Distribution February 2018
Retail Sales Rise 0.4%
Retail sales rose 0.4% in December and November sales were revised up to a 0.9% increase instead of the 0.8% first reported. Retail sales were up 5.4% from December 2016. Retail sales as a whole rose 4.2% in 2017 compared to a 3.2% increase in 2016. The increase in sales for December was supported by a 1.2% rise in sales at gardening and building material stores. Sales for this segment were up 9.9% year over year. Excluding automobiles, gasoline, building materials and food services, core retail sales, which factor into GDP, increased 0.3% in December after climbing a strongly upwardly revised 1.4% in November. Sales at online retailers rose 1.2% after increasing 2.5% in November and were up 12.7% year over year. Retail sales account for about one-third of all consumer spending, with services accounting for the other two-thirds.
Holiday Shopping Update
Holiday sales during November and December grew 5.5% from holiday 2016, to $691.9 billion, as growing wages, stronger employment and higher consumer confidence led to strong spending, according to the National Retail Federation (NRF). The total excludes restaurants, automobile dealers and gas stations but does include $138.4 billion in online and other non-store sales, which were up 11.5% over holiday 2016. Results exceeded forecasts of an increase of between 3.6% and 4.0%. The increase was the largest since a 5.2% year-over-year gain in 2010. NRF numbers are based on data from the Census Bureau. According to Mastercard SpendingPulse, retail sales across the country rose by 4.9% over the holiday season. It was the biggest increase since 2011. Online sales rose 18.1%. Gift card spending declined over the holidays as a share of expenditures, falling to 20.8% from 25% in 2016. It was the lowest share since 2011. That means consumers were spending relatively more on merchandise gifts for the holidays than in the past six holiday seasons. According to One Click retail, Amazon was responsible for 4% of all retail sales in 2017 and 44% of all ecommerce sales. Consumer electronics was the biggest selling category. Reportedly more than 50% of product searches begin on Amazon.
The Home Depot
The Home Depot plans to give US hourly associates a one-time cash bonus of up to $1,000 in the fourth quarter of fiscal year 2017, thanks to savings created by tax reform. The bonus will be paid in addition to their Success Sharing bonuses. They have estimated that the net impact of tax reform on their 2018 fiscal will be positive.
THD will hire 80,000 seasonal associates as they prepare for the busy spring season, in line with the number of seasonal hires made last year.
Raymond James & Associates, the broker-dealer subsidiary of Raymond James Financial, is suing Lowe’s for allegedly breaching their investment banking contract when Lowe’s bought Maintenance Supply Headquarters in June for $512 million dollars. Lowe’s entered into an investment banking agreement with Raymond James in March 2015, with Raymond James acting on Lowe’s behalf, contacting specialty distribution businesses that Lowe’s might want to acquire. According to the suit, Raymond James brought Maintenance Supply Headquarters to Lowe’s attention, but Lowe’s declined to engage them in connection with that deal, allegedly in violation of their agreement. Lowe’s did pay Raymond James as agreed when they acquired Central Wholesalers in November 2016.
Lowe’s will add 53,000 seasonal staffers for the busy spring and summer sales season. Seasonal employees typically work from March through September. Lowe’s added 45,000 seasonal employees in 2017 after cutting 2,400 employees in January.
Walmart is closing 10% of their 660 Sam’s Club stores. About a dozen of the stores will become ecommerce fulfillment centers. Sam’s said that all the stores being closed were underperformers built in locations where population had not grown as anticipated. The move will eliminate about 10,000 jobs. In recent quarters Sam’s has reported higher sales, helped by rising ecommerce sales and a focus on fresh food. But Sam’s Club performance has always lagged behind rival Costco. In the most recent quarter Sam’s comp store sales rose 2.8% and Costco’s comp store sales rose 7.9%.
Walmart cut about 1,000 corporate positions before the end of their fiscal year (January 31). According to the Wall Street Journal, the cuts were broad-based and primarily affected workers at Walmart’s headquarters in Bentonville. Walmart also eliminated about 1,000 positions in January 2017, including 511 in Bentonville.
Walmart also announced that they will raise wages for US workers to $11 an hour and pay special bonuses of up to $1,000 per worker in the wake of tax code changes that cut the corporate tax rate in the US from 35% to 21%. Walmart currently employs about 1.5 million people in the US, and until now has paid entry level applicants $9 to $10 an hour. Target recently raised their starting pay to $11 an hour and Costco starts hourly staff at $13.
Walmart plans to scale back on the number of co-managers for stores, and reportedly plans to remove about 3,500 co-managers and add about 1,700 lower-paying assistant store manager positions. Walmart says the change will more clearly define the co-manager job as a steppingstone for a store manager role. Walmart says retail is changing rapidly and they are transforming to meet the needs of their customers and streamline their business. Reportedly, smaller stores with less than $80 million in annual sales will not have comanagers, stores between $80 million and $90 million will have one, stores from $90 million to $125 million will have two and the highest-volume locations will have three.
CEO Doug McMillon said that they are still analyzing the impact of the new tax law, but plan to earmark windfall funds for training, lower prices and technology investments.
Walmart is rolling out a service that lets shoppers scan and pay for items without going through checkout lanes. Walmart will be introducing the smartphone application Scan & Go to an additional 100 stores in 33 states over the next several weeks. The move is part of Walmart’s efforts to make shopping in stores easier. Walmart has already rolled out their mobile payment app, Walmart Pay, across their 4,700 US stores and has increased the number of self-checkout lanes, as well as expanded and improved pickup options. Some Walmart stores will have handheld devices at kiosks so customers can try the service before downloading the app. Sam’s Club already offers Scan & Go in all of their US stores.
Judith McKenna was named President and CEO of Walmart International, Walmart’s second-largest operating segment. She’s succeeding David Cheesewright, who has been in the role since 2014 and recently announced he wanted to retire from a full-time role. He’ll stay with Walmart through March, then consult on specific projects. McKenna has been with Walmart since joining Asda, their U.K. operation, in 1996. She was most recently EVP and COO for Walmart US.
Sears reportedly had a miserable holiday season, with comp store sales falling 16% to 17% for the first two months of the fourth quarter.
Sears announced another round of store closures, with an additional 103 locations to be closed by spring. Sears has raised $100 million in new financing and is seeking to borrow an additional $200 million from other parties. They are also actively pursuing “transactions that will generate liquidity.” Sears has a significant amount of debt coming due this year, but it’s well secured. Analysts say Sears will most likely muddle through another year without having to seek the protection of bankruptcy thanks to the deep pockets of CEO Eddie Lampert.
Ace Hardware is reportedly in preliminary talks with Kroger to create a partnership that analysts speculate would most likely feature a “store within a store” that would offer Ace’s hardware items to Kroger shoppers. Ace has been offering $150,000 to owners of stores that are less than 5,000 square feet to adopt the store-within-a-store model inside grocery or paint stores. A partnership with paint chain Benjamin Moore has already created more than 400 Ace express stores. Kroger has about 2,800 stores nationwide.
Ace won J.D. Power’s top spot in their Customer Satisfaction survey in the Home Improvement Retail Stores category. It was the eleventh consecutive year Ace won the top award in the category.
Westlake Ace Hardware is acquiring Washington-based Dennis Co., which owns five retail stores. The deal will bring Westlake’s total store count to 121 in 10 states. In November Westlake acquired Buikema’s Ace Hardware in Illinois. Westlake is the largest member of the Ace Hardware Cooperative.
W. W. Grainger
Sales for the fiscal year of 2017 were up 3% compared to 2016 and gross profit dollars were flat. Operating expenses increased 3% and operating earnings fell 8%. Results for the fourth quarter were much better than expectations, with total company sales up 7%. That was made up of an 11% increase in volume that was partially offset by a 3% decline in price. They also had a 1% decline due to specialty business divestitures in the US. Their online business continued to drive strong growth and profitability.
Sales in Canada were up 5% in US dollars and were flat in local currency. They introduced price increases in the second half of the quarter in Canada and are pleased with the response. Price was up 4% for the quarter and volume was down 4% due to price increases and branch closures. Operating expenses increased 2% in local currency as they made investments initiating the turnaround in Canada. They are in the midst of a substantial transformation of the business in Canada and are moving very quickly to reset it. They are closing unproductive branches, leveraging the US business and improving service by leveraging their distribution network in Canada and the US. They are also improving their large customer contact performance. They believe they are making strong progress on all their initiatives in Canada.
They are continuing to see strong volume in the US in response to their pricing actions and improved demand. Sales were up 5% in the US, which included 11% volume growth and price deflation of 5%. Improved pricing resonates with both mid-and large-sized customers. Volume with large customers has increased 8% compared to 2016. Both spot buying and noncontract large customers had stronger volume growth than the average for large customers in the quarter. US mid-size customers continue to exceed their expectations, with mid-size customer volume increasing 26% over 2016. For the first time in a long time they are seeing significant mid-size volume growth at attractive margins.
They continue to expect cost takeout and productivity of $90 to $120 million in the US and $50 million to $70 million in Canada.
They expect both higher sales, earnings and operating margins this year. They plan to increase their investments in digital.
Amazon named 20 finalists in the competition to be the host city for Amazon’s second US headquarters. The winners included 19 US cities and Toronto, Canada. Many of the finalists, including Dallas, Denver, Raleigh and Washington, D.C. were widely expected to be contenders. Amazon’s selection of Columbus, Indianapolis, Nashville and Miami was more unexpected. Los Angeles was the only West Coast city to make the cut. Amazon provided few details about how they picked the finalists, but according to anonymous sources the process was conducted by a team of about a dozen people within Amazon. A company that specializes in comparing communities has analyzed the cities on the short list and predicts that the winner will be Atlanta. The Wall Street Journal ranked Dallas as the best bet, and real estate research firm Reis picked New York City.
Amazon shipped more than 5 billion items worldwide through Amazon Prime in 2017. It was the first time Amazon has revealed Prime shipment numbers. Amazon also increased their fulfillment and shipping network square footage by more than 30% in 2017 and added four million Prime members. Amazon still has not released the actual number of Prime members but Consumer Intelligence Research Partners estimates Prime has about 90 million subscribers and that the average Prime member spends $1,300 annually with Amazon, compared to about $700 for customers who are not Prime members. Revenue from subscriptions increased 59% in the third quarter compared to the same period in 2016, according to Amazon. Amazon raised the monthly fee for Prime members from $10.99 to $12.99 per month, an increase of nearly 20%. They also increased the cost of a student membership from $5.49 to $6.49 per month. The cost for members who subscribe annually remained at $99.
Amazon is reportedly in talks with several consumer products companies about advertising products on Amazon’s voice-controlled Echo devices, according to CNBC, although Amazon says they have no plans to add advertising to Alexa. CNBC said that one of the tactics under consideration is letting companies target users based on past shopping behavior, for example Alexa may suggest to a shopper who bought Clorox Pine-Sol that they might want to consider Clorox disinfecting wipes.
In 2017, more than 300,000 US-based small and medium-sized businesses joined Amazon Marketplace. More than 140,000 of them surpassed $100,000 in sales on Amazon in 2017. Amazon Lending, a program launched in 2011, loaned more than $3 billion to small businesses on Amazon. Amazon Handmade expanded to encompass 10 categories offering customers more than one million handcrafted items from thousands of artisans and small business owners across all 50 states and more than 60 countries.
Amazon will open an innovation center in Shanghai as part of Shanghai’s smart city plan. Amazon Web Services (AWS) will build the Shanghai-Amazon AWS United Innovation center that will build a smart city experience and exhibition, foster professionals on big data and set up international incubators in Jing’an.
Amazon acquired advanced security threat hunting and investigating company Sqrrl, which will become part of Amazon Web Services. Terms of the deal were not disclosed.
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