The Daily Dose: Supplier Struggle

 | Jul 29, 2014 | 1:00 PM EDT  | Comments
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Stock quotes in this article:

fdo

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dltr

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wmt

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pep

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ko

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kmb

First, on this mega dollar-store merger between Dollar Tree (DLTR) and Family Dollar (FDO), as it's still getting a ton of play this morning. Not only do I believe it has the potential to materially harm the profit margins of Wal-Mart (WMT) during the integration process over the next three years, but I suspect it will weigh on the results incrementally of major food and drink suppliers.

What a combined Dollar Tree and Family Dollar will now have is negotiating leverage just as the long-term outlook for product costs from the likes of Pepsi (PEP), Coca-Cola (KO) and Kimberly-Clark (KMB) are much higher. Hey, China's crazy population growth and the country's desire to live a wealthier non-migrant life is gobbling up all of the world's natural resources, which means challenging times on the gross margin lines for those companies responsible for feeding the world's population.

Using the nifty Bloomberg terminal, I sourced the relevant suppliers to Wal-Mart, Family Dollar and Dollar Tree. Keep this list and begin to track any noticeable change in profit margins starting in early 2015 when the dollar store merger is expected to close. (I know you won't, but it was worth a try).

Source: Bloomberg

Regarding all of the continuing chatter about a stock market bubble, pertinent today as the FOMC begins its two-day gathering, here are two of the latest examples of that doom and gloom scenario. Thank you the Arabian News Network for posting these stats in the wee hours of the morning.

  • Visitors from the Middle East are forecast to increase their spending in the U.K. by 25% following Ramadan, according to card processing firm Worldpay. Middle Eastern folks are projected to spend almost 4x the amount of their American friends also visiting the U.K. I guess us Americans still haven't cashed in our penny stock profits yet in order to have a little spending fun.
  • Industrial rents in Dubai have risen by 25% in the past year, according to a new report by real estate consultancy Knight Frank. The report said rental values in seven out of nine districts tracked in Dubai had realized double-digit percentage increases over the past year. Class 2 buildings in Dubai Investments Park were the best performers, with rents up on average by 41% year over year in the second quarter of 2014.

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