Distribution May 2019

Retail Sales Rise 1.6%
Retail sales rose 1.6% in March to $514.1 billion after dropping 0.2% in February. It was the largest monthly increase in retail sales since September 2017, and well ahead of expectations. Sales were up 3.6% from March 2018. Core retail sales, which exclude food services, car dealers, building-materials stores and gasoline, rose 1.0% in March and were up 0.8% from March 2018. In March, online and other non-store sales were up 1.2% from February and 9.2% year over year and building materials and garden supply stores were up 0.3% from February but down 0.7% year over year. The National Retail Federation commented that underlying fundamentals including job and wage growth continue to support spending.
 
Lowe’s
Lowe’s is moving 600 employees to their Mooresville headquarters in the first of a two-part shift announced in early April. Lowe’s will also be cutting 200 jobs from their Charlotte shipping facility; employees will have a chance to take another job at Lowe’s elsewhere. The shift is designed to bring teams that perform similar functions together, which should support greater collaboration throughout the business. The 600 employees being relocated work in corporate function jobs. 
 
Lowe’s is teaming up with FedEx to test same-day deliveries that would be made by boxy-shaped robots starting in a few markets this summer. Lowe’s thinks that Pros could save time and money if they could get the critical tools and supplies they need delivered right to the jobsite as needed. 
 
Lowe’s is being sued by former employees over pay for managers that allegedly violates the Fair Labor Standards Act. Managers are allegedly expected to read and respond to work-related smartphone communications during their off hours.
 
CEO Marvin Ellison earned a total of $14.3 million in 2018, with more than half of his compensation coming from stock awards. According to the filling with the SEC, the median compensation of Lowe’s employees was $22,921.
 
The Home Depot
CFO Carol Tome will retire at the end of August after 24 years with the retailer. She became CFO in May of 2001. In announcing her retirement, CEO Craig Menear said that the retailer has delivered more than a 450% increase in value to shareholders, due in part to her many contributions and he was “deeply appreciative of her partnership over the past five years.”  Richard McPhail, currently senior vice president of finance control and administration, will be promoted to executive vie president and CFO following Tome’s retirement. He has been with the company in a variety of executive roles since 2005.
 
Walmart
Walmart is experimenting with AI to monitor store shelves in real time, using cameras and sensors to report when it’s time to open a new cashier line or replace bruised bananas with fresh ones. Thousands of cameras are suspended from the ceiling, combined with other technology like sensors on shelves, in order to instantly notify employees of anything that needs to be done. Walmart hopes to start scaling some of the new tech at stores outside of the test store on Long Island in the next six months, with the goal of eventually lowering costs and thus prices. As the shopping experience improves, Walmart expects to see higher sales. Cameras focus primarily on products and shelves and do not recognize faces, determine ethnicity or track the movement of shoppers. Last year Sam’s Club opened a 32,000 square foot lab store that is testing new features surrounding the Scan & Go app.  
Walmart CEO Doug McMillon has been checking out Israel’s technological innovations and weighing investment options. He has been quietly visiting the country for more than a decade. His latest visit came just a month after Walmart acquired Israeli AI startup Aspectiva, which uses artificial intelligence to analyze consumer opinions and produce valuable insights for retailers. Walmart has also made a strategic investment in Team*, an Israeli think tank and tech incubator, and recently joined The Bridge, a tech accelerator connecting global companies with the tech startup community in Israel. Walmart is also involved in Unilever’s Israeli incubator Earthbound Technologies, which also serves as Walmart’s official innovation center.
 
Walmart is partnering with Google to bring “Walmart Voice Order” to the public. Voice Order will let anyone who uses Google Assistant in any form purchase products directly from Walmart’s online shopping portal by telling the voice assistant what they want to order. Unlike Alexa, the Google Assistant is not linked directly to Walmart as a first-party shopping platform; so users have to tell Google Assistant to open up Voice Order before they can use it. It should be available for use sometime in May.
 
Walmart is now accepting applications for their 2019 Open Call for American Products. The 6th annual Open Call is scheduled for June 18 and 19 at Walmart headquarters in Bentonville, Arkansas. Last year nearly 600 meetings with product pitches from suppliers in 46 states, D.C. and Puerto Rico produced quite a line-up of new products for stores and the website. In January 2013 Walmart announced they were committed to buying an additional $250 billion in products supporting American jobs by 2023.
 
Walmart is acquiring Polymorph Labs as part of their quest to build their own advertising division. Financial details were not disclosed. Polymorph’s product developers and engineers will become part of Walmart Media Group in Walmart’s California and India offices.
 
Walmart responded to Amazon CEO Jeff Bezos’ challenge to retailers to match Amazon’s minimum wage of $15 and employee benefits package by tweeting out a challenge to Amazon to pay their taxes. Amazon paid no federal taxes on more than $11 billion in profits last year. Amazon responded by saying they have paid $2.6 billion in corporate tax while reporting $3.4 billion in tax expense over the past three years, and their profits are “modest” given retail’s highly competitive and low-margin environment.
 
Sears
Sears is integrating more of their Kenmore smart appliances with Amazon Dash replenishment. Customers can set up select smart models of Kenmore appliances to reorder supplies as soon as they are needed. The Amazon Dash program has transitioned from physical buttons to an electronic-based reorder program.
 
The Sears Shop Your Way loyalty program is one of the most rewarding in retail despite the fact that Sears has gone bankrupt.  Shoppers don’t have to pay with a Sears card and are frequently offered free cash and other incentives to shop and get cash back from Uber, Expedia and Ulta beauty. A Sears Mastercard sweetens the payouts even more. Sears says the loyalty program is great for customers and also helps Sears learn about customer shopping preference and needs. About 15 million members have redeemed rewards in the past 15 months. Sears hopes the data it is collecting will help them stay competitive.
 
Sears is suing former chairman Eddie Lampert, as well as former board members, including Treasury Secretary Steven Mnuchin, for allegedly stripping the retailer of billions of dollars as Sears collapsed into bankruptcy. The ties between Sears and Lampert’s various businesses have long been of concern to shareholders. The most recent lawsuit accuses Lampert of directing employees to create misleading documents suggesting that Sears was on the verge of reporting huge profits and mounting a big turnaround. Mnuchin and Lampert were roommates at Yale and worked together at Goldman Sachs in the 1980s. Mnuchin was an investor in Lampert’s hedge fund.
 
Ace Hardware
Ace has rolled out Buy Online, Deliver from Store as a key new feature of their enhanced website. The service is available at participating locations around the country. According to Ace’s research, 72% of US households are within 15 minutes of an Ace store. Ace locations participating offer same day, next day and standard delivery options from the local store. Ace Reward members can receive next day and standard delivery for free on in-stock orders of $50 or more. Delivery radius and pricing is determined by each participating store. Ace Reward members can now earn and redeem points online and receive instant online savings, as well as check product availability and services offered at participating Ace stores.
 
Ace was named one of America’s Most Reputable Companies for 2019 by Forbes. Ace came it at number 35 on the list for their balance of corporate responsibility and product innovations. CEO John Venhuizen says they are blessed to be in the business of serving others. The report is compiled by the Reputations Institute, which surveyed more than 167,000 individuals to determine the rankings. Companies included typically had revenues in excess of $1 billion and brand familiarity with at least 30% of the US general population.
 
W.W. Grainger
Q1 revenue rose 1.0% to $2.8 billion. Daily sales rose 3.0%. Less the effects of currency, sales were up 4.0%, and normalized for a change in accounting methods they were up 4.5%. The increase was due to a 3.0% increase in volume and a 1.5% increase in price. CEO DG Macpherson said sales were softer than expected due to weaker demand, but they still expect sales growth of 4.0% to 8.5% this year and operating margins of 12.2% to 13%.
 
Amazon
Amazon’s Q1 revenue rose 17% to $59.7 billion, beating expectations. Amazon’s cloud computing unit and growing advertising business helped to offset sluggish growth from the core online retail business. After years of plowing nearly every dollar made back into the business, Amazon has of late aimed for more modest revenue growth and consistent profits. Amazon’s head count fell by nearly 17,000 employees during the quarter, a total of 630,600 people. Amazon does expect spending to pick up again for the rest of this year.
 
Amazon Web Services (AWS) sales rose 41% to $7.7 billion and Amazon’s advertising business grew 34% after nearly doubling year over year in the prior quarter. In terms of overall dollars, the advertising business is still relatively small at $2.72 billion. Amazon is predicting revenue will grow between 13% and 20% during the second quarter.
 
Amazon will invest $800 million to make one-day free shipping the standard for Prime members instead of the current two days. Amazon has more than 100 million Prime members. Analysts say the move to one-day shipping clearly reflects the increasingly competitive retail environment. Analysts say that Amazon will have to work hard to make sure customer expectations reflect the realities of shipping. The delivery promise of one-day or two-day shipping actually refers to the number of days the product is in transit, so the shipping time begins when the carrier receives the package, not when the customer places the order. Cutting the delivery promise in half will be tough and  will require Amazon to build out infrastructure that can deliver. Shortly after Amazon’s announcement Walmart CEO Doug McMillon tweeted out “One-day free shipping without a membership fee would be groundbreaking. Stay tuned.”
 
Kohl’s will begin accepting free, unpackaged returns of Amazon purchases in all of their 1,150 stores in the continental US starting in July. Amazon is investing in Kohl’s through an Amazon affiliate, Amazon NV Investment Holdings, and has received a warrant from the SEC allowing Amazon to buy up to 1,747,441 Kohl’s shares, about 1.1% of the company.
 
According to Jeff Bezos’ annual letter to shareholders, Amazon sold nearly $300 billion worth of goods last year. It was the first time Amazon has disclosed data that enabled analysts to calculate their gross merchandise volume. eBay, the number two US player in ecommerce, sold about $95 billion in goods last year. Walmart sells more than $500 billion in merchandise each year, and China’s Alibaba Group sells more than $700 billion in goods. However, calculations show that Amazon’s growth has slowed considerably, with gross merchandise volume up about 17% last year, noticeably slower than the 24% rise in 2017 and 27% in 2016. Total ecommerce sales in the US rose 14% last year, according to figures released by the US Census Bureau. Analysts point out that it is unrealistic to expect Amazon to continue to grow like a start-up, and the larger your base volume, the more you need to increase sales in order to maintain or grow the percentage that sales increase. 
 
Amazon has acquired warehouse robotics startup Canvas Technology as part of their program to automate Amazon fulfillment centers. Canvas, based in Boulder, Colorado, builds an autonomous system that can move mobile vehicles through factories and warehouses. The startup is valued at $55 million. Amazon has said that more than 100,000 robots operate in their fulfillment centers now. Market researcher CB Insights estimates that robotic systems have allowed Amazon to cut fulfillment center operating expenses by 20%. Amazon first got into robots when they bought Kiva Systems in 2012 for $775 million.
 
Amazon Go stores will start accepting cash after coming under increasing criticism that failing to do so discriminates against low-income shoppers who do not have smartphones and access to credit lines. In March, Philadelphia became the first city in the US to ban cashless retail stores, with the law taking effect in July. New Jersey has also enacted a similar ban. Amazon is planning to aggressively roll out more Amazon Go stores. A recent survey by the FDIC found that 6.5% of households in the US were “unbanked” in 2017, meaning they had no checking or savings accounts.
 
After his much-publicized divorce from McKenzie Bezos, Amazon founder Jeff Bezos remains the richest man on earth, with a net worth of more than $110 billion. Analysts say that the divorce and settlement, which granted McKenzie $36 billion in Amazon stock, or about 4%, is unlikely to have any material affect on Amazon’s business or prospects.
 
Amazon retained the top spot on a list no one wants to be on, the most dangerous workplaces in the US. The “award” came after Amazon recorded six worker deaths across a seven-month span. It was the second consecutive year Amazon took the top spot on the list compiled by The National Council for Occupational Safety and Health (COSH). The majority of firms on the list are there because of workplace injuries, assaults, harassment and fatalities within working hours. For the first time, Facebook made the list as well. 

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