Distribution July 2017
RETAIL SALES FALL 0.3%
Retail sales fell 0.3% in May after rising 0.4% in April and were up 3.8% from May 2016. Most of the decline came from a 2.4% drop in gasoline sales as gasoline prices fell over the month. Core retail sales, which exclude auto sales, gas and building materials, and factor into GDP, were flat in May but sales for April were revised sharply upwards to 0.6% from the 0.2% first reported. Sales at building materials and garden equipment and supplies dealers were flat after rising 0.6% in April as the spring home improvement season got into gear. Sales at non-store retailers, which include internet sales as well as catalog sales, rose 0.8% in May after rising a downwardly revised 0.9% in April. Retail sales account for one-third of all consumer spending, with services making up the other two-thirds.
UPS ADDING HOLIDAY SURCHARGE
UPS will charge retailers extra fees to deliver packages during the busiest weeks before Christmas, saying that they needed to impose the surcharge to offset the additional cost of delivering the high volume of packages. Between November 19 and December 2, they will add a 27-cent charge on all ground packages sent to homes. During the big rush between December 17 and 23, UPS will also charge an additional 81 cents for next-day air and 97 cents for two-or three-day delivery. UPS daily volume swells to more than 30 million packages in the weeks before Christmas compared to 19 million on a normal day.
J.D. POWERS WINNERS
The home improvement category has seen an increase in customer satisfaction, with overall customer satisfaction increasing to 816 from 795 (on a 1,000-point scale). Ace placed first for the 11th consecutive year, with a score of 835. Menards was close behind at number two, with a score of 824 and Lowe’s came in at the number three spot with a score of 817. The study is based on responses from 2,750 customers who purchased home improvement-related products from a home improvement retailer within the previous 12 months. It was fielded in February and March of this year.
Menards and The Home Depot are being sued for allegedly deceiving the lumber-buying public. The lawsuits claim that they market lumber as 4 x 4, when the actual size is 3 1/2” x 3 1/2”. Both retailers say it is common knowledge and longstanding industry practice that the terms 2x4 and 4x4 do not describe the width or thickness of those pieces of lumber but rather are nominal designations accepted in industry standards. The suit alleges the public does not know lumber industry standards.
THE HOME DEPOT
From the Oppenheimer Consumer Conference:
THD was represented by EVP Merchandising Edward Decker. The Oppenheimer analyst leading the conference call was Brian Nagel, who is the hardlines and ecommerce analyst.
Household formation is getting back to the average of 1.2 million annually and housing turnover is starting to get back to the historical average of 4%+, or about 5 million transactions, and in general homes are appreciating about 5% annually, all of which makes people more inclined to spend money on their homes. They do not see any looming “black swan” events that would negatively impact the entire economy.
The pace of new product introductions and innovations was described as “staggering.” They have a quarterly new products book that is hundreds of pages long.
Decker described lithium-ion batteries and power tools as a category that is truly redefining an industry. They cited battery run time, brushless motors and electronics. New technologies are now extending to outdoor categories. And the cordless category is extending into vacuum cleaners, paint sprayers and pneumatic nailers.
They are continuing to work on simplifying their processes, as complex processes make it difficult for associates to move from one work area to another.
Tractor trailers now arrive flow loaded and packed floor to ceiling, which has allowed them to cut down on the number of trucks needed to deliver product. They also use maps for each delivery that shows receiving how to lay out the department and efficiently deliver the products to the shelves. Better on-shelf availability improves customer satisfaction and reduces inefficiency. Suppliers participate in the savings from these programs.
The Interline integration is going well. They focus on multifamily housing, institutional housing, hotels, dorms, etc., so the product categories are similar but the purchase occasion is different. There is more bulk packaging of things that consumers or even contractors buy individually. The Interline capabilities also let them respond to Pro emergencies much more quickly.
They are very Pro oriented, with the Pro business penetrating 40% of their sales. Now Pros can just use the app to order what they want, and the runner simply has to pick it up at the Pro desk instead of run through the store trying to find everything.
They are now able to offer delivery windows that can narrow down the time in which an order will be delivered to as small as a two-hour window. Ordering with a two-hour window costs more than if the customer has an all-day window, but many customers appreciate the ability to pinpoint a delivery time.
The long recession and slow recovery have created a backlog of jobs that need to be done at the average home, and the consumer is now willing to tackle all those maintenance, repair and improvement jobs they've been putting off.
A huge mill renovation in Lowe’s home town of Mooresville is creating an opportunity for Lowe’s suppliers’ to have offices and showrooms about five minutes from corporate headquarters. So far suppliers have leased about 100,000 square feet of the 1.1-million-square-foot Merino Mill project. Greenworks Tools is currently the largest supplier with quarters in the mill. Hitachi power tools plans to open a 4,000-square-foot office and showroom.
Lowe’s is cutting 125 IT jobs, mostly from their Mooresville headquarters, and sending many of those jobs to Lowe’s operations in India. Lowe’s has about 1,000 employees in Bangalore, India. Lowe’s laid off 2,400 employees in January at the store level and another 525 from corporate offices in February.
About 14,000 people attended Walmart’s annual shareholders’ meeting in Arkansas. News reports say the mood at the meeting was upbeat and CEO Doug McMillon focused on all the changes and innovations and investments in people as well as technology that Walmart has instituted to be more competitive and take a bigger share of the digital world. Country mega-star Blake Shelton served as host, with Gwen Stefani, Mary J. Blige and The Band Perry among those providing entertainment.
Walmart is testing a new type of delivery service utilizing Walmart employees to drop off packages on their way home. The service has been in a quiet test since April in two stores in New Jersey and one in Arkansas. Packages go from Walmart fulfillment centers to the stores where employees can volunteer to deliver them. An app enables staffers to say how many packages they can drop off, how heavy and large they can be and when they can make deliveries. Walmart wouldn’t say how much extra cash employees earn for dropping off packages, but they did say that the program is shaving time off their two-day delivery promise. No word on whether they will expand the service to other stores.
Walmart is telling some tech companies that if they want Walmart’s business they can’t run applications for Walmart on Amazon Web Services (AWS). Walmart keeps most of its data on its own services and uses services from emerging AWS competitors such as Microsoft’s Azure. Reportedly other large retailers have also requested that service providers not use AWS for their data. AWS had $3.66 billion in net sales in the first quarter, which accounted for just 10% of Amazon’s revenue but a full 89% of overall operating income.
Walmart acquired menswear online retailer Bonobos for $310 million. The purchase of the upscale menswear retailer is another example of Walmart’s attempts to grow their customer base into niche areas where Walmart stores are not strong. Bonobos CEO Andy Dunn, who is joining Walmart’s digital team, said he was very concerned that Bonobos customers would be turned off by the association with Walmart, but that thus far it has not affected their new customer acquisition growth.
Sears and One World Technologies, a China-based subsidiary of Techtronic Industries, have reportedly resolved their public feud. However, Sears filed another lawsuit against another Craftsman supplier, alleging that Western Forge abruptly ended the relationship they have had with Sears for more than fifty years and refused to resume it unless terms were changed to what Sears called “onerous.” Their contract was up the end of April, but reportedly Western Forge led Sears to believe that their agreement would be extended. Western Force was acquired by Ideal Industries in 2010. Sears is asking the court to force Ideal to continue to provide the products they manufacture for six months, or through the end of October.
Sears will cut 400 full-time jobs at their headquarters in Illinois and close another 92 Sears and Kmart stores as part of their plan to save $1.25 billion in costs annually. The closings will bring Sears' store count to about 1,180, down from 2,073 five years ago.
Sears Canada filed for bankruptcy in late June. According to the filing, Sears plan to restructure its debts, not to liquidate. Sears Canada is also closing a quarter of its stores, about 59 locations, as part of a court-ordered restructuring. Sears Holdings owns about 12% of Sears Canada’s shares; Sears CEO Eddie Lampert owns 45%. Sears Canada hired the same leading bankruptcy and insolvency advisory firm that represented Target Canada.
Sears opened a freestanding store concept dedicated to two of their strongest categories: Appliances and Mattresses. The Sears Appliances & Mattresses store that opened in Pharr, Texas, is patterned after and expands on the basic concept of the Sears Appliance store that opened in Fort Collins, Colorado last year and has reportedly surpassed projections. The new 20,000 square-foot store includes kitchen vignettes plus a full-scale kitchen with a 122-inch interactive digital display. Using a tablet, shoppers can select common kitchen layouts and appliances and then choose colors and finishes.
John Sommers is Ace’s new VP Merchandising. Sommers is a 23-year veteran of The Home Depot and was most recently VP Merchandising. He’s replacing Frank Carrol, who left Ace to become CEO at Broan-NuTone in May.
Lisa Doyle, former VP Learning and Development at Lowe’s, is the new head of Retail Training for Ace. In 2011, she was named Chief Learning Officer of the Year by CLO Magazine.
Grainger launched a new website, gamut.com. It’s designed to provide useful information to industrial professionals looking for time-saving solutions for challenging projects. Gamut.com uses a proprietary information system that manages and organizes a comprehensive list of product attributes, application-specific imagery and rich, technical data. A search produces curated results that help customers quickly find and purchase the products they need to get the job done right. Gamut.com offers more than 400,000 products in 32 categories. Grainger plans to add additional products from stocked inventory over time. Gamut is designed to be used during specific and important buying occasions. Gamut.com orders of $99 or more ship free, with most shipping the same day and frequently arriving within 24 hours. In 2016 more than 60% of Grainger’s orders originated via digital channels.
Amazon set the newswires on fire when they announced they were acquiring Whole Foods Market for $13.7 billion. News analysts say that we are in the midst of an evolution in retail, and this is definitely a shot across the bow in the growing war for the consumer’s wallet between Amazon and Walmart. The acquisition would immediately give Amazon 450 stores nationwide with upscale customers who reportedly can be assumed to already be Amazon shoppers, with many Amazon Prime members included. Both Amazon and Whole Foods said that they have no intention of changing the quality standards that people expect from Whole Foods, and that they hope to make Whole Foods as customer-centric as Amazon is as well as improve Whole Foods’ use of technology. According to Whole Foods CEO John Mackey the entire deal from introduction to agreement took just six weeks.
Amazon recently opened a flagship bookstore in a New York City mall at a location that used to be a Borders bookstore. According to the New York Times, Amazon has plans to open six more stores this year. Amazon Prime customers can use their smartphones to purchase products; others can use a credit card or debit card, but cash is not accepted.
Amazon will cut Prime membership prices for three groups of people receiving government assistance, in what analysts say is a bid to go after Walmart’s core customer base. Reportedly about 20% of the U.S. population receives government assistance. Those people will be offered a Prime membership for $5.99 a month, less than the normal $10.99 a month or $99 annual plan.
Amazon is also offering shoppers another reason to sign up for Prime. The new program, called Amazon Prime Reload, allows members to earn a 2% bonus every time they reload their Amazon gift card balance with cash from their checking account. The bonus is given in the form of rewards that can be used to make purchases on Amazon. The program lets Amazon avoid credit card fees and adds an additional incentive for people to sign up for Prime membership.
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