Distribution January 2017
RETAIL SALES RISE 0.1%
Retail sales inched up 0.1% in November after rising a downwardly revised 0.6% in October and were up 3.8% year-over-year. Economists had been expecting sales to rise 0.3%. Online retail sales rose a seasonally adjusted 0.1% from October but were up 11.9% compared to November 2015. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose 0.9% in October after rising an upwardly revised 1% in September and were up 4.3% from October 2015. Core retail sales correspond most closely with the consumer spending component of GDP. Sales at building material, garden equipment and supplies dealers were up 0.3% in November after rising 1.1% in October and were up 4.3% from November 2015. Data from Redbook Research showed that retail sales were sluggish during the first two weeks of November, but picked up substantially through the Thanksgiving weekend. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
PRELIMINARY HOLIDAY SHOPPING RESULTS
A jump in consumer spending in the final stretch of December significantly offset a slow start to the U.S. holiday shopping season, and is likely to help many retailers beat sales forecasts, according to the National Retail Federation (NRF). Spending over the Thanksgiving weekend in November fell 3.5% from 2015 despite a strong jump in online sales on Cyber Monday, according to the NRF. Brick-and-mortar sales in the week ending December 24 rose 6.5% year-over-year after having fallen for the rest of the month, according to data from analytics firm RetailNext. Strong demand for furniture, home furnishings and men's apparel from the start of November through Christmas Eve pushed U.S. retail sales up 4%, higher than the previously expected 3.8%, according to data from MasterCard's holiday spending report released during the last week in December. The report, which tracks spending by combining sales activity in MasterCard's payments network with estimates of cash and other payment forms, offers an early look into how the holiday season shaped up. Official results will not be available until later in January.
MOODY'S RETAIL FORECAST
Moody's forecasts retail sales will increase 3% to 4% in 2017 and operating income will be up 4% to 5%. Moody's believes that Dollar stores will be among the top performers. They also believe that home improvement stores such as Home Depot and Lowe's will benefit from the continuing robust recovery of the housing market. Moody's expects Walmart to continue to see bottom-line pressure as wage hikes and investments in future growth squeeze profits.
Fitch projects U.S. retail sales, excluding automobiles and gasoline, will grow 3% to 4% in 2017, which is in line with the 2016 forecast of 3.8% growth. Facing a shift in customer shopping habits and attitudes toward discretionary expenditures, many retailers have responded by moving to omnichannel models that holistically serve the customer across their online and bricks-and-mortar presence. “Spending focus on services and experiences appears here to stay, so the dividing line between best-in-class retailers and market share donors is increasingly going to be determined by which retailers can cater to the evolving landscape," said David Silverman, senior director, U.S. Corporates. "Those that find success have invested in the omnichannel model and have differentiated their products and customer service to draw customers in."
THE HOME DEPOT
Chain Store Age named Home Depot as one of the top ten brands to watch in 2017, saying that THD is growing sales faster and is more profitable than rival Lowe’s.
Over the last half of 2015 Lowe’s Canada performed an in-depth analysis aimed at redefining the market segments and better targeting customers. They have now adopted a new structure comprised of four business units: Big Box, Proximity, Pros and Contractors and Affiliate Dealers. RONA is planning a number of new growth and marketing projects in 2017. Since Lowe’s acquired RONA in May 2015 they’ve opened 13 new stores.
Walmart offered shoppers a Christmas Eve store pickup for eligible orders placed online by 6 p.m. local time on December 23rd. Walmart also launched a dedicated online destination so that customers could easily find items that were locally available for same-day pickup in the days leading up to Christmas. Walmart closed stores at 6 p.m. Christmas Eve, two hours earlier than in 2015.
Walmart is testing a 16-foot tall tower that serves as a distribution station for online orders being picked up in the store by customers. The tower works much like an ATM or vending machine for customers who have ordered general merchandise online. Shoppers enter their name into a kiosk, get an order number, scan the receipt at the machine and then pick up their product. The machine can hold up to 300 packages that can be as big as 24” high or 30” long. Larger packages must be delivered by employees, but so far about 80% of the store’s pickup orders are small enough to be stored in the machine. The biggest issue right now is that the device is not yet fully automated; a Walmart employee must help customers collect their packages. Walmart is trying to cut down their average pickup time of 10 to 15 minutes; so far with the dispenser they are at about 6 minutes. Retailers refer to the final step of the process that gets products into the hands of the customer as “the final mile.” Walton College of Business says that that last leg of product delivery is expensive, representing about 30% of total logistics costs. Having customers pick up purchases in the store is much more cost effective because packages can be delivered directly to the store. Right now the device is in the early stages of testing in Rogers, Arkansas.
Sears revenue fell to $5.0 billion in the third quarter from $5.8 billion last year. Comp store sales dropped 7.4%, down 10% at Sears and 4.4% at Kmart. Analysts note that Sears is selling off assets in order to fund operations, and speculate that the end is in sight. Sears has a $500 million term loan maturing in July 2017, and some retail analysts expect them to file for bankruptcy sometime in the summer. Sears CEO Eddie Lampert insists Sears is fully committed to restoring profitability. Lampert says Sears is on the way to a membership-based retailer relying on the Shop Your Way program and smaller stores.
Sears will start closing more stores in January, with about 30 Kmarts and Sears stores expected to close. The latest round of store closures is in addition to those announced in September. That will mean that Sears will have closed more than 200 stores in the current fiscal year, which ends January 31, 2017.
Sears Holdings and Uber are expanding their Rider Rewards program to 23 new markets. The service launched in fall 2016 in New York City and Chicago. It allows members of Sears Shop Your Way loyalty program to link their memberships to their Uber accounts; every Uber ride they take earns them $2 in loyalty points. More than 10,000 Shop Your Way loyalty members have linked accounts and earned more than $250,000 in points in the past two months, according to Sears. They are also running a sweepstakes that awards a total of $10,000 in points every month to riders who link their Uber account to Shop Your Way. Sears Auto Centers are also an Uber Preferred Maintenance partners, and reward drivers with discounts on oil changes and labor services.
Sears announced a series of executive changes. Jeff Balagna, executive vice president, left in December as did Joelle Maher, Sears’ president and chief member officer. They were two of Sears’ top 14 executives. No replacements were named. Mark Cohen, director of retail studies at Columbia Business School and the former CEO of Sears Canada, told Business Insider that the timing of the departures was “highly unusual” coming in the middle of the critical holiday season and several days before third quarter earnings were announced.
Sears Hometown and Outlet Stores have been cropping up inside existing Ace locations around the country, and in some cases, built from the ground up as a combo store. The unique store format makes major Sears brands more available to customers in small communities. Seventeen new Sears Hometown and Outlet Stores opened in 2016, all but one featuring this new format.
Ace Hardware reported on results of its SAVINGSource program, launched in early 2015 to leverage its combined purchasing power in order to cut costs for its members. It’s already reduced operational costs by $120 million and improved members' contract terms with vendors. Through SAVINGSource, Ace stores have access to pre-negotiated pricing for products and services within 40 operational categories across five functional areas, including: technology and communication; supplies and replenishment; professional services; facilities services; and, capital projects and construction.
Daily sales dropped 3% in November after being flat in October. The decline was driven by a 1% drop in volume, a 1% drop in price and a 1% decline from lower sales of seasonal products. Sales were down 3% in the U.S. and 17% in Canada in local currency and in U.S. dollars.
Amazon accounted for 30.9% of all U.S. online spending over Cyber Weekend, according to data from Slice Intelligence. According to ComScore, 65% of all U.S. internet users visit Amazon.com in any given month. Less than 5% of total web users visit specialty retail sites.
Amazon Prime Now promised subscribers in 30 cities nationwide that they could order by 9:45 p.m. Christmas Eve and have packages delivered before Christmas. Home Depot and Sears accepted online orders Christmas Eve for pick up in store, as long as customers ordered early enough in the day and picked up in person.
Amazon says they shipped more than 1 billion items world-wide over the holiday season, which they termed their best ever. The Amazon Echo smart home assistant and its smaller and less expensive version, Echo Dot, were the best sellers, and despite ramping up production, Amazon was unable to keep them in stock. Sales were nine times greater than during last year’s holiday season. While Amazon does not release hard sales data, analysts estimate that they likely sold between 4 million and 5 million Echos in 2016. More than 72% of Amazon’s customers worldwide shopped through mobile devices, with December 19 being the busiest shopping day. Prime customers are spending twice as much as other consumers using Amazon, according to Retail Metrics.
Amazon Web Services (AWS) hosted a huge gathering of developers and cloud computing enthusiasts called the re:Invent conference. Amazon says that one day Alexa will understand the meaning of everything people say and be able to respond accordingly. Alexa’s name is a tribute to the library of Alexandria, but the developers were also looking for a simple but distinctive name that was easy to say and pronounce. Amazon is reportedly working on an upscale version of the Echo speaker that offers a big touch screen in addition to responding to voice commands.
Amazon is developing mobile technology to schedule and track truck shipments of products with a few taps or clicks, which analysts see as Amazon’s next step in their quest to become their own global freight broker. They are reportedly looking to acquire or build an application capable of matching available trucks to shipments from a seaport hub to a distribution center or from a warehouse to a parcel-delivery facility. Sources said that Amazon could make the service available to non-Amazon shippers as well.
Amazon is exploring the use of giant airships that would serve as mobile, flying warehouses that could help Amazon deliver more goods by drone. Amazon thinks it would be more efficient to deploy drones from airships, as they could float or glide most of the way down to earth and use less energy.
Amazon.com made their first drone delivery to an actual customer, dropping off a Fire TV device and a bag of popcorn to a house in the rural English countryside 13 minutes after receiving an online order. The flight was conducted under British restrictions that currently prohibit such deliveries on a widespread basis, but the delivery was seen as a milestone in the race to use unmanned vehicles to transform how customers buy and receive goods.
Routine commercial drone flights in the U.S. are not allowed over people and must stay within sight of an operator on the ground.
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