt refused to serve in Jeremy Corbyn’s shadow cabinet after the former was elected as Labour party leader in September 2015. He follows Jaime Reed in resigning from the party, and could open the door for more Labour MPs to follow. Corbyn is faced with a tricky by-election and a poor current showing in the polls. Anything other than a convincing victory for Labour in Stoke Central could spell trouble for Corbyn's leadership.

Questions to ask yourself… Should more be done to ensure MPs stay in office for their full term? Is the Labour Party in irreversible decline?

5. And finally…

This morning the iconic billboard lights at Piccadilly Circus were turned off for renovation work to begin. The lights have been on continuously since World War Two - only going off due to power cuts and special events. The six screens will be replaced with a one-screen display, which boasts one of the highest resolution LED displays for its size in the world. The work is scheduled to be completed in the autumn, and the new screen will show advertising as well as weather and news updates. About 100 million people pass through Piccadilly square every year, making it one of the most valuable advertising opportunities in central London.

Question to ask yourself… Is physical display advertising still relevant in the digital age?  

Commercial Awareness Update 19th December by Ben Triggs

1. Christmas strikes

Workers across a range of sectors will strike over the Christmas period causing disruptions to transport and the postal service just before the holidays. Today 3,000 employees at Crown post offices will walkout over concerns over pension changes, job security and cuts. The Post Office continues to make wholesale changes to modernise its service and become more efficient. They have reduced losses from £120 four years ago to £26 million last year, and aim to break even next year. 

Meanwhile, rail strikes continue on Southern as conductors walk out for two days this week. Earlier this year Southern announced it would be down-grading the role of conductor on its services, as new trains with driver operated doors are set to be introduced. The RMT Trade Union claim the strikes are necessary to protect customer safety, as well as the jobs of their members. For those planning to travel around Christmas, there’s more bad news as British Airways cabin crew members belonging to union Unite, will strike on Christmas and Boxing day. However, both sides hope the row over pay can be solved and the strikes called off – talks are ongoing. 

These strikes will be problematic for many in the UK, but compared to times of mass-industrial action these are relatively small-scale. Before Thatcherism, the Trade Unions had much more power and it wasn’t uncommon for whole industries to strike – many of which were state owned. In 2015, fewer days were lost to strike action than any other year since records begun in 1965. The Winter of Discontent and other strike action led to 29 million working days lost to industrial action in 1979, compared to just 170,000 last year.

Questions to ask yourself… Do the unions still have too much power to strike? Could the strike action mean the public turn against the unions? Does this strike action suggest an attitude of gloom within Britain?

2. Boost for the banking sector

Last week the FTSE 100 rose above 7,000 points, as shares in leading banks made significant gains. Royal Bank of Scotland closed 4.7% up and Barclays’ share price rose by 2.4%, helped by the announcement of increasing interest rates in the US. On Wednesday the Federal Reserve announced it would hike its benchmark interest rate by 0.25% to the range of 0.5% to 0.75% - with three more increases planned for 2017. 

This is unlikely to affect customers directly, but the higher interest rates will allow banks to charge more for lending to other banks. In general, higher interest rates are good for banking as it gives them the opportunity to make more profit. It’s only the second time in a decade interest rates have gone up in America.

In other banking news, Barclays have sold their French retail banking division to private equity firm AnaCap. Barclays are selling off their assets in Europe as they aim to streamline operations. Earlier this year, the bank sold its African operation and have scaled down in Italy, Spain and the Middle East.

Questions to ask yourself…  What is the long term impact of increases in interest rates? Is this a good thing for the global economy?

3. Apple and Ireland to challenge European tax ruling

Apple and the Irish Government are set to challenge the European Commission’s ruling that the US tech giant has to pay Ireland €13 billion in back taxes. The Commission ruled the tax deal Apple did with Ireland was illegal because it allowed Apple to pay much less than other companies in the country. Apple’s European headquarters is in Ireland, where corporation tax is set at 12.5%. 

Apple are set to challenge the ruling claiming the European Commission has overlooked the advice from Irish tax experts. The Irish Government will also challenge the ruling, claiming EU regulators have interfered with national sovereignty and have misinterpreted Irish tax law. It may appear odd for Ireland to challenge something which will increase their tax receipts, but the Government maintaining a pro-business stance and maintaining good relations with Apple could be more beneficial in the long run.

Questions to ask yourself… Should countries be giving favourable tax deals to large corporations?  What are the disadvantages of Apple having their European headquarters in Ireland?

4. JustEat’s spending spree

Food delivery app JustEat has announced plans to acquire rivals Hungry House and Canadian company SkipTheDishes. They claim to have reached a deal with Hungry House’s German owners Delivery Hero to acquire their competitor for £200 million – which could rise by £40 million dependent on performance.  

JustEat has acquired a number of its competitors in 2016 as they grow their global market share. In August they bought the assets of British start up takeaway.com and have also acquired takeaway delivery services in Spain, Italy, Brazil and Mexico. JustEat reported a 59% increase in revenues to £171.6 million in the first six months of 2016.

France’s New Legislation Preventing The Casting Of ‘Super-Skinny’ Models

This was originally posted on Fashion, Law and More.

On 17th December, the French senate agreed on a new bill which imposes a requirement for models to provide their agencies with doctors’ notes, which confirm that they are at a healthy BMI Index. The punishment for those who cannot produce such confirmation is “up to six months in jail and a fine of €75,000 (around £54,500).” Alongside this, a requirement of disclosing when photo manipulation software has been used on a photograph of a model  “in order to narrow or widen the silhouette” was created. Such images must bear the words  “photograph touched up”, otherwise heavy fines will be imposed (although, from the sources I have read, it is unclear whom would pay these fines).

Although this seems like a step in the right direction to combat overly skinny models being seen as the ideal, I don’t think this is the correct means.

AU NATUREL: WHAT ABOUT THE ‘NATURALLY SKINNY’?

For a number of models their genes will luckily have provided them with excellent metabolisms where they are able to eat pretty much whatever they wish, doing very little exercise, and not gain weight. The new legislation  may lead to a bias against such individuals because it does not appear to take this into account, as the BMI Index will be used as the indicator for being ‘too skinny’.

As BMI considers height and weight (amongst age and sex), generally: the taller an individual is, the heavier they should be. So, the outcomes are already skewed for skinny models who are commonly 5ft 9 and above for girls and 6ft and over for guys. Of course, there is in an issue with undereating and anorexia within the fashion industry and the law’s scope will catch this. However, for those who are naturally tall and slim, they are also likely to be caught. This could be detrimental to models’ livelihoods as their incomes may suffer twofold. Firstly, by not being booked for catwalk shows they are very unlikely to be scouted out for editorials, which are the ‘big jobs’ where models can earn the most. Secondly, by being deemed under the ideal BMI, models will consequently have to gain weight. This might make them ‘too big’ for designers’ preferences and thus they won’t be booked for a job. In a way, the new legislation could lead to unfair, almost discriminatory, and vicious cycle.

“IF YOU SCRATCH MY BACK, I’LL SCRATCH YOURS”

After having read that a doctor’s decision will be which determines whether a model can work or not, issues of corruption came to mind. Fashion, and, in particular, modelling, are very competitive industries and many will do a lot and go to great length to succeed. It is plausible to say that some might even break the law. With reliance on a doctor’s opinion so strong, it wouldn’t come at a surprise that agencies may attempt to bribe or even coerce doctors to provide the necessary certification for models. Also, probably even worse of all, it may arise that certain doctors are ‘known’ to sign-off models who fall under the minimum acceptable BMI and thus many unhealthy models may go under the radar. Lastly, the creation or forgery of certifications might arise. I hope that the French government have considered such possibilities and have or intend to implement some corresponding legislation/regulations in order to prevent them.

UNANSWERED QUESTIONS

There are a few final thoughts that I have which I cannot seem to find answers for from the sources I have read.

HOW LONG WILL A DOCTOR’S CERTIFICATE BE VALID FOR?

This is an issue as models may be directed by an agency to gain weight in order to meet the necessary BMI, and then upon receiving the ok, directed to then lose weight. Timing here is key. For this law to work, models must be checked by doctors very close to the beginnings of fashion weeks. If not, confirmations may be redundant when it comes to shows and doctors could be faced with disciplinary action for appearing to certify models when they are not fit and healthy.

DOES THE LEGISLATION TARGET FEMALE MODELS MORE THAN MALES?

When we think of underweight models, we probably automatically assume that these individuals are female. But the issue affects males too. In general, the news stories that discuss anorexia in the fashion industry rarely discuss how males are faced with pressures to lose weight. I hope that this law’s execution doesn’t follow suit so males and females are treated equally.

SHOULD DOCTORS BE DECIDING WHETHER MODELS ARE FIT TO WORK?

Of course, the issue of being underweight relates to the medical industry but, just like using the BMI Index, are doctors the correct people to certify models? Personally, I believe that an independent body would be best to do so. It would be comprised of medical professionals and individuals with knowledge and understanding of the fashion/modelling industry who, in combination, would be better suited to provide a judgment on a model’s suitability to work. Moreover, an independent body would be impartial and thus it would hopefully prevent the possible corruption that could emerge, as aforementioned.

Well, for now the Bill will be finalised and will come into force in 2016. It will be interesting to read the final version and also see how it will be enforced. Also, this latest development may contribute to the ongoing discussion in the UK parliament on the same matter of underweight models. It will be interesting to see whether France’s legislation influences parliament into coming to a decision on how to tackle this issue.