Fast fashion has come to dominate the lower end of the clothing business. The approach was pioneered by companies like Zara and H&M and involves following social media and bringing new products to market in a matter of a few weeks rather than months. Well that makeover is starting to arrive to sportswear labels as well. Nike and Adidas both currently have the problem that it takes 12-18 months to produce a new model of shoe. However, new technologies mean this time will be cut to just a couple of months, with prototypes taking just a few hours. This means the companies will no longer have to guess what footwear trends will be many months ahead.
FINSUM: On the surface this seems like it will be a good innovation, and from a cost standpoint we are sure it will be. However, in our view Nike and Adidas are the major trendsetters of shoe fashion, so how can they ever get ahead of it?
A lot of the headlines concerning ecommerce and retail go towards covering the battles going on in the middle and luxury end of the spectrum. However, one of the big fights going in is for the low end of the market. Amazon and Walmart are fighting each other to get the low end of the market, a segment of the population which accounts for a significant portion of both their sales. Walmart relies strongly on customers who are on food stamps (they produce $13 bn of revenue for the company), and Amazon just cut its price for Prime for that exact group. The low-income group, or those earning under $50,000 per household, are already Amazon’s fastest growing segment for Prime, and the price cut is seen as a direct assault on Walmart.
FINSUM: Amazon is trying to steal Walmart’s lunch, but the latter has been ramping up its online efforts. It also has the advantage that several factors (such as a lack of credit cards or internet access or safe delivery spots) keep these customers coming to stores instead of shopping online.
General Motors has been on the upswing for years, riding the wave of SUV sales growth on the back of falling oil prices. However, GM seems to have hit a rough patch, losing ground to rivals during a time when the whole industry looks to slow. The company’s sales have weakened and it has fallen behind Ford in total sales just as the crucial summer selling season begins. It is also planning staff cuts amid the slowdown. Rather than continuing high production even in the face of waning demand—as it did in the past—it will instead curtail output.
FINSUM: At least they will not be overproducing and then having to make huge discounts. However, laying off 4,000 is no small development. We are still long-term bullish on GM given its relatively cheap share price and its potential in the electric and self-driving car markets.
Big banks have been doing poorly the last couple of months after a great run following the election. And while there is reason to doubt the near term future of the stocks, bigger banks will have a decided advantage over smaller ones. The reason why is that the prevailing rate environment strongly favors banks with a shorter term loan portfolio. Banks who have shorter term loans, such as credit card debt and corporate lines of credit, stand to benefit as they are benchmarked to Libor, meaning Fed rate hikes make them comparatively more profitable than banks with longer terms loans, for whom a flat yield curve hurts.
FINSUM: The term of loan portfolios seems like it will be an important variable in sorting out which banks will thrive in the current environment.
The retail industry has been in a major meltdown this year with companies going bankrupt left and right. However, the news from banks has been especially quiet given the tumult. This article says that banks have not been wounded by the crisis in retail because of the unique structure of their involvement with the industry. Banks have made loans to 15 of the 21 retailers that have recently declared bankruptcy, yet because they issue “asset-based” loans which are backed by accounts receivable or inventory, they have been, or are expected to be, fully repaid. The situation is a far cry from the oil industry, where banks took a big hair cut when prices fell.
FINSUM: It looks like the US’ big banks, like Bank of America and Wells Fargo, took a very smart approach with these loans. We are slightly skeptical there will not be any problems, however.
Better trading revenues are leading to higher pay at investment banks. After years of falling revenue and post-Dodd-Frank cutbacks, traders in fixed income are once again seeing their bonuses jump. Bond traders are likely to see bonuses rise 10-15% this year, while those in underwriting are set for 10-20% jumps. M&A bankers are set to see their payouts fall, however. The bond trading business has been buoyed by rising uncertainty about the economy and politics which has led to more trading overall.
FINSUM: Pay had been falling since the immediate post-crisis rebound, so this is a big change. 2017 trading patterns could prove a reversal though, as low volatility seems unlikely to help the trading business.