Economy

H&M opens; hunger for agribusiness; surges in payday lending. By Kirsty Simpson.

Buyers line up for H&M

Queues at Swedish fashion outlet H&M’s first Australian store have eased, but the honeymoon has been more a “honeymonth”, says managing director Hans Andersson.

Nearly four weeks after the doors opened in the historic GPO building in central Melbourne, crowd controllers were still visible and Andersson still has a smile on his face. The closest he will come to speaking about whether the first month has exceeded targets is to say, “We are very happy. We didn’t expect queues after three weeks.”

Not that a retailer the size and age (the first store opened in 1947) of H&M didn’t have a fairly precise idea of local demand – with more than 3200 stores in 54 markets, including about 360 new stores opening in 2013. 

Its yearly brand-tracker survey included Australia for the first time last year, and found greater H&M awareness here than in the US, where it has been operating for decades.

Asked about reports that H&M intended to open six stores in Australia, Andersson says: “I wouldn’t be surprised if, by the end of next year, we won’t have more than six, and it will be a quick rollout of stores.”

However, Andersson was unable to say when or where the next outlets would be opening in other states. H&M had planned to open its first store in Sydney, but the selected location fell through, and the GPO spot opened up. “We are very happy that it turned out to be Melbourne – there is more seasonality and we would expect to sell more heavy garments and knitwear in Melbourne than Sydney.”

Moreover, Melbourne will now also host the first Australian store for another H&M-owned chain, the higher-end fashion outlet COS (Collection of Style). The first COS will open just 150 metres down the road from H&M in central Melbourne, in a refurbished Strand Arcade. Fellow Swedish brand ACNE, which was forced to relocate after H&M took over the GPO, will join it.

As for online shopping, not all countries in the vast retail empire are able to shop on the web for H&M, with the company taking a cautious country-by-country approach. Andersson is hopeful a local online store will be available “in the next two years”, after the first wave of bricks-and-mortar shops have been opened in mainland capital cities. 

Hunger for agribusiness

To abuse a Zoolander quote – agribusiness, it’s so hot right now. Indeed, as the bulls had been predicting, the appetite for Australian food producers shows no signs of abating since an expensive three-way tussle for Warrnambool Cheese & Butter ended earlier this year.

The latest listed target is bread and margarine manufacturer Goodman Fielder, which revealed it had rejected a $1.3 billion – 65 cents a share – bid from Singapore-based agribusiness company Wilmar International and Hong Kong investment group First Pacific last weekend. The company believes the bid undervalued the business.

In the past few years, the major food producers that became takeover targets included:

• Warrnambool Cheese & Butter: the subject of a fiercely contested takeover battle that saw its share price double by the time Canadian dairy giant Saputo won the day with a $500 million bid.

• GrainCorp: the federal government knocked back a $3.4 billion offer for the company by US heavyweight Archer Daniels Midland (in part because Treasurer Joe Hockey had reason to believe that “ADM at that time were of not particularly good character”.)

• Mundella Foods and Manassen Foods: China’s state-owned Bright Food bought WA cheese and yoghurt producer Mundella in January, after picking up 75 per cent of Manassen in 2011, for a reported $530 million.

• Tamar Valley Dairy: New Zealand’s Fonterra bought the Tasmanian yoghurt company from administrators.

• CSR: Food Spectrum and Wilmar International outbid Bright Foods to buy sugar producer CSR for $1.75 billion.

At the heart of all this excitement is a familiar “big picture” story: China’s rapid urbanisation.

The Economist Intelligence Unit forecasts that China will soon account for the lion’s share of all Australian food exports – 59 per cent by 2030. Meanwhile, the federal government’s agricultural research agency, the Australian Bureau of Agricultural and Resource Economics and Sciences, says that between 2009 and 2050 “the real value of beef consumption in China is projected to rise 236 per cent, dairy consumption 74 per cent, sheep and goat meat consumption by 72 per cent and sugar consumption by 330 per cent”. And most of that growth is expected to occur in the next 15 years.

All of which underlines what’s motivating the action – by Chinese companies and others – in the global agribusiness sector. The larger purchases made by Chinese companies beyond our shores in the past two years include: Pork producer Shuanghui bought US pork producer Smithfield Foods for $US4.7 billion; Bright Food bought the UK-based Weetabix for $1.2 billion and is now reported to be circling Israel’s largest food producer Tnuva; while last month state-owned COFCO bought a half-stake in sugar, wheat and soybean producer Noble Group for $1.5 billion. As the Financial Times noted recently: “Deal flow is building. China accounted for a sixth of agribusiness, food and beverage deals last year, says Dealogic, having never accounted for more than 2 per cent in the previous half decade.”

Where payday lenders operate  

Payday lending has been surging locally, with Australia’s largest provider of emergency credit, Cash Converters, revealing on Tuesday that its personal loan book had grown by nearly a quarter in the 12 months to March 31, from $80.6 million to $100.3 million. 

This helped drive quarterly profit to $15.9 million, 38 per cent higher than the previous March quarter.

Cash Converters’ market update came as forthcoming research argues that reforms of the sector by the previous government fell short. “The protections proposed to be afforded to payday loan borrowers were reduced in several key respects,” a University of Melbourne study finds. “Key changes to the original proposals do not take account of the recommendations of consumer and welfare advocates and are more consistent with the views of the payday loan industry.”

The second part of the study involves the first comprehensive look at the location of payday lending outlets in Australia. It offers firm evidence to back up consumer advocate concerns that such lenders are clustered in poorer neighbourhoods.  

The 123 payday lending stores in Victoria “are over-represented in areas that display relatively greater socioeconomic disadvantage and are strongly under-represented in areas that display the greatest socioeconomic advantage … The findings of our study confirm the claims of Australian consumer and welfare organisations that payday lenders are more likely to base their stores in socioeconomically disadvantaged areas,” the report by the Law School’s Ian Ramsay, Paul Ali and Cosima McRae says.

This article was first published in the print edition of The Saturday Paper on May 3, 2014 as "Buyers lining up for new styles". Subscribe here.

Kirsty Simpson
is The Saturday Paper’s business editor.

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