Ticking boxes

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1:28course, was the president's first reaction to the new PM back in July. So how tricky could it be? We will find out. In Germany, the chancellor is fighting for his political survival after damaging defeats overnight for his center-right party. The sports brand Nike is about to drop out of the top 100 US companies. We will ask why. And... It's like Bargaritas! Yes, the tequila cocktail is seeing a bit of a surge, helped along by the release of a sequel to the 1998 autumn classic Practical Magic. Wake Up To Money with Felicity Hanna. Very good morning to you. Welcome to the week. Welcome to Wake Up To Money on Monday, the 21st of September.

2:10It's just coming up to five minutes past five. There's a lot to talk about. There's breaking news to talk about. There's oil prices to talk about. We will be talking about all of that. But just before 6am this morning, we'll be chatting cocktails because almost 30 years after Practical Magic came out at the cinemas, its sequel is driving people to drink. Well, maybe it's not quite doing that, but certain scenes have been credited with boosting sales of margaritas. And it made me think. We had that Oasis revival last summer, bringing back the bucket hat. We have the Devil Wears Prada sequel being used by every brand that could jump on the bandwagon.

2:46Now we've got Practical Magic 2 potentially boosting margarita sales. talk to me about your nostalgia spend this morning has nostalgia got you shopping for anything in particular this year maybe you've spent a fortune on tickets for an old touring favorite my confession i'm off to see westlife next month i do have an excuse i'm taking my sisters but it wasn't cheap like a lot of these things when they're seeing a revival get in touch tell me about your nostalgia spending or if you're not nostalgia spending tell me about that text me on 85058. Send me a WhatsApp message on 08085 909693. And if you're on social media, use the hashtag WakeUpToMoney.

3:26I will keep an eye on that. Now, joining me for the first time through the whole of WakeUpToMoney this morning is Tim Ray, Managing Director of Multimodel Logistics, which has a fleet of 79 lorries. And Tim, you're also Vice Chair of the Road Haulage Association. Hello, good to have you on the show. Yeah, good morning. Thank you for having me. Good morning. Any nostalgia spending in your life? Or are you just nostalgic for when you could afford to fill up 79 lorries? That's more the face of it, yes. Joining us as well, Tim, is April LaRue's Head of Investment Specialists at Insight Investment, which, among other things, is a big UK government bonds investor.

4:04So, April, loads to talk to you about. Good morning. Good morning. Any nostalgia spending or margarita spending in your life? Well, no recent margarita spending, but I have gone to see ABBA Voyage recently, which was amazing. That's like the ultimate in sort of nostalgia spend, isn't it? It is. I hear it's quite a show. It is a lot of fun. And it just reminds you how much joy good old fashioned music from a long time ago can make you feel. Yes. And I suppose for a lot of these brands or these bands seeing that kind of resurgence, it's pretty handy when their fans are a little bit older and can afford to spend potentially a little bit more.

4:44Absolutely. Because as you pointed out, it's not cheap. It's not cheap. Right. We will. We will come on to all of that. There is loads to talk about. Sit tight, Tim and April. But first of all, let's start this morning in Germany, where the embattled Chancellor Friedrich Mertz is fighting for his political survival, really. Results overnight in two local elections show damaging defeats for his centre-right Christian Democratic Union Party. In one of them, in the north-eastern state of Mecklenburg-Western Pomerania. excuse me, Pomerania, I used to live in Germany, still can't say it, the CDU might have slipped below the threshold needed to stay in Parliament.

5:25And the far-right Alternative for Deutschland, or AFD, is on track to win the most votes there. The party was also defeated in elections in Berlin. Here was the Chancellor speaking via a translator in the wake of the results. Today we witnessed two elections with very different outcomes. We cannot sugarcoat the result in Mecklenburg, Western Pomerania. It is a disaster. The CDU fought hard, but in the end it was the CDU that got crushed in the polarisation between the SPD and the AfD. Germany is capable of reform. I would even go so far as to say that these reforms are the antidote to the authoritarian poison that, together with the fascination for authoritarianism, is penetrating ever deeper into our society.

6:16What must be done now requires backbone, steadfastness and patience. I will demonstrate these qualities as chairman of the CDU and above all as chancellor of our country. Thank you.

6:32Well, so that was Frederick Mertz speaking after those results came out. Let's speak ourselves to Karsten Brzezinski, Global Head of Macro Research and Chief Eurozone Economist at ING. Karsten, good morning. Good morning. You're speaking to us from Frankfurt this morning. The Chancellor clearly not just worried about his own political survival, but clearly very worried about the direction of the country. Is there a sense of concern? What's the mood like in Germany? Well, there is. I think there are many reasons to be concerned. Well, if you're Friedrich Merz right now, you're fighting for political survival.

7:15That is one. He's also fighting to get at least a few reforms the government announced this summer to really get them through. And then you see that, you know, in Germany now politically, what is happening is what we've seen in many other European countries before, namely that the political centre is somehow crumbling away and that the extremes are simply getting more votes. That is nicely illustrated now by yesterday. So we have one state in which the extreme right wins and then we have the state of Berlin where the extreme left wings. So this shows you how fragmented the political landscape has become.

7:54So we will talk more about that, but the Chancellor was talking about reforms being the antidote to the challenging situation his party finds itself in, as you say, from both extremes of the political spectrum. Just explain to us a little bit about the Chancellor and the key priorities of his government. Yeah, well, the key priority was to get an economy that has been stuck in stagnation now for, well, five, six, seven years to finally get the economy growing again, plus not only get economic growth back but to improve economic competitiveness as the German economy is clearly suffering from Chinese competition and many other reasons.

8:40So to do that, they announced a couple of reforms on health care, pension system, labor market this summer which mainly are aimed in making the economy and the country ready to face the challenges of demographics. There is still very little to actually improve international economic competitiveness in it, but it shows that this is the first step. And the thing is, you know, so when you look at these election results, and I think the people are not really ready for change. And that is something that the entire country still needs to learn, that to get out of stagnation, some hardship is also required.

9:22And I think that the country has not really realized that yet. And just explain to us, just put in context these election results, because these are local elections. Just sort of why were they happening now? When is the next big test on a national scale? Yeah, that's Germany. Welcome to a federal system and a federal structure. So we have elections almost so many years. This year we had six regional state elections, three in the spring, six this fall. they are always determined a little bit by two factors. One is local state elections, certain persons, and then it's also always seen or regularly seen as an echo chamber for how the people feel about the federal government.

10:15And, of course, then when you look at Berlin, that's also, I would say, a separate case. The next, that's the only good thing, so now we're through. The next big test case will be coming next spring with state elections in the largest state, that is Northrop, Westphalia. But the point is here, Felicity, that when you look at the federal polls, the AFD is far ahead, is the largest party. So we're polling close to 30%. Friedrich Merz's party, federally speaking, is at 20%. He is the chancellor with the lowest popularity polls ever of all German chancellors. So which shows you that Germany has not really been able to cope with the phenomenon of the AFD.

11:09Right-wing populists, as we've seen in all and so many other European countries, so they're still kind of dealing, finding a strategy how to cope with it. At the same time, the current government under Friedrich Merz has clearly lost popularity and is struggling to really get these reforms through. Now, you've talked a bit about some of the economic challenges, the economic backdrop to voters turning to the more extreme ends of the political spectrum. As I say, you're chief Eurozone economist at ING. These are sort of economic challenges that are being played out across the Eurozone, aren't they?

11:50And some of them here in the UK as well. How different is Germany? How does its economy kind of compare to the rest of Europe or to the UK? I think that Germany is just very late to the party and this party is a negative party. So Germany has benefited for years from globalization, from the rise of China being able to export to China at a large scale. Other countries were in economic troubles already earlier. So now with the pandemic, the war in Ukraine, the war in the Middle East, the rise of China as a fierce competitor, also the German business model is suffering. So Germany also needs to do reforms.

12:39At the same time, just look at France, for example, also look at the UK. We are seeing that there is a big demand or need for governments to invest more. That is investment in infrastructure, digitalization, education. So all European countries need to step up the efforts here. And Germany is no longer any different. The only difference that Germany has, and that's the benefit that its government finances, at least compared with France, compared with the UK, are sounder so far, which gives the government a bit more room to invest what it's currently also doing. But I think the general thing is Chinese competition, an aging continent.

13:26So this is very similar across all European countries. Yes, and Chinese competition, particularly challenging, isn't it, for the car industry, which is obviously a large, a large important sector in Germany. We've had a message from Will in Devon, who says, how does the EU survive when immigration is the big issue front and centre, when freedom of movement is a non-negotiable? And Will makes the point that migration, he says, was the main reason the UK left the EU. Is there more to come? How much is immigration playing a role in moving people towards different political parties? It clearly plays a big role.

14:06The inflow of migrants, of refugees since the mid-2010s plays a big role also in the success of the AFD. I think, well, as an economist, you need to have a more nuanced view on immigration in general, because an aging economy, an aging block, and that applies to the entire European Union, needs immigration. But, of course, needs immigration with the right skills, the right education, and immigration that helps tackle the lack of qualified workers that we have in Europe. So if you can fill these gaps with immigration, then Europe would benefit. I think what we're currently seeing is if it's a kind of immigration that puts more pressure on the social system, in an economy, in a block that is economically rather stagnating, where there is enormous pressure on public finances, it is clearly that this is what has been fueling support for extreme parties.

15:14There's also a key presidential election happening at the second largest economy. Germany is Europe's largest economy. France is the second largest. That's happening early next year. Could there be more political instability there? And what could that mean for the EU? Oh, definitely. Well, you have the experts on the show today talking about the bond market probably. So we see that the financing costs for France have gone through the room. the difference between French financing costs and German financing costs is at another record high. So showing you that an economy or a country that has not been able to really implement structural reforms, think about the discussion the French are having on pension reforms, that never happened.

16:05So that in these countries, a strategy that is very often only based on deficit-funded investments or growth is clearly coming to an end. And we will see then next spring how the elections will play out. I think what is essential for France in general is that there is a coherent economic strategy which will bring down a very high level of government expenditures, unsound public finances, and at the same time develop a growth model that is sustainable for the next decade. Karsten Brzezinski, Global Head of Macro Research, Chief Eurozone Economist at ING. Thank you very much indeed for joining us on Wake Up to Money.

16:55Thanks for having me. Thank you. Well, still with me listening to that, April LaRousse from Insight Investment and also Tim Ray from Multimodel Logistics. Tim, I want to pick your brains first. Don't worry, not about sort of Eurozone political movements, but we were talking about the economic challenges there, kind of having that direct political impact. And I suppose one of the big things, one of the big economic challenges people are feeling here in the UK directly in their pockets right now is the cost of fuel. And that can make people feel pretty frustrated, can't it? Tim, are you there? I am.

17:35Sorry, I lost you for a moment. Oh, forgive me. I'm just saying that it's sort of, you know, we know that rising prices, feelings of economic instability can affect people's anger and their political anger, and it can change sort of how they plan to vote. And here in the UK at the moment, one of the biggest challenges perhaps, sort of fastest growing challenges people are facing is the rising cost of fueling up. Yeah, we see it changing. It's almost daily, the price is just moving up every day. From a business point of view, our costs are dramatically increased every week. You can understand it from a personal point of view and also a business point of view that, you know, when you think costs going up, what's left is there's less left in your pocket.

18:22And the apprehension people have today about spending and it all grows. It all grows into fear of concern about where is it going to end? You know, we as a business were really concerned about what the budget might bring is at the end of October. And April. in these staged increases which are planned for next year for the fuel duty. It's all a big unknown to us and we're all getting quite concerned about it. April, it's interesting, isn't it, hearing that sort of business voice on the concern. We know that there's consumer concern. But as Carsten pointed out, you're a bond market specialist and we know that governments across the world, their ability to borrow money, to make some of the changes or provide some of the support, that's perhaps more constrained than it's been in a very, very long time.

19:13Yes, actually, interestingly, though, not so much in Germany. They're starting from a much better position. Very, very low debt to GDP ratio, only about 60 to 70 percent. Yes, compared to most other major European economies, which are 100 percent. So, yes, Germany can spend more and they're trying to spend more. But obviously it takes a while to get that into the economy and make people feel better. But fundamentally, you know, everything's more expensive. And with energy costs just going up and made worse by obviously this war in the Middle East, it's just squeezing pockets. And the impact is a dissatisfied electorate who are changing how they vote, you know, anything away from who is currently running countries.

19:55So as was pointed out, it's not just the right wing parties, but it's also the left wing parties. And the bond markets are noticing that. And bond markets don't like instability. They don't like political change. And so that is being reflected somewhat in prices. Keith has messaged to say, morning, Fliss, regarding the elections in Germany and other European countries. In times of economic struggle, people lose faith in mainstream parties. Extreme parties crawl out from under a rock and promise quick fixes, playing on people's fears. Quick fixes never work and it ends in tears. Keith, thank you very much for that.

20:27do join in the conversation if you would like to this morning we'd love to hear from you 85058 on text on whatsapp 08085 909693 i've had a message from beth on nostalgia spending which i'm quite enjoying she says i spent a ridiculous amount at the body shop when they relaunched their jubilee range if you were a teen in the 90s then you know uh beth i i do remember those um those weird little kind of bath plasticky bath shapes like dolphin shapes and things that you would would supposedly melt in the bar. That was my big body shop go-to. Keep your nostalgia spends coming this morning. 85058. And maybe we'll soon be thinking nostalgically about a pretty massive company because there's a bit of a watershed moment today.

21:13And it is to do with a company that has been at the centre of sports commerce for around 50 years. You want to stay zone? You want to stay zone, lads? Yeah, yeah. You want to stay zone? I guess I'm Cristiano Ronaldo then. Yeah? Come on, Neymar. That was Nike's advert for the company's 2014 Men's Football World Cup. Nike, we're having a discussion before we came on air, and I think I say both. But the sportswear and trainer brand is actually going to be removed from the S &P 100 index today. So that is the group of the 100 largest US-listed companies. And it's been in that group for 18 years. But they've not been easy years recently.

21:58Nike's share price has fallen more than 75 % over the last five years, losing more than$200 billion in market value. Let's talk to Masimo Janko, who worked at Nike for 25 years, ultimately running the brand strategy for all the company stores in Europe, the Middle East and Africa. Masimo, good morning. Good morning. Thank you for having me here. Thank you for joining us. What has gone wrong? Well, it's an interesting story. Five years ago, the management decided to change a strategy, to change from a product perspective, moving to gender-focused instead of sport-focused. From a distribution perspective, trying to prioritize direct-to-consumer and e-commerce with Nike.com instead of the traditional focus of wholesale and working with those wholesale partners that made Nike great.

23:00And finally, to support the DTC strategy and e-commerce traffic, they moved to digital marketing instead of the traditional inspirational brand activity that made Nike famous. That's the main reason. The consequence of that was that Nike reduced the access to the product, especially for casual buyers or families, and lost a little bit of coolness in the product innovation and newness, and gave, and this is probably the most important effect, In the wholesale distribution where Nike withdrawn, gave access and space to other brands like On Running, ASICS, Salomon, New Balance. The combination of that increased the pressure on the business and Nike stopped being a growing company, missed the margin and lost profitability.

24:12But it's interesting, isn't it? When you talk about that sort of, you know, prioritizing direct to consumer rather than perhaps wholesale business, because some of the most successful new sportswear brands have been the brands that have, you know, the challenger brands have come up and they've marketed direct to consumer and they've maybe eaten some of the lunch of those bigger brands. So why didn't that work for Nike?

24:40Because Nike used to have a total offense strategy. It was already big and tried to become bigger with the direct-to-consumer distribution. This is not the case for the other brands that were born mainly with the direct-to-consumer distribution and then try to expand. When Nike gave them the opportunity to expand in the wholesale, for them it was an opportunity to take the space in the stores that Nike used to have. And so that's the main reason why Wall Street wasn't happy about the performance of Nike on the marketplace and the performance of Nike on the financial books. But it's quite... Nike is still the market leader, by the way, and by far.

25:41And the only problem is that it's not able to grow revenue anymore, it's not able to grant the previous level of profitability. And this is what Rousseau doesn't like. I mean, you make a very good point that it is still the market leader. This is still an absolutely ginormous company. Correct. So it's rumours of its death would be a little bit early. A little bit premature. Yes. But Nike's not the only one, is it? Puma is down more than 75 % over the last five years. Adidas down almost 50%. It seems to be a really hard time for those big mainstream sportswear brands in general. Why? Correct. It's a value issue more than an industrial issue.

26:29World Street probably and the financial market, they fall in love time to time with industries. And this is not definitely the most favorable moment for the sporting industry. World Street prefers other sectors that are able to generate more margin, more profit. And the sporting industry has right now an issue on that perspective. And this is why the deliberation of the value is not only a Nike problem, as you said, it's quite common in the majority of the players in this arena. What about partnerships then? Is that the solution? Because you've got growing sportswear brands like Ons signing major stars like Mbappé from Nike on Friday.

27:23you've got recent switches of other big names, Barcelona forward, switching from Nike to Adidas. So is Nike sort of missing a trick? Is there a lack of direction and leadership at the top? No, I think Nike is trying to find solution in the three areas that were neglected over the last five years. and is also trying to re-establish a constructive and positive partnership with the key players in the distribution arena. They were the ones that Nike neglected a little bit over the last five years. And there is still a huge potential from a consumer perspective. The brand is still one of the most popular brands in the world.

28:19and they have a lot of resources that can be invested in product innovation and in brand activities to reconnect with the consumer and the value that they used to have in the past. So I mean it's a matter of time and it's also a matter of resources because all of this will cost. And probably the journey to regain profitability the Wall Street likes, it will take a few years, but there is still all the potential to become the leading brand that was able to inspire, but also to influence the sporting good industry. Yes, and as you say, still the market leader. So lots of space to grow and reinvent.

29:16Massimo Junko, Thank you so much for joining us on Wake Up To Money. You're welcome. Thank you very much. Listening to that still with us, April LaRousse. April, it's really interesting when you look at the companies in the S &P 100 index, there are four businesses leaving it, all four being replaced by tech firms. Is that just a sign of the times? It certainly is. You know, these fast-growing companies with big, big profit margins, they are obviously from the way the indexes calculate who's in and who's out, suddenly growing fast enough that they can be in that index. I have to say, though, the kind of more followed index is the S &P 500, and Nike is still very much in that one.

29:59So, yes, as you said, they're still an enormous business. But generally, that's the sector, the sporting wear sector, they had an amazing period over the COVID period because everyone was wearing more sportswear and just wanting to work from home. Oh, it was so comfortable, wasn't it? I missed that. It really was. So, you know, obviously coming off of that high, you've seen generally problems. And of course, Chinese demand, really important for Nike and all of these companies. But China has some pretty good brands that are popular in their own market. And so they're buying fewer products there too.