Distribution February 2017
RETAIL SALES RISE 0.6%
Retail sales rose 0.6% in December after an upwardly revised 0.2% increase in November and were up 3.3% for the year. Core retail sales, which exclude auto sales, gas and building materials, rose 0.2% in December after being flat in November. Eight of 13 major retail categories showed gains last month. Auto sales jumped 2.4% and gas station sales rose 2.0%. Online and catalog retail sales rose 1.3%. Building materials sales rose 0.5%. Sales declined at department stores, restaurants and electronics and appliances merchants. Spending was fueled by rising consumer and small business confidence, and rising hourly wages. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
RETAIL SALES RISE 3.3% IN 2016
Retail sales rose 3.3% overall in 2016, although the year ended on a soft note, with December sales up only 0.6% from November. However, they were up 4.1% from December 2015. Retail sales for October and November were also revised up by 0.1% for each month. Nonstore retailers, which are mostly online and catalog sales, rose 13.2% for the year. Building material and garden equipment and supplies dealers were up 2.6% for the year.
HOLIDAY SPENDING STRONG
The National Retail Federation reported that holiday sales rose 4% in November and December 2016 compared to the previous year. Car sales helped drive holiday spending as Americans took advantage of big discounts. Online stores had a big quarter, with online spending rising 11% for the year. Spending fell 6% at department stores. Many department stores reported dismal holiday sales, and announced upcoming closures and layoffs. NRF expects ecommerce sales during the holiday season to be on par with recent quarterly sales showing growth of 16% year-over-year; this data is only available on a quarterly basis. On the Monday before Christmas, 49.2% of all online sales in the U.S. were made on Amazon, according to Slice Intelligence. Retail analysts point out that Amazon is teaching people they can wait until the last minute, and they can still get their gifts delivered on time. Amazon’s share of online sales on Black Friday was 25%. Overall, Amazon’s share of 2016 holiday online spending was 38%, little changed from the year before. It would take close to $200 million in sales to grow Amazon’s share by a single percentage point.
HOLIDAY MEDIA MIX SHIFTS
While most retailers reduced traditional advertising spend in favor of digital sources this holiday season, Amazon aggressively increased their spending on television, with their TV media budget rising 76%. Their digital budget went up 224%, while print advertising dropped 10%, according to the MediaRadar Trend Report. Walmart decreased print advertising spending by 15% and cut television spending by 10%, but upped spending on digital advertising by 168%.
Lowe’s plans to lay off 2,400 employees, less than 1% of staff. CEO Robert Niblock says the changes will better align store staffing with customer demand, shift resources from back-of-the-store activities to customer-facing ones and make them more efficient and productive. Most of the workers will be able to compete for different jobs at Lowe’s. Lowe’s has been trying to become more efficient.
Walmart is ending their ShippingPass delivery subscription plan that was designed to compete with Amazon Prime and instead will start offering free two-day shipping with a $35 purchase, down from a required $50 purchase previously. Walmart also offers same-day store pickup on many items. The two-day free shipping offer does not include fresh groceries, freight or third-party marketplace items, however marketplace items will count toward the minimum for free shipping. WM started testing Shipping Pass in 2015, promising three-day shipping. Customers who signed up for ShippingPass will get a full refund.
Walmart announced plans to cut hundreds of jobs before the end of January, including jobs at headquarters and regional personnel who support stores, including many people in the human resources department. Reportedly many employees being laid off work in Walmart’s supply chain. In addition, Marc Lore, Walmart’s new head of ecommerce, plans to lay off about 200 ecommerce employees in their California offices, stating that they are focused on adding the right talent to the team and making sure they are shifting staff toward more shopper-facing roles. Walmart.com sells millions more products now than they did a year ago, which requires more employees to manage those items online. Lore believes the division is too heavy on senior people.
Later in January Walmart also announced they will create 34,000 jobs in the U.S. this year. About 10,000 jobs will be created as a result of 59 new, expanded and relocated Walmart and Sam’s Club units, as well as ecommerce. The construction of new stores and the remodeling and improvement of existing U.S. facilities will create 24,000 construction jobs. Walmart is the country’s largest private employer, and analysts say that they are trying to balance shareholder responsibility with President Trump’s focus on creating American jobs. CEO Doug McMillon is part of President Trump’s CEO Strategy Council. Since early 2016, Walmart has cut more than 18,000 U.S. jobs through closing stores, trimming staffing and cutting jobs at headquarters; however, many people whose positions were cut were offered other open positions.
Walmart is partnering with several car dealerships, including the nation’s largest new-vehicle retailer, AutoNation. They’re creating a program that will be called CarSaver that will be launched on April 1 in four markets: Houston, Phoenix, Dallas and Oklahoma City. CarSaver will allow shoppers to select, finance and insure a vehicle through the website or on a touch-screen kiosk inside Walmart stores. The service then connects customers with a local, certified dealer and schedules an appointment with no haggle upfront pricing guaranteed. Dealers pay CarSaver a “success fee” of $350. The two companies launched a pilot version of the program in Florida in 2016 that was very successful, with nearly 80% of appointments scheduled leading to a sale and customers saving more than $3,000 over the manufacturer’s suggested retail price.
Rosalind Brewer, the CEO of Sam’s Club, retired February 1. She had been CEO since February 2012. She’s being replaced by Jon Furner, currently chief merchandising officer (CMO) at Sam’s Club. He’s a company veteran and has been with Walmart since 1993. He was once CMO of Walmart China.
Walmart has made several executive changes since the first of the year. Tony Rogers, chief marketing officer, will now lead a unified marketing effort, also overseeing online marketing. Liza Landsman was promoted to president of Jet.com. Walmart has also brought together all of their ecommerce technology groups and promoted Jeremy King to EVP and U.S. Chief Technology Officer. Their task will be creating a seamless experience for Walmart customers whether they shop in-store, through the Walmart app or online.
Walmart is creating an incubation and strategic partnership group to focus on identifying and incubating new ideas in the digital entertainment and Internet of Things (IoT) space. Analysts suggest that rather than trying to compete with Amazon by building an Amazon-like operation, Walmart would be better off taking advantage of the fact that they have a huge physical footprint, which could theoretically give them an enormous advantage. Despite all the focus on ecommerce, 90% of purchases are still made in physical stores, according to Chain Store Age.
Sears Holdings Corp. got another loan from CEO Eddie Lampert. The new secured letter of credit from Citigroup is for $200 million, with an option to expand the amount to as much as $500 million with the consent of lenders. Over the past two years, Lampert and his hedge fund have already loaned Sears more than $800 million.
Sears same-store sales fell 12% to 13% during the holiday shopping season.
Sears is selling iconic brand Craftsman to Stanley Black & Decker in a deal that’s worth a total of $900 million, less than the $1 billion experts thought Craftsman might fetch. Sears is also closing 150 stores and is reportedly trying to raise another $1 billion by selling off real estate.
Q4 sales were flat compared to the fourth quarter of 2015. On a daily basis, total company sales were up 1% for the quarter, consisting of a 1% increase from volume and a 1% increase from the timing of the holidays in December, partially offset by a 1% decline from price. Sales in the U.S dropped 1% and were flat on a daily basis. Daily sales were aided by a 1% increase from higher intercompany sales to Zoro and 1% from the timing of the holidays, offset by a 1% decline from price and a 1% decline from volume. Government, Retail and Light Manufacturing customers had the strongest sales performance in the quarter.
For the full year sales were up 2% to $10.1 billion. Grainger expects 2% to 6% sales growth in 2017.
Amazon said that 2016 was a record-breaking year in sales worldwide for third-party sellers, and that Amazon doubled deliveries for third-party sellers in 2016. Amazon also announced they will open a second fulfillment center in Jacksonville, Florida which will have more than 1,000 full-time jobs. Amazon opened their first fulfillment center in Jacksonville just six months ago.
Amazon has added 50% more robots to their distribution centers; there are now 45,000 robots working in 20 different distribution centers. In December 2015 Amazon had 30,000 robots working side-by-side with 230,000 human employees. The orange robots use technology acquired when Amazon bought robot maker Kiva Systems in 2012. Because the robots travel underneath shelves, the shelves can be stacked more closely together, which means the warehouse can hold more goods. The robots need to be charged for five minutes every hour.
Amazon plans to add 100,000 jobs nationwide over the next 18 months. The new hires will largely support new Amazon fulfillment centers, expanded delivery capabilities and the Amazon Web Services (AWS) cloud computing business. Amazon had a total of 306,800 full and part-time employees at the end of September, and hired a total of 123,700 people globally from September 2015 to the end of September 2016. Amazon said their U.S. workforce has grown from 30,000 in 2011 to more than 180,000 at the end of 2016.
Amazon launched a unique program with Goodwill Industries. People can use their empty Amazon boxes to donate items to Goodwill. Donors can pack the boxes with anything that fits and then get a pre-paid shipping label through the Give Back Box program. People just drop their box off at a UPS or USPS location or schedule a free pick up through the Post Office.
Amazon added another perk for Prime members, an Amazon Prime Rewards Visa Signature Card that offers 5% back in rewards for purchases made on Amazon; rewards points can be redeemed on purchases made on Amazon. The card offers 2% back on purchases made at restaurants, gas stations and drugstores and 1% back on other purchases. The card carries no annual fee.
Morgan Stanley estimates that the number of Prime subscribers grew by 50% in the second half of 2016, compared to a year earlier, and that Prime shoppers spend three to four times more than other Amazon customers.
Amazon has launched virtual versions of Amazon Dash buttons, which began appearing on Amazon’s homepage and app toward the end of January. The buttons allow customers to order with one touch of the button. Prime members will also be able to create a virtual one-click button feature for products that are available for Prime delivery.
Amazon is running their own shipping service, and has shipped at least 150 containers of goods from Chinese merchants to U.S warehouses since October. Amazon is currently booking space on vessels, although does not currently own any freighters. However, Amazon has begun posting rates for new services that are traditionally handled by global freight companies, and is acting as a logistics provider for shippers. Analysts say Amazon’s ultimate goal is hauling and delivering packages for others as well as for themselves. Amazon currently relies heavily on UPS, FedEx and other firms, and spent $11.5 billion on shipping in 2015.
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