Woolies, learn from Metcash. Metcash, the grocery wholesaler, is struggling. It’s being battered by Coles and Woolworths and Aldi in a supermarket battle, and has just reported a huge $384 million financial year loss after write-downs and other costs of $638 million, and has been forced to sell its relatively new automotive products business to raise cash and new capital to lower debt and reinvest in its supermarkets. But in one area, it can show a set of clean heels to Woolies and that’s in its hardware business, Mitre 10. Perhaps it is the link to the Nine Network’s home reno program, The Block. Perhaps it’s a better market reputation with consumers, but the chain lifted sales 11% in 2014-15 to more than $1 billion for the first time, and made a profit (earnings before interest and tax of $57.9 million, but that also included a contribution from the automotive business). Woolworths is continuing to burn money (along with its US partner, Lowe’s) in their stumbling Masters hardware retailing business, which is designed to try and compete with Bunnings (owned by Wesfarmers). Woolies business consists of the Masters big box chain and the Danks group of stores (including Home Hardware). Masters is a black hole, chewing up earnings from Danks and its chains. Time for a change? — Glenn Dyer
Property realism. In late May, Treasury Secretary John Fraser made news by warning of a bubble in housing in Sydney and parts of Melbourne. But he also went on to link the bubble to low interest rates and TV home renovation programs.
That naturally got a lot of reaction, including from Crikey. I pointed out that Fraser didn’t really understand the history of TV home reno programs in Australia — they predate housing booms. But the government disgracefully repudiated Fraser’s warning about Sydney’s property bubble because it didn’t suit their sly politics. But buried in a speech by the Reserve Bank’s economics supremo, Chris Kent, at the Australian National University in Canberra last night was another surprising factoid about home renovations — they are not as popular as everyone thinks:
“Despite the potential emergence of some constraints affecting the supply of new dwellings in pockets of the country, there appears to be scope for strong growth in new dwelling construction in other parts of the country. Moreover, alterations and additions activity could pick up. This used to account for about 45 per cent of total dwelling construction, but has declined over the past few years, despite lower interest rates and the sizeable increase in dwelling prices. In short, there are some signs of tightening supply conditions in pockets of the country, but dwelling construction overall is responding to low interest rates much as it always has done.”
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In his own restrained way, Kent has kicked a chock or two away from the supports for Fraser’s arguments to the Senate committee, and for quite a few highly paid TV executives. — Glenn Dyer
How to go broke in America’s gun culture. Overnight, the impossible happened in gun crazy America — the venerable Colt company (179 years old and the maker of the Colt .45 Peacemaker, star of countless westerns, and “the gun that won the West”) went broke and filed for Chapter 11 bankruptcy protection. Impossible. But it’s true — Colt Defense LLC (as it is now known) has secured US$20 million financing to continue operating while in bankruptcy and expects to remain in business after the restructuring its US$350 million debt. The company has fallen on tough times after a lucrative 10 years from the late 1990s to the early 2000s, as it was the exclusive supplier of the main weapon of the US Army, the M4 rifle. But rifle sales slowed as the size of the US Army contracted and troops came home from Iraq and Afghanistan, and in 2013 it lost the contract with the Army to supply the M4. It’s rivals in the US weapons industry (Ruger, Smith and Wesson for example) had better, more “fashionable” guns to sell to crazy Americans who felt the need for protection. According to US media reports an “alternative investment management group” called Sciens Management owned 87% of Colt, which has made a buyout offer already, before an auction of the company in early August. Russian roulette, anyone? — Glenn Dyer
How much do we own offshore? It’s often overlooked, but Australia has a lot of money invested offshore, through companies and fund managers. In fact, an awful lot means $750 billion, according to the Reserve Bank’s assistant governor for financial markets, Guy Debelle. He told a finance conference in Sydney this morning that:
“Australian international portfolio investment has been growing strongly over recent years from around A$450 billion in 2010 to over A$750 billion at the end of 2014. While the share of Asian bond investment has risen a little over that period, the share of investment in Asian equities has been largely steady. Both remain at well below 10 per cent of total portfolio investment in offshore markets.”
That increase is just on 50% in five years — which is pretty significant. It’s now roughly half our annual GDP. It’s both a function of the remorseless rise of superannuation (to over $2 trillion this year) and the growing realisation that Australian financial markets are just too small. That figure also doesn’t include the hundreds of billions of dollars in direct investment offshore by Australian companies such as the banks (in NZ especially), BHP Billiton, Woodside, Ramsay, Sonic, Telstra and CSL in particular. — Glenn Dyer