Distribution August 2017
Retail Sales Fall 0.2%
Retail sales fell 0.2% in June after dropping 0.3% in May. It was the first back-to-back sales decline since last July and August. Overall retail sales for the first six months were up 3.9% compared to the first six months of 2016. Much of the decline came from dropping gasoline sales, but grocery, restaurants and department store sales were also down. Core retail sales, which exclude auto sales, gas and building materials, and factor into GDP, fell 0.1% in June after being flat in May. Sales at building materials and garden equipment and supplies dealers rose 0.5% in June after declining a downwardly revised 0.6% in May. Sales at non-store retailers, which include internet sales as well as catalog sales, rose 0.4% in June after rising 0.8% in May and were up 9.2% year over year. Retail sales account for one-third of all consumer spending, with services making up the other two-thirds.
Favorite Home Improvement retailers
Ace Hardware earned the top spot with a composite loyalty score of 63% in a recent study by Market Force Information that polled more than 7,800 consumers. Menards ranked second with a score of 63%, followed by Lowe’s (55%) and The Home Depot (51%). In order to be included in the category, a traditional home improvement brand must have been selected by 100 or more respondents representing 2% or more of the total. Based on that criteria, only Ace, Menards, Lowe’s and The Home Depot qualified. Market Force also looked at how the top brands fared in operational and product attributes that matter most to consumers. Ace Hardware ranked first in most categories, with particularly strong marks for ease of finding merchandise, staff service and knowledge and speedy checkouts. Menards scored highest for merchandise variety and value. Lowe’s earned the top spot for parking availability. The Home Depot ranked last in all service categories, as well as in cleanliness and value. The research revealed that 60% of respondents considered themselves DIY Enthusiasts, who purchased the materials and products themselves and completed their own home improvement projects. Approximately 22% fell into the “do it for me” group that purchases materials and products but outsources labor. Other findings:
Most Popular App: Home Depot, with 45% using it, followed by Lowe’s, Walmart, Ikea and Menards. Apps were used by 18% of consumers. Almost all (93%) users said the app was helpful.
Loyalty Programs: one-fifth reported participating in a loyalty program, with Ace’s program the most popular, with 67% participation. Lowe’s was second, (21%), followed by Menards (11%) and The Home Depot (8%).
Credit cards: Nineteen percent had a home improvement store-branded credit card, with Lowe’s (25%) the most popular, followed by The Home Depot (21%), Menards (7%) and Ace (3%).
The Home Depot
THD will acquire Compact Power Equipment for $265 million. Compact Power, a Home Depot commercial partner, has provided compact equipment rentals at more than 1,000 North American Home Depot locations since 2009 Home Depot is also an equipment maintenance customer of Compact Power. Craig Menear, CEO of THD, said that the acquisition would enable them to offer Pros enhanced equipment and tool rentals. Pros account for about 40% of The Home Depot’s sales. The deal is expected to close during the fiscal second quarter, which ends July 31.
Lowe’s recently announced completion of their $512 million acquisition of Maintenance Supply Headquarters will strengthen their appeal to Pros and make them more competitive with rival The Home Depot, according to a recent analysis in Forbes magazine. MSH is a leading distributor of maintenance, repair, and operations products to the multifamily housing industry. MSH operates in 29 geographic areas through 13 distribution centers and offers more than 5,300 products and value added services for maintaining multifamily housing properties.
Retail stocks took a beating after Amazon announced it was acquiring Whole Foods. But analysts upgraded Walmart, saying they are well positioned to handle increased technology and ecommerce spending as well as handle Amazon’s push into groceries and other consumables. Goldman Sachs analyst Matt Fassler said that Walmart has visibly improved in-store execution, tightened inventory and kept pace with retail momentum after years of lagging behind.
Walmart proposed 10 policy actions to boost U.S. manufacturing and help recapture $300 billion of the $650 billion in consumer goods currently imported. WM said barriers to manufacturing growth include a lack of available and qualified workers and financing to support U.S. manufacturers, complex regulations that create high compliance costs and legal risks and the need for an overhaul of the U.S. tax system and trade deals. Walmart’s proposals include building vocational training programs, reducing costs for private industry to train workers, rebranding U.S. manufacturing to attract workers and drive demand for domestic products, encouraging component production to close supply chain gaps and promoting manufacturing clusters through public-private cooperation. Other proposals include eliminating federal overlap in manufacturing regulations, creating flexible compliance requirements for small business, creating a globally competitive tax environment and expanding tax deductions to foster manufacturing investments.
Sears announced they will start selling Kenmore home appliances on Amazon and integrate the brand’s smart gadgets with Amazon’s Alexa digital assistant. While investors applauded the move, retail analysts said it was another blow for struggling Sears retail stores as well as the newly launched Sears Appliance and Mattress stores.
Rumors are flying that a buyer or buyers is interested in Sears Canada, which filed for bankruptcy June 22 and has until October 25 to complete all transactions. The short time frame suggests that an outside investors’ group may be interested, according to analysts. While Amazon has been suggested as a potential suitor, retail analysts say that too much of Sears’ portfolio would not appeal to Amazon, and acquiring Sears Canada for their distribution network would be logistically complex. More than 20 potential bidders have reportedly expressed interest. Sears Canada’s two largest shareholders are Sears CEO Eddie Lampert and hedge fund manager Bruce Berkowitz.
Ace Hardware announced its Extra Mile Promise, a guarantee that Ace has the expert advice and supplies needed to help consumers successfully tackle any paint project with just one trip to the store. Ace is promising free delivery to customers who need more supplies to finish their paint project than are in stock. CEO John Venhuizen said that there is a misperception that Ace stores don’t have a full range of products and consumers might have to go elsewhere to get everything they needed. The Extra Mile Promise comes after the J.D. Power 2017 U.S. Home Improvement Retailer Satisfaction Study ranked Ace highest in customer satisfaction for the 11th consecutive year.
True Value is considering a sale and exploring strategic options, according to numerous news reports. Bloomberg says that they could be valued at $800 million. Several private equity firms are purported to be involved. True Value, headed up by CEO John Hartman, is doing well, with revenue of $1.51 billion in 2016, up more than 1% from 2015.
Q2 sales rose 2% to $2.6 billion, in line with expectations. Sales were driven by an increase of 7% from volume, partially offset by declines of 3% in price, 1% from foreign exchange and 1% from the timing of the Easter holiday.
Sales for the U.S. rose 1%, driven by a 5% increase in volume and a 1% increase in intercompany sales, partially offset by a 4% drop in price and a 1% decline from the timing of the Easter holiday. Sales to customers in the Retail and Natural Resources end markets were the top performers in the quarter.
Sales for the Canada segment dropped 3% in U.S. dollars and rose 2% in local currency. The 2% increase consisted of a 2% growth in volume and a 2% benefit from the favorable comparison related to the Alberta wildfires in 2016, partially offset by a 1% decline from lower price and a 1% decline from the timing of the Easter holiday.
Grainger confirmed their 2017 sales growth estimate of 1% to 4% growth.
Senior Vice President and CFO Ron Jadin will be retiring at the end of the year. He’s been with Grainger since 1998 and has been CFO since 2008. Grainger is launching an external search for a successor.
Q2 net sales rose 24.8% to $37.96 billion. Excluding the $502 million unfavorable impact from year-over-year changes in foreign currency exchange rates throughout the quarter, net sales increased 26% compared to the second quarter of 2016. Amazon expects third quarter growth between 20% and 28%.
Amazon’s third annual Prime Day event was the biggest day ever for Amazon, with sales easily surpassing Black Friday and Cyber Monday. The most popular purchase over the 30-hour event was Amazon’s Echo Dot mini-speaker, which was 30% off. The larger device, Echo, was also very popular, as were Fire tablets and Kindle e-book readers. Amazon reportedly looks at Echo and Echo dot as ways to get a toehold for their Alexa automated voice assistant to become more connected to shoppers, who can use it to buy more from Amazon, among many other things.
As is typical, Prime Day also produced a bumper crop of new Prime Members who pay $99 a year for free two-day shipping as well as music and video streaming. According to Amazon, 50% more Prime members made purchases on Prime Day than did so last year. In addition, small independent merchants sold 40 million items during Prime Day, twice as many as last year.
According to PC Magazine, the number of Amazon Prime members has increased 35% in the past year, from 63 million U.S. members at the end of June 2016 to 85 million today. Consumer Intelligence Research Partners (CIRP), estimates that 63% of U.S.-based Amazon customers are currently Prime members. The Prime free-shipping promise breaks down one of the primary barriers to ordering online, as there is no minimum purchase required.
Amazon is reportedly ramping up efforts to introduce a rival to Best Buy’s Geek Squad. Amazon has hired teams over the past several months to help customers set up smart-home products. Services include free Alexa consultations and smart-home product installation inside customers’ homes (for a fee). Services are currently available in seven West Coast markets: Seattle, Portland, San Francisco, San Diego, Los Angeles, San Jose and Orange County. A preferred qualification is work experience with Best Buy’s Geek Squad. Lack of experience and know-how on the part of consumers is one of the biggest barriers to the growth of the smart-home product segment.
Amazon and Dish Network are reportedly in serious discussions, although neither company will comment. Amazon CEO Jeff Bezos and Dish CEO Charlie Ergen have spent a lot of time together over the past year, and Dish spent $6.2 billion dollars on wireless airwaves in April, leading to speculation they were working towards a merger with a wireless carrier. However, the Bezos and Ergen discussions could indicate there is potential for Dish to use their airwaves to provide support for Amazon’s Internet of Things (IoT) services and devices, as well as partner on drone deliveries and stream Prime TV on Dish. Dish is legally required to build at least a bare bones network in order to comply with the government deadline of March 2020 for utilizing their airwaves.
Amazon will host what they called the nation’s largest job fair in early August, opening 10 fulfillment centers across the U.S. for candidates to tour, learn about working at Amazon and see the jobs in person. Amazon has more than 50,000 jobs to fill across the U.S. for their fulfillment network. They are promising highly competitive wages, good benefits and the chance to go back to school through Amazon’s Career Choice program.
Mike George retired as Amazon’s vice president of Echo and Alexa. He’d been with Amazon more than 20 years. Tom Taylor will take over as vice president. He’s been with Amazon for 17 years, most recently as a senior vice president in charge of Amazon Payments and Fulfillment by Amazon. Alexa is one of Amazon’s fastest-growing businesses. Amazon sold seven times as many Echo devices on the most recent Prime Day as it did last year.
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