Distribution January 2020
Retail Sales Rise 0.2%
Retail sales rose 0.2% in November, well below economists’ expectations of a 0.5% increase. Analysts noted that the results were partially impacted by the fact that the late Thanksgiving pushed the first big weekend of holiday spending into December. Despite the fact that Cyber Monday was December 2, non-store retail sales, which are largely internet sales, rose 0.8% and were up 14% from November 2018. Core retail sales, which exclude food services, car dealers, gasoline stations and building materials stores, were basically flat after rising 0.3% in October. Core retail sales correspond most closely with the consumer spending component of GDP.
Holiday Retail Sales Rise 3.4%
Retail sales excluding automobiles rose 3.4% between November 1 and December 24, according to Mastercard SpendingPulse. The National Retail Federation had forecast holiday retail sales would increase between 3.8% and 4.2% and Wells Fargo had projected a 5% increase. The average annual increase over the past five years is 3.7%. Online sales rose 18.8% from holiday 2018 and accounted for 14.6% of total retail sales. It was the shortest holiday shopping season since 2013, which meant that retailers got the season off to an early start, with some publicizing deals before Halloween. The Saturday before Christmas was the busiest shopping day in US history, surpassing Black Friday, according to research firm Customer Growth Partners. Amazon expanded their free return policy and promised Prime members one-day shipping.
The Home Depot
Investors and Analysts Conference Call:
CEO Craig Menear gave an update on the company’s progress transforming THD and creating a One Home Depot experience for customers. He noted they are now in year two of their journey and know they are on the right long-term path but creating the One Home Depot experience is requiring them to spend about twice as much on the customer experience as they would normally.
Home Depot competes in hundreds of different categories. In many categories, independents, regionals and specialty players command the majority of market share. This means they have a big opportunity to increase their market share even if overall retail growth is slow.
Power tools is a category in which they’ve held a leadership position with a large share for a very long time, yet they are growing at an accelerated rate because of all the ways they are making it easier and more seamless to do business with them. Part of the investment they’ve made in the stores includes about $100 million on tool corrals to do the setting by brand and by battery platform. In total they have more than 900 bays in the store. In addition to exclusive brands and products, they also have exclusive lines, such as DeWalt’s new compact Atomic platform, or if they do not get an exclusive, they often get a launch exclusive and will have product six to nine months before anyone else.
They are investing to position themselves as the low-cost provider and to grow faster moving forward. Their strategic investments are largely on track, but their timeline was overly ambitious and realizing the benefits may take longer than they planned.
They have already implemented many improvements for Pros, and as soon as they are able to offer larger Pros more features and functions, they will be able to increase their share of that important category. They want to grow their Pro business but do not want to leave their DIY customers behind. They know that key buying factors for Pros vary by size, the type of business they are in and the purchase occasion driving their visit.
That same work is now underway for their DIY customers as they invest to streamline order management for associates.
They have now introduced Order Up which is merging multiple systems into one that is much simpler and more intuitive for associates to work with.
They will invest more than one million hours per year over the next five years in training and development opportunities for associates.
Approximately 60% of US stores already have a new look and feel, and they have addressed their customers’ number one concern, navigating the store and finding what they are looking for. They have improved the checkout experience and implemented pickup lockers for online orders. They have grown online sales by approximately one billion dollars over each of the last 6 years, making them the fifth largest ecommerce operation in the US.
They are committed to creating the most efficient and fastest supply chain and delivery network for both Pros and DIY customers. They are investing in approximately 150 new facilities to improve speed and fulfillment.
By the end of 2020, they will have invested $5 billion in their stores, $2.5 billion in technology and $1.2 billion in their supply chain network.
They are building flatbed distribution facilities so that they can increase their share in lumber and building materials categories. These bigger, bulkier items deliver much higher tickets and operating profits.
They will be investing more dollars than originally anticipated in high volume stores because the stores they have already invested in are seeing a significant lift in sales.
For fiscal 2020, they estimate that sales will grow 3.5% to 4% to between $114 and $114.5 billion but profits will drop 14% due to the level of investment needed to meet objectives and the higher than anticipated levels of shrink, which they are now targeting with programs. They believe that after 2020 their level of investment will decrease and benefits from their investments will increase. They build their outlook on GDP, which for fiscal 2020 is around 1.8%, lower than this year.
THD has missed comp sales expectations for the last four fiscal quarters, but has not reported annual comp sales below 4% since fiscal 2012. THD expects fiscal 2019 sales to rise about 1.8%, with comp sales on a 52-week basis up about 3.5%.
THD is planning to bring their design center concept to Montrose Crossing in Rockville, Washington, which will be the only location outside of California. The design center is a kitchen and bath showroom where customers can redesign their own space. It will occupy a two-story, 36,000-square-foot former retail space in the center.
Walmart is working at growing not only more quickly, but more profitably. They plan to add ecommerce warehouse capacity in order to have more products available for next day delivery. They also plan to invest in more capacity so they can expand fulfillment services and warehousing for third-party merchants.
Menards has purchased Mall of the Bluffs in Council Bluffs, Iowa, and plans to tear down the mall and build a “bigger and better store.” Menards has had a store in Council Bluffs for more than 25 years, but described it as small and dated. Menards promises to revitalize the area. According to some of the current tenants who received notices telling them to vacate by the end of the year, Menards plans to start demolition this winter.
True Value named Chris Kempa their first chief commercial officer. He will report directly to CEO John Hartmann. Hartmann said that Chris is an exceptional addition to the senior leadership team and has more than 25 years of experience in the product distribution sector. In his newly created position, Kempa will be responsible for the development and execution of an integrated merchandising, sales and pricing go-to-market strategy. He joins True Value from Essendant Inc., where he was most recently group president, industrial, but also spent more than 20 years with W.W. Grainger in several roles, including VP and general manager, global business.
Grainger reported Q3 sales rose 4% to $2.9 billion. On a daily basis, sales were up 2.5%. The increase in sales was primarily due to volume. Foreign exchange had no impact on total company sales. The third quarter had one more selling day than the prior year period.
Amazon said customers shopped at “record levels,” ordering billions of items worldwide during the holidays. Amazon said third-party sellers also did well, with unit sales worldwide growing in the double-digits and more than one billion items sold. Alexa-enabled devices such as the Echo Dot smart speaker, the Fire TV stick and the video-enabled Echo Show 5 were among the best sellers. The number of items delivered via Prime Free One-Day and Prime Free Same-Day delivery nearly quadrupled from last year. The estimated cost of making good on their promise of one-day delivery was about $1.5 billion over the holiday season.
Amazon added 250,000 employees worldwide in order to handle holiday sales, bringing the company’s total workforce to 750,000. Amazon did not say how many temporary holiday workers would be kept on after the holiday season. Amazon’s employee figure excludes about 800 contractors from private delivery firms, which employ about 75,000 drivers in the US.
Amazon will raise the fees they charge merchants for warehousing and shipping their goods an average 3% in 2020 as they deal with higher costs from infrastructure and programs like one-day delivery. Amazon handles a majority of US orders through their in-house logistics arm.
Amazon is continuing to aggressively expand their presence in the brick-and-mortar market, and opened five more 4-Star stores in the last half of 2019, bringing the total number of 4-Star locations to eight. Not including Whole Foods, which Amazon bought for $13.7 billion in 2017, Amazon has dozens of physical stores open or planned nationwide, including Amazon Go stores. The 4-star stores specialize in products that have garnered four stars on their website, and is merchandised in specialized sections, including “Most-Wished for” on Amazon.com, boutiques that would reflect local preferences, such as “Trending Around Los Angeles” and “This Season’s Top Toys.” Shoppers can also test Amazon devices and accessories in the stores.
It would appear that Amazon is getting ready to open yet another grocery store chain, as analysts note that they are prepping an old Toys ‘R Us store in California’s Woodland Hills for a traditional grocery store that will feature conventional checkout rather than Amazon Go’s cashierless technology. The US grocery market is estimated at about $800 billion annually.
Amazon’s third-party sellers can no longer use FedEx’s ground delivery to ship Prime packages, a change that could affect small businesses and pricing for consumers. The announcement came at the height of the holiday shipping season and followed Amazon’s decision to stop using FedEx for their own deliveries. The two companies have launched rival initiatives in recent years, and in June FedEx declined to renew their contract with Amazon, saying it was unprofitable. Amazon insisted that the move was due to substandard performance by FedEx for third party shippers.
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