Highlights from the world of retail

Jack Ma to step down next year

Alibaba founder Jack Ma has revealed he is stepping down as executive chairman in 12 months’ time, when he will hand the reins over to chief executive Daniel Zhang, who has been handling the day-to-day operations of the business for the past five years. Ma will remain on as a director of the company until the 2020 annual meeting and a permanent member of the Alibaba Partnership, which guides the business, well beyond that.

“I have put a lot of thought and preparation into this succession plan for ten years,” Ma said in a letter to customers, employees and shareholders.

“This transition demonstrates that Alibaba has stepped up to the next level of corporate governance from a company that relies on individuals, to one built on systems of organizational excellence and a culture of talent development.”

Ma said he is extremely proud of what he has achieved during his time with Alibaba, as well as the team, leadership and the unique mission-driven culture the company has fostered.

“As for myself, I still have lots of dreams to pursue. Those who know me know I do not like to sit idle,” he said.

The founder, who turned 54 last week, noted that he is still young and wants to try new things.

“The one thing I can promise everything one is this: Alibaba was never about Jack Ma, but Jack Ma will forever belong to Alibaba,” Ma said.

US-China tariffs bad news for retailers

US president Donald Trump threatened a further US$267 billion in tariffs on goods made in China on Friday – on top of the US$200
billion about to take effect.

“I hate to do this, but… there is another US$267 billion ready to go on short notice if I want,” Trump told reporters on Air Force One. These tariffs are bad news for the US retail sector, GlobalData Retail managing director Neil Saunders said, as the latest round
seems to extend the tax into a vast array of consumer goods.

“Many retailers will now be faced with a difficult choice of whether to pass the cost increases across to consumers or to take a hit on
their margins,” Saunders said.

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“The exact response will vary from retailer to retailer but, in our view, both strategies are likely to be used.” Saunders said the pain for retailers is real, as the tariffs (both proposed and real) come amidst a raft of other cost increases including increased spending on technology, elevated logistics costs, higher petrol prices, and rising labor expenses.

He noted the possibility of retailers shifting production in order to combat the cost increases, but given the extensive manufacturing capacity in China as well as the difficulties in quickly shifting supply chains, this option is unlikely to be a quick fix.

Trump’s ultimate goal is to have US businesses make their goods on home soil, but as analyst Tim Bajarin told the AFR, tariffs will likely only result in more expensive goods for consumers.

Nike ad sparks controversy in US

A new ad campaign from sportswear giant Nike has revived a heated debate in the US over some professional football players’ decision to kneel during the national anthem to protest police shootings of unarmed black men. The protest, which came to a head earlier this year, was spearheaded by then-San Francisco 49ers quarterback Colin Kaepernick and drew the ire of some Americans, including most notably US president Donald Trump, who believed the act of kneeling was disrespectful to American soldiers.

The National Football League (NFL) in May instituted a new policy that requires players to stand during the national anthem if they are on the field. But Nike, which is a major sponsor of the NFL, breathed new fire into the debate last week, when it released an ad campaign featuring Kaepernick and the tagline: “Believe in something. Even if it means sacrificing everything.”

Some critics posted videos of their Nike products burning or with the ‘swoosh’ cut out, while others voiced support for the brand,
saying they intended to buy new products.

Speaking to Bloomberg, Apex Marketing Group estimated that the brand received more than $43 million worth of media exposure less
than 24 hours after the ad was released.

Ikea Japan moving into city centres

Following the success of its large-format stores in outskirt locations, Ikea Japan is plotting its expansion into city centres, according to an interview Ikea Japan K.K. president Helene von Reis gave to Japan News. Von Reis said the company will open “many shops in Tokyo” given the city’s size, before moving onto Osaka.

“We have to start first and understand how this works in Tokyo,” she said. The company is reportedly looking to find the right city centre locations in Japan, a marked contrast to Ikea’s strategy in Europe, where it has closed smaller city stores after an unsuccessful trial. But Von Reis said that consumer preferences are changing, and there is a lot of growth potential for the home furnishings market
in Japan.

Inditex expands online reach

Zara owner Inditex has announced that all products from all its brands will be made available online by 2020, including in markets where it does not have any stores. Other than Zara, the world’s largest clothing retailer also sells the brands Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterque across its network of almost 7500 physical shops. It also operates online in 49 markets.

In fiscal 2017, Inditex’s online sales saw a 41 per cent increase to reach 10 per cent of group net sales, although it fell short compared with rival Swedish retailer H&M’s, which made close to 12 per cent on online sales. Inditex chairman and CEO Pablo Isla said all of the group’s brands would also be adopting the integrated stock management system by 2020 in all the countries in which there was a physical store presence. He said the system would make it possible to fulfil online customer orders with store inventory. To date, integrated stock management is in place in Zara stores in 25 markets including Spain, France, Italy, China, the US, the UK and Mexico. Inditex currently has stores in 96 markets.

Starbucks takes coffee to Milan

Starbucks, the world’s biggest coffee chain,
has realised a long-held dream, opening an
upmarket roastery and cafe in Milan.

But at 1.80 euros ($2.90) for an espresso
and 4.50 euros ($7.37) for a cappuccino,
roughly double the usual Milanese prices,
coffee-loving Italians are expected to give
Starbucks wide berth.
Italian consumer group Codacons has
already filed a complaint with the national
competition watchdog accusing Starbucks
of overcharging.
German department stores to merge
Germany’s two major department store
chains, Kaufhof and Karstadt, have agreed
to merge, the latest victims of competition
from e-commerce.
Canada’s Hudson’s Bay, which bought the
struggling Kaufhof in 2015, has agreed to a
joint venture with Austria’s Signa Holding,
which owns Karstadt, and will own 51 per
cent of the new business, which is to be run
by Karstadt boss Stephan Fanderl.
The merger would result in around
5000 of the 20,000 jobs at Kaufhof being
cut, newspaper Sueddeutsche Zeitung
has reported, adding that the remaining
employees would face pay cuts. Karstadt
employs around 15,000 staff.
Cuts are expected at the headquarters
of both groups, as well as in logistics and
sourcing. Kaufhof runs 96 stores and
Karstadt has 80.
Miss Fresh raises $627m
Miss Fresh, an e-commerce startup that
delivers fresh produce in 20 Chinese cities,
has raised US$450 million ($627 million)
from investors including Goldman Sachs
and Tencent Holdings Ltd, the company’s
financial adviser says.
The company is advised by China
Renaissance, a boutique Chinese
investment bank.
Founded in 2014, Miss Fresh is a mobile e-commerce platform that offers delivery
services of fresh produce, including fruits,
vegetables, dairy products, meat, beverages
and drinks, and other daily dining and
living items.
Founder and CEO Xu Zheng said in a
statement that the company planned to
set up 10,000 front-end warehouses in 100
cities in China, but he did not give
a timetable.
Chief financial officer Wang Jun said
the funds would be used to develop the
company’s supply chain, cold chain logistics
infrastructure and its smart retail technology.
Tax rules to tighten for online vendors
European governments have begun to act
on complaints from retailers claiming to have
lost sales to tax-dodging Chinese vendors.
The Austrian retail association
Handelsverband claims that goods arriving
from China are declared at far less than
their value, which allows the vendor to avoid
taxation. The organisation estimates that
manoeuvres to evade tax cost the EU some
7 billion euros ($11.3 billion) this year.
The German cabinet last month approved
a draft bill that would require e-commerce
platforms to pay a 19 per cent value-added
tax on local online sales if they cannot prove
that the vendors have already paid the VAT
due. Sweden, Switzerland and the EU are
also tightening their VAT rules. The UK,
meanwhile, has corralled Amazon and eBay
into pledging to share data and weed out
tax dodgers.
Ironically, under a new law adopted
August 31, China has tightened its own VAT
rules for domestic online vendors.

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