Nike Concerned with Retail Landscape

Consumers are shopping more online and are doing shopping less in brick-and-mortar stores. Nike CEO Mark Parker is concerned with this trend and puts dramatic pressures on retail companies like Nike which depend heavily on foot traffic.

Parker said, “The important thing to point out is that these changes are being driven by the consumer. Consumer demand remains quite strong, but expectations remain high regarding the product, the innovation, and the style. They want it fast, easy and they want personal service.”

Nike had a 3% small increase in sales in North America despite massive promotions during the holiday season. Nike is having intense competition with Under Armour and Adidas in North America. Nike also reported a 16% drop in sales from equipment.

It reported an overall 5% revenue increase of $8.43 billion while its profits got boosted by 24%. Wall Street was disappointed as they forecasted stronger revenue growth. Most of Nike’s strong sales growth was in the emerging markets and Asia while it was weak in Europe and North America.

Nike’s sales in footwear in China increased by 14% while its apparel sales grew by 22 %. Nike Brand President Trevor Edwards said, “Running saw continued success especially in our international markets in the third quarter. In China, the opportunity in the running is massive…Nike and China have a long history together.” In Japan, sales in footwear increased by 8% while its apparel sales increased by 21%.

Chief Financial Officer Andrew Campion said, “We have very strong momentum in international markets.” He noted that their next earnings guidance would be driven its strong performance in international markets.

Analysts noted that online sales contributed much to the growth of sales in the retail industry. Parker emphasized, “The consumer has decided digital is not just part of the shopping experience. Digital is the foundation of it.”

To remain competitive, Nike is seeking to speed up its pace of innovation to get more of its shoes and apparels in its stores faster. It is also looking to work with its retail partners on strengthening its presentation of Nike products. Nike is also looking to pay more attention and improve its brick and mortar stores.

The sparse traffic on retail outlets has led to department stores like Macy’s and J.C. Penney to close down hundreds of its stores. Sports Authority went bankrupt as a result of less offline shopping.

Parker said, “The current backdrop represents a tremendous opportunity for Nike because the brands that win are going to be the ones that have been out front with digital and leading with service.” Parker believes that Nike is well-positioned than its competitors because it has Nike+ which allows for personalized shopping services that give them thrice the transaction size than its average one. Parker said, “The more directly Nike engages with the consumer, the greater the return.”

Regarding innovation, Nike released last year the first self-lacing sneakers. It is also using technology to boost the performance of its basketball and running shoes. Later this year, it will also roll out new sneaker cushioning products.

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Sears Uncertain Whether it Will Continue to Operate in the Near Future

Sears Holdings Corp, the holding company for retail giant Sears and Kmart, has indicated their massive concern on its ability to continue as a going concern. Sears Holdings in its filing to the SEC said, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

Sears warned that it needs to borrow more cash and get cash from its assets to continue operating. A positive sign arose in the 4th quarter as Sears had a narrower loss than was predicted by analysts.

Sears posted a narrower loss than predicted in the fourth quarter on 2016. Sears was once the biggest U.S. retailer. To raise cash, it has spun off some of its brick and mortar department stores into a real estate investment trust (REIT).

Eddie Lampert, Sears’ CEO, has been tasked to create a turnaround for Sears. He has lent out more than $1 billion in assistance which includes a $500 million loan facility to the company.
Lampert is Sear’s biggest investor and is a hedge fund manager. Part of their turnaround strategies includes selling real estate and closing unprofitable stores. Sears managed to sell this month its Craftsman tool brand to Stanley Black & Decker Inc. to raise $900 million. Sears is also looking to lessen its debt burden and to reduce their annual expenses by at least $1 billion.

Howard Riefs, a Sears spokesman, said, “While our historical operating results indicate substantial doubt exists, we want to be very clear that we’re taking decisive actions to mitigate that doubt.”

As of January 28, Sears had total debts standing at $4.16 billion. Early this year, Sears planned to have 150 of its stores to be closed. Sears in its SEC filing said, “We acknowledge that we continue to face a challenging competitive environment. But it’s bleeding cash. After its 2016 loss, it had to finance its cash needs for operating expenses from “investing and financing activities.”

Sears is looking to unlock more value from its different businesses like Kenmore appliances, Home Services and Sears Auto Center and DieHard batteries and parts through partnerships. Through this strategy, Sears hopes that it will be sufficient to end doubts of its going concern capability.

The entire retail industry has been struggling with the advent of the online retailer. However, Sears management can also be faulted for its demise as it failed to innovate and adapt to changing shopper tastes and habits. It also made an unsuccessful merger with Kmart and sold more than $30 billion of its credit portfolio to Citibank in 2003.

Sears dominated in the 1990s under the leadership of CEO Arthur Martinez who got Sears into the high-profit apparel. Martinez also boosted the popularity of Sears with its campaign, “Softer Side of Sears.” It also offered the widest range of products and dominated the middle-class segment.

However, Walmart grew tremendously as it took over Sears as the country’s biggest retailer with its price leadership strategy.

Despite Growth UK Economy Is Still Uncertain

The Brexit vote in the past year has had a major impact on the economy of UK. However, the actual data proved to be better than the forecasts. Even experts are surprised by the resilience showed by the UK economy in unfavorable circumstances. At the same time, the growth experienced in the final quarter can take a turn for worse as it highlights several weak links in the economy. In the fourth quarter of 2016, the GDP of UK increased by 0.6% and a majority of the growth is fueled by the services sector.

The growth in economy is not contributed by the manufacturing industries. Rather, the growth is fueled mainly by consumer spending and services. While any growth must be appreciated, experts warn that the current situation is not favorable for long term growth. In recent years, the services sector emerged as one of the primary reasons for the growth in economy. The contribution from agriculture, construction and industrial production sectors is very low. This is scary for the economy because the growth accelerated by services sector is not sustainable.

With an expected increase in the inflation rates, UK households spend more to purchase what they want while the price is affordable. This means that people are saving less and borrowing more money. This can put additional pressure of the households as the inflation affects the spending capacity. Many economists fear a slowdown in the economy in the upcoming year. Mark Carney, governor of the Bank of England has already put forth his views on the pressure to the economy due to increased inflation and decreased business spending.

The growth is enjoyed this time, but there are too many reasons that can disrupt household spending in the upcoming months. While the economy is trying to rebalance through exports, the results are not shown in the data. In November, the UK households borrowed at a much faster rate in 11 years. The growth fueled by consumption is not durable and it can decline suddenly. The UK credit also increased greatly compared to the last year.

In the Q4 of 2016, the industrial production sector showed a loss. The GDP growth of 0.6% is mainly powered by services sector that gained 0.8%. The restaurants and hotels industry also gained 1.7%, which is the highest since 2012. Overall, the economy gained 2% in 2016. Considering the circumstances, this growth is welcomed by economic experts even though it lost 2.2% compared to the last year. UK’s economy is at its weakest since the year 2013. In this year, the economy is set to lose another 1.2% due to the international pressure on the UK.

However, some economic experts suggest that there is no need to lose hope. Presently, the economy is healthy. The construction and manufacturing sector can also gain some pace as exports pickup in this year. The import costs have increased greatly as the currency lost 15% after the Brexit vote. Investment in the auto industry also decreased as the manufacturers don’t want to get involved in the Brexit confusion. Even with 2% GDP growth, the output per head in the UK increased by 1.3% as the population continues to increase.

McDonalds Announces Its Big Plan To Sell Its China Operations To Local Consortium

McDonald’s announced on Monday that the business operations in China and Hong Kong will be sold to Citic and Carlyle group for a total sum of $2.08 billion. This will allow Citic and Caryle group to enjoy franchise rights for the next 20 years. According to the deal, Citic Capital will get 52% of stake control while Carlyle group will take 28%. The remaining 20% stake will lie with McDonald’s.

The chief executive of McDonald’s, Steve Easterbrook said that McDonald’s has excellent growth opportunities in China and Hong Kong. The new partnership will enable McDonald’s to take advantage of the local market knowledge of the consortiums. Ever since 2015, McDonald’s is experiencing growth at a very slower pace, but there is no problem with the finances known so far. The franchise deal is preferred by McDonald’s to minimize the cost of modernizing the stores. The popular international brand is hoping to earn profits through franchise fees while the local groups take care of running the business operations in mainland China and Hong Kong.

Chang Zheming, the chairman of Citic said that the McDonald’s deal is an opportunity for the consortium to invest rapidly in the ever-growing consumer sector. The focus of the group is to open new restaurants in several third and fourth tier cities to reach more consumers. Market experts welcome this change as the presence of an international brand in third and fourth-tier cities will help in the economic growth of the region. Yum, is another fast food group that currency owns KFC and Pizza Hut. The deal will be profitable for McDonald’s because Yum has already reached the third and fourth tier cities while McDonald’s is still on the verge of expansion.

In the 1990s, the demand for western fast food chains increased rapidly as these restaurants had air conditioning and clean bathrooms. These were luxuries in China in those times. However, the interest in fast foods declined in recent years as the Chinese restaurants have picked up quick-service chains to cater to the demands of the locals. There is also more emphasis on healthy eating, which is also against the fast food giants. For some time now, major international brands like KFC and McDonald’s are struggling to find their ground in the Chinese markets.

Yum separated its Chinese operations in 2015 as it had to deal with declining sales and food safety problems. The customer tastes continued to change and the competition simply intensified. The Chinese people are known for their love for chicken and meat, but they are not avid burger eaters. The expansion of McDonald’s could prove to be positive for the international brand, but nothing can be predicted at this moment. The hands of McDonald’s reaching the third and fourth tier cities is certainly a threat to the local restaurants and McDonald’s too should face a lot of resistance from more conservative Chinese who are not used to burgers and fast food.

South Dakota Voters Approve of Cap on Payday Loan Interest Rates

As the entire media landscape is covering Donald Trump’s improbable victory on Election Day and the Republicans control of both the House and Senate, other results from Tuesday’s general election are beginning to finally make their way through the news cycle.

In South Dakota, voters approved a measure to cap interest rates on payday loans.

The results show that 75 percent of voters supported Measure 21, which allows the state government to cap interest rates on short-term, high-interest online loans and car title loans at 36 percent.

Meanwhile, Amendment U, which is a competing measure that would amend the state constitution and permit payday lenders to charge any interest rate they want to borrowers, lost with 60 percent voting against it.

South Dakota, which is a Republican state, seemed to overwhelmingly favor caps on rates.

On the same ballot, South Dakotans voted in favor of adding crime victims’ rights provisions into the state constitution. But state voters didn’t give the thumbs up to dropping party labels from the ballot. They also rejected two other important initiatives: lowering the minimum wage for teenagers to $7.50 per hour and unions being allowed to charge non-union workers fees.

When it comes to the GOP politicians, Trump, Senator John Thune and Congresswoman Kristi Noem were victorious on Election Day.

Since the economic collapse, jurisdictions across the United States have attempted to implement legislation that would place a limit on interest rates charged for payday loans. Other public officials have attempted to take the issue to the ballot box.

A 2014 Pew Charitable Trusts study discovered that the average annual percentage rate charged for a payday loan in The Mount Rushmore State was a whopping 574 percent. Although it hasn’t been confirmed, a quick Google search will show that there are dozens of payday loan businesses that claim to have the best rates and cheap interest scattered across South Dakota.

Soon after the Pew report was released, critics immediately responded. One of these included Republican State Representative Steve Hickey, who argued for imposing more regulation on the payday loan industry. He has gone far as suggesting that it’s time to prohibit payday lending completely in the state.

“They can tell us all that this is just about helping people, but it’s an intentionally crafted defective financial product that is marketed to the financially unsophisticated,” said Hickey, a Sioux Falls Republican. “They’re bilking billions of dollars out of poor neighborhoods, and the taxpayers get to clean up the mess. I want to get them out of the middle, and let society help these people in other ways.”

Despite his opposition to homosexuality and same-sex marriage, Hickey has received support from fellow Democrats when it comes to the issue of payday loans.

With the Consumer Financial Protection Bureau (CFPB) on the cusp of passing a federal regulatory framework for the national payday loan industry, states’ initiatives will be able to complement the new rules and regulations. That is if U.S. President Barack Obama signs the proposal before he leaves the White House.

Air France-KLM Plans New Budget Airline to Rival Gulf Carriers

Franco-Dutch airline company Air France-KLM has revealed plan to launch a new distinct airline that will operate long- and medium-haul international fights in a bid to wrestle customers from fast-rising airlines from the Middle East.

The new airline, which has yet to be named, will be used by Air France-KLM to provide business and economy travel on some new and reopened routes, the carrier said. It would operate international routes where its parent company has found it hard to operate for years due to profitability concerns arising from intense competition and low fares.

“It will be focused on ultra-competitive markets and will enable (Air France-KLM) to go on the offensive by opening new routes, re-opening routes closed due to their lack of profitability and maintaining route under threat,” the biggest European airline group said in a statement.

Discount airlines have started to grow their presence in Europe with low rates that put pressure on continental aviation powerhouses. Competition from Emirates Airline, Etihad Airways and Qatar Airways – three Gulf carriers – has especially been increasingly intense. These non-European airlines, along with Turkish Airline, have been using their geographically helpful hubs to full advantage on routes that connect Asia to Europe and North America.

Air France-KLM’s chief executive officer Jean-Marc Janaillac said the growing influence of the Gulf carriers was not acceptable in the European airline group’s bid to maintain leadership position in its markets.

“This new company will constitute the Group’s response to the Gulf State airlines which are developing at low production costs on key markets where Air France-KLM is pursuing its growth ambition,” the leading European airline holding company said.

The proposed airline is part of Air France-KLM’s nine-point plan christened “Trust Together” aimed at improving the company’s competitiveness. The plan also aspires at improving efficiency of plane use and greater cooperation with American partner Delta Air Lines.

The airline company will be providing fewer frills on the new airline, compared to its standard service, to enable it compete favorably against Middle East rivals. Pilots and cabin crew will be engaged on different terms to those of the main company.

Air France-KLM has, however, attempted to dismiss any thought that the proposed unit will be a full-blown discount one. It said business travelers and tourists will enjoy standards comparable to what it has been known for in terms of crew professionalism and product quality.

The initiative is seen as an attempt by new boss Janaillac to improve on years of job losses and conflicts with trade unions.

However, the Syndicat National du Personnel Navigant Commercial (SNPNC) cabin crew union has said the new airline would be “low cost” for its members. It is afraid that its staff would not enjoy similar work benefits as that of the main company.

This is not the first time Air France-KLM will attempt to create a reduced-cost unit. Previous attempts had been foiled by its workers’ unions.

One of the ways the company hopes to avoid confrontation with unions this time is to allow pilots move on their own volition to the new airline while continuing to enjoy previous pay.

The planned carrier is expected to have up to 10 planes by 2020.