The week’s news included; Malaysia charges Goldman bankers, Sports Direct buys Jack Wills, Tesco cuts 4500 jobs, Uber posts increased losses
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- City A.M – Central Bank of Ireland – London is likely to remain a leading global financial centre even in the most adverse Brexit scenarios,
- CNBC – Why US electronics retailer Best Buy failed in the UK.
- BBC News – Katharine Hamnett: fashion tax on the industry as “stupid”
1. UK ECONOMY
The UK economy has shrunk for the first time in 7 years. In the second quarter of 2019 the UK economic contracted by 0.2%. This drop is largely due to industry Brexit preparations. Many companies worked towards the March 29 exit date so stockpiled goods and brought forward scheduled shutdowns. As a result, economic output across all sectors has decreased. Global economic growth has slowed, fuelled by the US-China trade war but Brexit uncertainty has exacerbated the issue domestically.
Economists are now concerned that the economy will enter a recession next quarter. A recession is where the economy contracts for two consecutive quarters. Economists had largely not predicted a contraction in the second quarter. In response to the news, the pound fell to a two-year low against the euro.
With a no-deal Brexit becoming increasingly likely, a recession is almost certain. All commentators accept that there would be some economic shock and uncertainty following a no-deal Brexit. This shock will undoubtedly send the economy further into contraction, given that the economy is already shrinking pre-Brexit. The full impact of this shock remains to be seen.
2. 1MDB CHARGES
17 former and current Goldman Sachs has been charged by Malaysian Authorities over their involvement in the 1MDB corruption scandal. The scandal involved the embezzlement of over $2.7 billion from Malaysia’s development fund 1MDB. The money was used to purchase various extravagant goods and even helped finance the Wolf of Wall Street firm.
The Malaysian Attorney general argues Goldman Sachs played a significant role throughout the bond issue process and received substantial commissions for doing so. Over $6.5 billion was raised through bond offerings for the 1MDB fund. Prosecutors are seeking to recoup the stolen funds as well as over $600 million in fees to Goldman Sachs. The individuals charged are facing minimum criminal fines of £200,000 and custodial sections of up to 10 years.
Among those charged last week include; Michael Evans, a former partner who now serves as president of Alibaba and Michael Sherwood, a former co-head of Goldman’s European operations.
Two former Goldman Sachs employees were charged in December. External Financier Jho Low was also charged but protests his innocence remains a fugitive. Goldman Sachs says it will vigorously defend its employees and claim the charges are misdirected.
3. BARNEYS NEW YORK BANKRUPTCY
Luxury Department store Barneys New York has filed for Chapter 11 bankruptcy protection. Chapter 11 delays payments to creditors and allows the company to restructure its debt and its business. Barney’s has faced steep increases in rents, particularly in flagship locations such as New York where rents have nearly doubled. The company managed to secure $75 million to stay afloat but will now seek to sell numerous stores. Stores will close in Chicago, Las Vegas Seattle and seven warehouses will also close. Barney’s will keep open just five flagship locations; Madison Avenue, Downtown New York, Beverly Hills, San Francisco and Boston. Barney’s was founded in 1923 and has 2300 employees.
4. SPORTS DIRECT BUYS JACK WILLS
Mike Ashley’s grip on the high street grows ever stronger with a £12.7 million acquisition of Jack Wills. The deal will bring Jack Wills out of administration, saving 100 stores and 1700 staff. The retailer posted a £14.2 million annual loss in its latest report in Jan 2018. Sports Direct will seek to reduce rents and turn the business around. Sports Direct also has a new division centred on purchasing and developing fashion brands. Not all acquisitions have turned out well. Sports Direct purchased House Fraser in August 2018 but the company has recent said the problems at House of Fraser are “nothing short of terminal.” Whether Sports Direct will be able to turn Jack Wills around remains to be seen.
5. TESCO JOB CUTS
Tesco has announced that it will cut 4500 jobs. The supermarket is seeking to reshape its Metro and Express stores. The majority of jobs will be cut from 153 Metro stores and 134 Express stores will see reduced opening hours.
The primary reason for the reshape is because consumers don’t use Metro stores for bulk shops but rather as convenience stores. Metro stores were initially created for larger weekly stores so these cuts are designed to bring stores closer in line with consumer shopping patterns. There will now be a “leaner management structure” and staff will be given greater working flexibility. Tesco announced earlier this year that it will close many of its meat, fish and deli counters, forming part of the 9000 job cuts planned. Tesco is the UK’s largest supermarket and employs 300,000 people.
6. BOOHOO BUYS KAREN MILLEN AND COAST ONLINE OPS
Boohoo has bought both Karen Million and Coast’s online operations for £18.2 million. The deal includes the online business and intellectual property rights, but no physical stores were included in the deal. All 125 online operational staff will be retained but serious concerns have been raised that the nearly 1000 workers at physical stores may lose their jobs. There are currently 32 shops and 177 concessions which all face redundancy if no buyer steps forward.
The fashion brands Karen Millen and Coast were previously owned by insolvent Icelandic Bank Kaupthing. The sale of the online business pleased investors as shares rose 5% in response to the news.
7. UBER LOSSES
Uber’s losses have widened to $5.2 billion in the last quarter. This heavy loss was largely due to compensation expenses racking up costs of $3.9 billion. Uber’s revenue also disappointed as it increased 14.4%, the $3.2 billion figure fell short of estimates by $200 million. In addition, heavy research and development costs saw costs balloon by 147% to $8.7 billion.
In contrast, Uber’s main rival, Lyft, beat estimates and posted very positive figures. Investors were disappointed with Uber and its share price tumbled by as much as 13. CEO Dara Khosrowshahi is confident that investment in self-driving tech and food delivery expansion and research will pay dividends in due course. He is aiming to diversify its income streams, and this will be essential for Uber’s survival. Uber has recognised that it may never make a profit.
8. SPUDULIKE STORE CLOSURES
Restaurant chain Spudulike is closing all of its 37 outlets. This will see nearly 300 jobs lost and the famous potato-based restaurant vanishing from the high streets. The collapse comes after failing to obtain landlord approval for a Company Voluntary Arrangement. The CVA provides a lifeline for struggling firms through a restructuring and involves seeking rent reductions from landlords. Landlords were not willing to cut rents to the extent requested, so the plan collapsed, and the administrators were called in when no buyers stepped forward.
Staff have now been made redundant without pay. Founded in 1974 the restaurant joins the list of high street casualties including BHS, Maplin and Poundworld.
Check out our video explaining the crisis in the sector (2018):
9. ZARA TURNS TO SUSTAINABLE FABRICS
The parent of Fashion retailer Zara has announced that 100% of its clothes will be made from sustainable fabrics by 2025. Inditex Group made the commitment to amid growing criticism of the environmental impact of fast fashion. Inditex also owns Massimo Dutti and Pull&Bear who will also abide by the commitment. Alongside this, 80% of Zara’s energy consumption throughout headquarters, stores and factories will come from renewable sources in the same time frame. All facilities will also not produce any landfill waste.
Inditex Group is the third largest fashion group in the world with sales of £26 billion last year. This is huge statement of intent and hopefully others in the industry will follow suit.
10. MCDONALDS STRAW SCANDAL
McDonald’s supposedly eco-friendly paper straws have been found not to be recyclable. Customers have been advised to throw their straws into regular bins. The straws are however, biodegradable unlike plastic straws so are better than single use plastic straws. The fast food restaurant uses 1.8 million straws a day in the UK. The introduction of the paper straws was to help reduce plastic waste. The straws have been widely criticised as when placed in drinks the straws soften and become unusable. McDonald’s has said it is working to find a solution to recycle the straws and increase its general recycling rates.