Latest / The Retail Podcast / 5 Things Friday APAC: Oil Shock, Supply Chains & Why Big Brands Are Suddenly at Risk

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5 Things Friday APAC: Oil Shock, Supply Chains & Why Big Brands Are Suddenly at Risk · The Retail Podcast

• 0:00
  Reef how you doing? I'm good, Alex, how are you?
• 0:15
  We're good. We're so good for the camera.
• 0:17
  Camera comes on. I know, I know, we, we, we just
• 0:21
  pop, you know, I was, I was half asleep before and now I've just
• 0:25
  exploded. It's.
• 0:26
  Awesome to wait. Yeah, the power of the Internet.
• 0:29
  Well, listen, Ewan's not with us at the moment, so we're going
• 0:32
  to. We're going to wing it.
• 0:34
  We're going to, OK. You've got a new background.
• 0:36
  How can I? I want one of those backgrounds.
• 0:37
  I need to get a background. Look at that.
• 0:41
  Yeah, look. I'll send you one I'll make a
• 0:43
  specific one. This is an old one.
• 0:45
  It's because I'm in a derelict building site in the middle of
• 0:48
  the country site. So hence why I had to cover up
• 0:50
  the the the bare walls behind me.
• 0:53
  But anyway, enough about me. Listen, it's five things Friday.
• 0:57
  You know the the school with five things that are top of
• 1:00
  mind. The Reef, myself and UN UN's not
• 1:03
  with us. So we're going to start and dive
• 1:04
  straight in with Reef Reef. What's top of mind for you this
• 1:07
  week? What are the top two things?
• 1:09
  Well, the world is not turning as it should at the moment.
• 1:12
  As we all know, the Middle East is causing us all heartache and
• 1:17
  despair. And if I talk about Asia Pacific
• 1:20
  and retail, it's actually, when you really dig a bit deeper into
• 1:24
  this crisis, you realise it's a lot more than just consumer
• 1:28
  confidence that's being impacted.
• 1:30
  And in actual fact, you know, for most retail businesses in
• 1:34
  the region, it's an all, it's an all of business problem.
• 1:37
  Yeah. And what I mean by that is that
• 1:39
  if you think about Asia Pacific, 60% of oil energy, but oil vice
• 1:43
  energy for Asia comes out of the Middle East.
• 1:45
  So there's a real dependency there.
• 1:47
  And we and we and we and we talked about this before, you
• 1:51
  know, if there was ever a time to start reflecting on
• 1:55
  alternative energy sources being carbon neutral and those sort of
• 1:59
  things. It takes a good crisis to turn
• 2:01
  the lights on if, you know, it's just.
• 2:03
  Yeah, 100%, yeah. And so, but I want to sort of
• 2:05
  highlight today a little bit about this, this, this thinking.
• 2:09
  So if you're a retailer, first of all, it's that it's the
• 2:11
  energy shock, right? So the cost of turning the
• 2:13
  lights on is more than you're thinking about for you as an
• 2:16
  energy. If you're bringing goods in from
• 2:18
  overseas or from around even around around your country if
• 2:22
  you're a big country, you know, yeah, supply chain disruption is
• 2:24
  massive because the cost of freight is sparking.
• 2:27
  And what's also happened is it shipping through the Gulf and
• 2:30
  obviously it halted, but then also because we're seeing cost
• 2:34
  of the cost of fuel and restrictions in airspace, we're
• 2:38
  seeing air cargo capacity also being constrained.
• 2:41
  So what we're seeing is much longer lead times in things like
• 2:45
  fashion, in seasonal goods and and so it's really hard to get
• 2:50
  stuff into store on time. If we think about bit further
• 2:53
  right. And now we think about packaging
• 2:56
  now all of the plastic packaging, so both in goods
• 2:59
  within store and also within packaging of items.
• 3:02
  Yeah, a lot of it is plastic space and resin base.
• 3:04
  So it's an oil derivative. So every piece of plastic
• 3:08
  packaging is being hit. So you think about that in
• 3:11
  electronics, in appliances, in FMSG, in grocery and even
• 3:15
  private label margins come under pressure when you see this
• 3:18
  impact on because these these are the these are the
• 3:20
  incremental pieces which really erode margin.
• 3:23
  Yeah. Then in the region you've got
• 3:24
  economic slowdown. So we're talking about, you
• 3:26
  know, drop 123 percentage points.
• 3:28
  I certainly know we're watching it very closely for NRF, AIPAC,
• 3:31
  which is in still 9 weeks, right?
• 3:33
  But, but ultimately you're seeing countries come under
• 3:36
  stress and we're seeing a fall in consumer confidence.
• 3:38
  So people shift from discretionary spending to
• 3:41
  essential spending, trading down from premium to private label,
• 3:44
  You know, so slower growth in categories like fashion, home
• 3:47
  and luxury, which are, you know, more discretionary purchases.
• 3:50
  And, and, but the thing about this is Asia Pacific, it's
• 3:53
  lumpy. So people like the Philippines
• 3:54
  are already sort of in an emergency energy situation, a
• 3:57
  big heavy manufacturing companies, countries like China,
• 4:00
  Vietnam, Korea, they're facing import export disruption and
• 4:04
  developing markets like Australia, Singapore are really
• 4:08
  facing inflation and cost pressures.
• 4:10
  So it's, it's really, it's a really big challenge.
• 4:13
  And then so we've talked about that from a existing business
• 4:16
  point of view, but then we're talking about what we saw
• 4:18
  overnight is really we've seen because of this crisis, which
• 4:22
  this is my second point, is we're seeing the diversion of in
• 4:26
  funds and investment. So you're seeing the shock, all
• 4:28
  the stock markets tank, you'll see money coming out of the
• 4:31
  market and people buying cash. What does that mean?
• 4:33
  Well, if you talk to our friends at KMD.
• 4:36
  So KMD owns Kathmandu global outdoor brand, RIP Curl, the
• 4:42
  global surf Lab brand and Oboz, right.
• 4:44
  So these, this is a listed company, listed entity in
• 4:48
  Australia, in New Zealand. And they borrowed a big chunk of
• 4:51
  change 2019 to buy RIP Curl, about 360 million I think it
• 4:56
  was. So they've been carrying a debt
• 4:58
  for some wow. And so they need to have a bit
• 4:59
  of to to manage their balance sheet.
• 5:01
  They need to have a capital reinjection.
• 5:03
  There's nothing issue here. They're they're both Kathmandu
• 5:06
  and Rupkel have been growing Kathmandu double digit growth.
• 5:08
  But because they've got this situation on the balance sheet
• 5:10
  where they're carrying debt and they need to recapitalize.
• 5:13
  But the it's a perfect storm because all of the retail, all
• 5:16
  the retail investors are have become really risk averse.
• 5:19
  So they're not investing in shares.
• 5:20
  So these guys are now have their shares trading halted and they
• 5:25
  and they're out heavily discounted in the market.
• 5:27
  And we're so we've got situation.
• 5:29
  We've got two really powerful brands, Kathmandu and RIP Curl,
• 5:32
  which we all know well and see this, this whole group broken
• 5:35
  up. But it's highly likely that
• 5:37
  we'll see private equity or authentic brands sweep in and
• 5:40
  buy and buy someone like RIP Curl.
• 5:42
  They've already owned Quicksilver, they already owned
• 5:44
  Billabong. So they quarter the market, you
• 5:46
  know, you know, so all of a sudden we've seen this, this
• 5:49
  highly successful. They don't, it's only because
• 5:51
  they're they're managing their covenants that they need to
• 5:53
  raise their capital. But because, but they're out in
• 5:55
  market, you know, allegedly being very discounted with their
• 5:58
  offer, yeah, talking about 8 to $0.10 a share, whether it's at
• 6:00
  who was trading at $0.20 a share.
• 6:02
  So it's pretty, it's pretty grim.
• 6:04
  So, you know, so we're seeing, we're not only seeing retail
• 6:07
  operations being affected, we're seeing, my mind too, is we're
• 6:10
  actually seeing investment in recapitalisation in businesses
• 6:13
  and businesses that that don't deserve to be out of the out of
• 6:17
  the chopping block being discounted because they don't
• 6:19
  they're they're big, strong, powerful brands and big, strong
• 6:22
  entities in their own right. You know, And so, and so this
• 6:25
  group, this got too much debt and they can't recapitalise and
• 6:28
  they're in, they're in a basically in a defensive
• 6:30
  position where they, you know, they've had to stop trading.
• 6:32
  So this is, these are, these are big issues.
• 6:34
  And we're saying, right, yeah, this absolutely.
• 6:38
  This is still trading. They're just, they're not
• 6:40
  trading their shares on the stock market in Australia.
• 6:43
  They're kind of trading hopes, right?
• 6:44
  And they're at least semi division.
• 6:46
  Someone can swoop in, as you said to buy them for a next
• 6:49
  nothing basically. Correct.
• 6:51
  And and and these brands in a, in a, in a, if this this hadn't
• 6:55
  occurred, we wouldn't be having this conversation.
• 6:58
  They would would have recapitalized everything would
• 7:00
  have been fine. We wouldn't even know about.
• 7:02
  There's nothing. There's no, there's no fraud
• 7:04
  here or something. Nothing.
• 7:05
  They haven't performed badly. Yeah.
• 7:07
  It's been a plan to raise money, to raise money across the period
• 7:10
  to repay down that debt that they owe.
• 7:12
  Yeah. With the ripple equity over
• 7:14
  time, yeah. But by all accounts the the
• 7:17
  situation is is put them in a sort of a very, very difficult
• 7:20
  situation. Quick question for you.
• 7:22
  I know that you've been having calls with your speakers and
• 7:25
  execs around the region because obviously NRF in just a few
• 7:29
  months. I'm curious when you're having
• 7:32
  these conversations with them, what do you get as a sense of
• 7:35
  top of mind? Is it is this like is there a
• 7:38
  common theme? Is, like oil, the common theme
• 7:41
  for for or? No, not really.
• 7:43
  I mean in the combat, to be honest with you, I've had a lot
• 7:46
  of conversations and that's let's say speaker sponsored
• 7:49
  delegates and exhibitors. I think for us, from a ticket
• 7:52
  point of view and a delegate point of view, I don't think it
• 7:55
  hasn't had, it's had a minimal impact.
• 7:56
  The people with the people who have we're talking about who
• 7:59
  have a significant impact, who are flying from a long way away.
• 8:02
  So Europe, North America, South America, they're the ones that
• 8:07
  are seeing the impact. But within the region less so.
• 8:10
  In terms of speakers, no one's really raised it as a point
• 8:14
  within their content in all the conversations I've had.
• 8:16
  And it's not a piece of content that is not, no, someone's
• 8:19
  talked up and going, you know what, let's talk about the world
• 8:22
  we live in right now. And this is what's happening
• 8:24
  now. Just people aren't talking about
• 8:25
  that. Oh yeah.
• 8:25
  So. It's still next.
• 8:26
  So, and I think, I think, I think, I think for many of them,
• 8:29
  they're still going to work out. Like I've just, I painted that
• 8:31
  picture because I wanted people to understand it impacts all of
• 8:34
  business. But some of these businesses
• 8:35
  have have insulated themselves already put infrastructure in
• 8:38
  place to protect them. You know, some of them haven't,
• 8:40
  you know, so some of them are going to be more affected than
• 8:42
  others or, or some of them are in a situation like KMD where
• 8:46
  this is completely unexpected. And now they're in a situation
• 8:48
  where they have to sort of, they're going to have to dance
• 8:50
  quite quickly to solve the problem.
• 8:51
  They're not, it's not, it's not, we're not going to see the end
• 8:54
  of them. We're just going to they're just
• 8:55
  in a very difficult situation, which is, you know, it's unlucky
• 8:58
  to be honest with you. But in terms of exhibitors and
• 9:01
  sponsors, I think for me, once again, I think I feel like in in
• 9:06
  the software world, you know, this is these are all leveraged
• 9:09
  SAS software platforms are leveraged place, right, that
• 9:12
  require equity investment and into into a listed entities.
• 9:15
  And if the stock market's falling, then then there's got
• 9:19
  to be a response. The share price is dropping.
• 9:21
  Yeah, NASDAQ has dropped quite quickly where a lot of these
• 9:23
  guys are sitting, right? There's got to be an internal
• 9:26
  response. So, and we haven't seen lots of
• 9:29
  it. We've seen nervousness, but we
• 9:30
  haven't seen lots of it. Yeah, got you.
• 9:32
  So there's definitely a sense out there, but it hasn't, hasn't
• 9:35
  bitten yet. And I hope, I do hope for both
• 9:38
  the, the, for the, the retailers in the region that it's because,
• 9:41
  I mean, we've just come out of a really tough peer.
• 9:43
  We've had a, and we had, and we, we, we really had, we felt like
• 9:46
  in the last year that the world had turned and we're moving
• 9:48
  forward. Yeah.
• 9:50
  And, and then with this oil shock, inflation's in the mature
• 9:53
  markets, inflation's back on the table and interest rate rises
• 9:56
  are back on the table. So and that dense consumer comp
• 9:58
  confidence and that leads to a whole bunch of different things
• 10:00
  that happens at retail in terms of I said before consumers
• 10:04
  trading down from premium to value from buying discretionary
• 10:07
  to just buying essential that top stuff.
• 10:09
  So yeah, so it's it the trick that it none of us are
• 10:13
  untouched, but it's to the extent of which the impact is
• 10:16
  being felt. And yeah, at this point in time
• 10:19
  from my show and and the retailers, I think it's still
• 10:21
  people finding their way. But I think as time goes on, as
• 10:24
  this draws out and if a dog got got hope that it doesn't draw,
• 10:28
  but if it does, I think it's going to make things quite
• 10:31
  difficult for people. Yeah, I got you.
• 10:32
  OK, well, listen, with that, I'll let you crack on.
• 10:35
  I know you're a busy man. Thank you so much for joining us
• 10:37
  this week and until Next week, thank you very much.
• 10:40
  Take care, my friend.