Issue 140: 2018 02 08: Lens on the Week

8 February 2018

Lens on the Week

UK

BREXIT: It wouldn’t be Brexit without a little sand in the mechanism.  Now it takes two forms.  First the insistence by the EU that it can withdraw the benefits of market participation during the transition period if the UK is not playing the game.  That might be all right if the parties trusted each other but has set the hard Brexiteers talking about vassal states.  The power, which is in a paper seen by The Times, is intended to supplement the jurisdiction of the ECJ and, in a sense, is a little beside the point.  The important question is not the powers the EU has to ensure the UK complies with a transitional deal (expected to run to December 2020) but what that deal actually is.  Will we be able to negotiate with future trading partners during the transitional period?  If we could secure freedom to do this, the enforcement  mechanism would hardly matter.

Inevitably the second issue is Ireland with the EU insisting that we sign up to the sanctity of the Good Friday agreement or face a pause in negotiations.  This is difficult and may be the issue which brings Mrs May down.  Meanwhile the tensions over possible succession mount with Ms Soubry unlikely to remain in a party led by Mogg or Johnson, and others, such as Justine Greening, uncommitted as to whether they would leave.

CABINET ANALYSIS: The University of the State of Illinois has published the results of research which shows that people who might be considered to be not very attractive (ugly?) tend to be more left wing than others who are more attractive.

There must be doubt over whether this conclusion is correct; if it were, then the present cabinet would all be Marxists.

MONOPOLY: The makers of Monopoly have taken note of the happenings in the real world of finance.  They are about to sell a version of the game which is called “Cheats Edition”.  The rules will encourage players to steal from the bank, build unlawful hotels, avoid paying rent and move other players’ pieces without getting caught.  There will be 15 cheat cards.  Those in the world of finance and property development may protest that this number is too low and should be doubled to 30.

International

SYRIA: The Russian-backed Regime assault on rebel-held territory in northwestern Syria continues to intensify, with almost non-stop bombardment.  Last week, an airstrike on a hospital in Saraqeb – its third attack in a month – killed five people (including a child and two women) and injured six medical staff, leaving the town’s 50,000 inhabitants without medical facilities.  This week, regime helicopters launched what is believed to be a chlorine gas attack on the town.  Elsewhere in Idlib province, 43 people were killed and many more buried under rubble in a single day of air attacks. The UN reports that at least 270,000 people have been misplaced in the last six weeks, the largest single exodus of the whole war, and are living in tents and makeshift shelters under heavy rain and in freezing conditions.  In the last month, at least 300 civilians have been killed and twenty-two airstrikes have hit medical facilities.  There have been reports of napalm and phosphorous attacks as well as chlorine gas.  “Idlib is burning… under a Russian inferno” said a White Helmets rescue volunteer.  “It’s like Doomsday”.  Idlib is supposed to be one of the de-escalation zones guaranteed conflict-free by the on-going Russian-sponsored Astana peace process.

A Russian jet was shot down in the region and its pilot killed.  This is the first time this has happened; Russian planes have hitherto been free to bomb half the country and its population to kingdom-come with impunity.  The Kremlin has issued dark threats to whoever may have supplied the rebels with the shoulder-fired missile which brought the fighter jet down; Moscow’s outrage and indignation suggest that it considers the use of such a weapon – by people otherwise defenseless against non-stop bombardments, chlorine attacks, napalm attacks and phosphorous attacks aimed at their civilians and hospitals as well as rebels – to be not quite cricket, old chap, not quite playing the game.

Meanwhile, the resumption of internal conflict in Syria (and Iraq) – Russia, Iran and the Assad regime against the rebels, everyone against the Kurds – following the defeat of Isis in the field has led to the return of Isis to exploit the chaos once again.  It appears to have regrouped and re-taken territory bordering Aleppo, Hama and Idlib in Syria, and in Dayala, Mosul and Anbar in Iraq.  All sides in the conflict are accusing each other of aiding and exploiting Isis for their own ends.

Financial

BACK DOWN UNDER:  In 2016 with a great fanfare and much excitement Wesfarmers, the Australian retail chain and DIY specialist, bought Homebase, once the darling of those who like to spend weekends tinkering with their homes, but long a business in decline.  Wesfarmers own the Bunnings chain, an Aussie version of Homebase, and announced they knew the solution to Homebase’s troubles, beginning by converting the St Alban’s superstore to a Bunnings format, followed by another 18 at a cost of £50m (and firing the entire Homebase senior management team, and much of its middle management).  At which point Wesfarmers began to realise something – the shoppers did not like the new format and sales were down £200m.  Some retailers would hide behind the curtains at this point and make excuses.  Not Rob Scott, Wesfarmer’s managing director, who says “we exited a whole lot of lines that were really the key purpose of customers coming into Homebase” and made many “self-induced errors” through not knowing the local market.  Mr Scott is not resting there; John Gillam, Peter Davis, and Richard Goyder, responsible for the UK strategy, have left to spend more time with their home decorating kits; the former Homebase business has been written down by £562m (Wesfarmers paid £400m for it two years ago), and store conversions have been put on hold (except for four in hand), while the format and product mix is completely reconsidered.   Up to forty of the 230 stores may be closed altogether.   It is not often a purchase and relaunch of a business goes so dramatically wrong; it is even less often that the MD steps up to the plate and tells it like it is, though this may be small comfort for Wesfamers shareholders; or to customers searching for a portable heater – one of the lines scrapped by the eager incoming Aussie management.

STILL THEY COME: Whatever lessons Wesfamers have learnt at Homebase, let’s hope Natura Cosmetics have been following closely.  Natura acquired British retailer The Body Shop last year , and has been considering how best to strengthen the brand.  The Body Shop was the brain child of Anita and Gordon Roddick, who, in one of those classic retailer stories, started with one shop and built an international chain.  Not only that, they completely changed the whole nature of body products and cosmetics retailing, with an emphasis on natural ingredients and no animal testing.  That now is pretty much the norm, but Body Shop, by persuading everybody to its ways, has long faced much stiffer competition.  The Roddicks sold to L’Oreal, a move which seemed not quite in accord with the green ethnic approach of Body Shop; and with the death of Anita Roddick and withdrawal of Gordon from the business it seemed to lose some of its originality and flair.   L’Oreal sold to Natura, a major Brazilian specialist in the sector, last year for a price rumoured to be around €1bn.  Natura has a similar philosophy to the earlier Body Shop and has now said that it intends to group its whole business around an ethical natural green approach based on Body Shop principles, but also on its own approach, sourcing much of its raw material from organic and natural products in the Amazon basin.  This, it hopes, will double sales over the next five years or so and build a truly world-wide brand.  This though is not just about natural sourcing, Natura also intends some more traditional retail sales approaches such as slimming down corporate overheads and more emphasis on direct and online marketing.  But maybe a visit to a Bunnings store might be in order too?

 

 

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