RETAIL SALES RISE 0.8%
Retail sales rose a very strong 0.8% in October after rising 0.6% in September and were up 2.2% year-over-year. Online retail sales rose 1.5% in October after rising an upwardly revised 0.3% in September and were up 10% from October 2015. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose 0.9% in October after rising an upwardly revised 1% in September and were up 4.3% from October 2015. Core retail sales correspond most closely with the consumer spending component of GDP. Sales at building material, garden equipment and supplies dealers were up 1.1% in October after rising 1.4% in September. Results exceeded economists’ expectations and pointed to sustained economic strength. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
THANKSGIVING WEEKEND SALES RECAP
Average spending per person over Thanksgiving weekend totaled $289.19, down from $299.60 last year, according to a survey conducted by the National Retail Federation. They found that 154 million people made purchases over the extended holiday weekend, up from 151 million a year ago. About 44% shopped online and 40% shopped in stores.
Of those who shopped in stores, 75% shopped on Black Friday, up 3.4% from last year, 40% on Saturday, 35% on Thanksgiving and 17% on Sunday. The survey found that 29% of shoppers headed out after 10 a.m. on Black Friday, up from 24% last year. Less than 15% of consumers arrived to the stores by 6 a.m. or earlier on Black Friday. Early Thanksgiving Day in-store shopping dropped by 19% with only 7% of consumers heading to stores before 5 p.m., although overall shopping on Thanksgiving was up 1%. Only 9% of consumers had finished their holiday shopping by the end of the weekend, down from 11% last year. And 23% had not even started shopping by the end of the weekend, up from 19% last year.
ONLINE SPENDING SURGES
The most popular day to shop online over the long Thanksgiving weekend was Black Friday, up 1.3% from last year to 74%, followed by Saturday (49%), Thanksgiving (36%), and Sunday (34%). Technology played a big part in holiday shopping, with 56% of smartphone owners and 53% of tablet owners using their devices to assist with weekend shopping activities.
According to Adobe Digital Insights, total online spending for both Thanksgiving and Black Friday hit $5.27 billion, a 17.7% increase over last year. Black Friday online spending surged 21.6% year-over-year to $3.34 billion, surpassing the $3 billion mark for the first time. Consumers spent $1.93 billion on Thanksgiving Day, 11.5% more than in 2015, with an average order value of $160, down slightly from $162 in 2015. Mobile accounted for 57% of visits and 40% of sales ($771 million). Smartphones drove twice as many sales as tablets, at 27% and 13%, respectively. Mobile shopping on Black Friday was up 33% from last year to more than $1.2 billion. Mobile drove the majority of visits to retail websites on Black Friday at 55% (45% coming from smartphones, 10% from tablets), and accounted for 36% of sales (25% smartphones, 11% tablets). Retailers saw an increase in sales coming through shopper helper sites like RetailMeNot and CNET (16.5% share of sales), email (17.8%), display (1.2%) and social (0.9%). Traffic coming from search ads (38.3%) decreased by 4.3% from holiday averages while direct traffic (25.3%) decreased by 9.6%, although both remained the largest contributors to overall sales.
CYBER MONDAY MAKES HISTORY
Shoppers spent $3.45 billion on Cyber Monday, making it the largest online sales day in U.S. history, according to data compiled by Adobe Digital Insights. Cyber Monday sales jumped 12.1% year-over-year and surpassed initial expectations that called for total sales of $3.36 billion. Sales allayed fears that strong web sales during the Thanksgiving weekend would hurt sales on Cyber Monday, historically the busiest day of the year for internet shopping.
PILOTS ORDERED BACK TO WORK
About 250 pilots for Amazon Air Transport went on strike two days before Thanksgiving, threatening to disrupt Amazon holiday order delivery. However, a federal judge ordered the pilots back to work the day before Thanksgiving. Analysts say that Amazon has spread its deliveries among several carriers in order to minimize problems and has also tried to reduce its dependence on UPS and FedEx.
NATIONAL RETAIL FEDERATION FORECAST
The National Retail Federation (NRF) forecast that retail sales will rise 3.6% overall in November and December to $655.8 billion, which would be a big improvement over the 2.5% average growth over the 10-year period, and slightly better than the 3.4% average in the last seven years since the country emerged from recession. The biggest increases would be in online sellers, with the NRF projecting that non-store sales will increase between 7% and 10%, to $117 billion.
THE HOME DEPOT
Q3 sales rose 6.1% to $23.2 billion. Comp sales rose 5.5% and were up 5.9% in the U.S. CEO Craig Menear said sales growth was driven by increases in both ticket and transactions. Online sales grew more than 17% to 5.6% of overall sales. THD expects sales for the year to rise 6.3%, with comparable store sales rising 4.9%. THD also raised their guidance for earnings per share.
From their Q3 Conference Call with Analysts:
All three divisions posted positive comp sales, led by the Southern division. All regions posted positive comps except for one region in New England where they had a small negative comp due primarily to a state sales tax holiday in fiscal 2015 that did not repeat in 2016. For 2016 they expect sales to grow 6.3% and comp sales to rise 4.9% assuming no changes in foreign currency exchange rates. They saw strength across the store, balanced between Pro and DIY customers.
Q3 marked the anniversary of their $1.6 billion acquisition of Interline Brands, a major player in the maintenance, repair and operations (MRO) market for hospitality, institutional and multifamily.
They believe their total market opportunity is about $550 billion. They think they have about 15% of the MRO market overall, and about a 27% to 28% share of the DIY market and about 10% to 12% of the Pro market.
Total comp transactions increased to 2.4% and comp average ticket grew 3.1%. Lumber, tools, outdoor garden, indoor garden, lighting, décor and flooring were above average comps. Average ticket increase was slightly impacted by commodity price inflation from lumber and building materials, and average ticket growth was impacted by a weaker Mexican peso.
Big ticket sales over $900, which represent about 20% of U.S. sales, were up 11.3%, with the big drivers being appliances, flooring and roofing. Pro sales grew faster than their average comp. They also saw strength in DIY sales as customers tackled projects around the house, with especially strong comps in tool storage, laminate flooring and vanities. Services and appliances also helped grow big ticket sales.
Their tool business in particular continues to accelerate and they are taking meaningful share in the tools market.
They estimate the impact of storm-related sales in the quarter at $100 million due to areas impacted by Hurricane Matthew and flooding in Louisiana.
Their annual Halloween, Harvest and Labor Day events were a huge success and increased both traffic in stores and volume online. They saw robust comps in decorative holiday, appliances and power tools. Their promotional activities are almost identical to last year.
They rolled out an updated website during the quarter and redesigned their app, both with no disruption of service. They are already seeing better overall site performance.
Product innovation remains a key part of their strategy, and they introduced two breakthroughs for professionals, a 9 amp-hour lithium battery from Milwaukee and an 18-volt sub-compact drill and impact driver from Makita. Both of the products are exclusive to Home Depot.
At the end of the quarter merchandise inventories were up $746 million to $13.2 billion. Inventory turns were five times, flat to third quarter 2015. Their in-stock rates are a tick higher than Q3 last year, right where they want them to be, and clearance is at the lowest level in 21 years.
They are still assorting the appropriate products to house in their three direct fulfillment centers (DFCs) in the U.S., but having a distribution infrastructure in place has let them ship online orders faster. More than 40% of online sales are picked up in store.
They began the rollout of Sync in their Northern division and are continuing to bring on new suppliers in the Southern and Western divisions. The Sync program will be a multi-year, multi-phased endeavor, but they are pleased with their progress.
Changing customer expectations mean they need to simplify operations in order to improve productivity and the customer experience. Reducing the time and “footsteps” needed to move freight within the DC or from truck to shelf will let them reallocate associate time and improve customer experience.
In the 1,600 plus stores where Home Depot has Buy Online, Deliver from Store (BODFS) in place stores are exceeding their target and they have seen double-digit increases in the number of deliveries.
They have more than 900,000 Pros who hold a private label credit card with them. They’ve converted more than 20% of them to their new value product. Of those, 64% are activating the new value proposition.
Q3 sales rose 9.6% to $15.74 billion. Comp sales rose 2.7%. Sales missed analysts’ expectations. Lowe's cut their full-year forecast and now expects sales to grow 9% to 10% for the full year and comp sales to increase 3% to 4%. Lowe’s had previously forecast sales growth of about 10% and comp sales growth of about 4%.
From their Q3 Conference Call with Analysts:
Results were below Lowe’s expectations, as well as below analysts’ expectations. Traffic slowed more than they anticipated in August and September before improving in October. CEO Robert Niblock said the quarter was challenging.
Their sales increase of 9.6% was driven by sales growth from RONA, which accounted for 6.3% of growth. New stores contributed approximately 60 basis points of sales growth. Comp sales growth of 2.7% was driven by an average ticket increase of 2.2% and transaction growth of 0.5%.
Q3 includes a full quarter of RONA’s financial results. Rona will be included in comp sales calculations after the second quarter of 2017, which marks the one-year anniversary of the acquisition.
They had positive comps in 10 of 13 product categories, and saw strength in big ticket purchases driven by outdoor power equipment and appliances. There was strong demand from Pro customers in lumber and building materials, tools and hardware. Lawn and garden also performed well. Comps for the South and West were in line with expectations, but they saw continued softness in their Northern division throughout the quarter.
Their project specialist interiors program was strong, with growth in both leads and comps.
They re-launched Lowes.com during the second quarter and provided an upgraded online shopping experience with optimized functionality in display for touch-screen devices, improved product and content recommendations, refined search algorithms, larger product images and expanded product views including video.
Lowes.com posted 20% comp growth, driven by robust growth in both transactions and tickets after their website redesign in the second quarter.
Their seasonal display strategy of allocating a large amount of space to seasonally important categories has been very successful, with sales of Halloween products up 65% from last year. That space has now been allocated to holiday décor.
The Louisiana floods and Hurricane Matthew drove broad-based demand across many categories. Historically, major storms have four phases: preparation, impact, clean up and recovery. The third quarter encompassed only preparation and some initial clean up from Hurricane Matthew. They expect recovery to begin this quarter and extend into 2017.
Pro continues to outperform DIY and they remain focused on deepening their relationship with Pros and offering Pros the products they need and want.
They are strengthening their overall portfolio of pro-focused brands and adding inventory to better serve pro customers.
They are very pleased with their more than 200 Pro sales representatives in the field , and saw double-digit growth in Account Executive Pro Services (AEP) sales during the quarter which contributed to strong Pro comp growth.
They are looking at a variety of ways overall to improve productivity, and have abandoned some technology-based initiatives in order to focus on the critical few that have the potential to really improve the business.
They tested several initiatives during the quarter, including new store opening density, new market penetration approaches and atypical prototypes to allow for more metro market penetration. Learnings from the tests will shape how they move forward.
Inventory increased 5.3% or $556 million, to $11 billion. The increase in inventory relates to the addition of RONA. Inventory turns were up four basis points to 3.89.
They believe they can drive sales and traffic into stores by continuing to look at their marketing message, the promotional cadence they use and the mix of media they are using. They are also undertaking a comprehensive review about how they are allocating their spending to make sure they are investing in areas that resonate with consumers and help drive better productivity.
Their merchants have done a great job working with their vendor partners on cost of goods and remixing their promotional strategy to be more in line with what consumers want.
They want to focus spending on digital platforms so they can be more nimble in shifting messaging and adjusting to weather or traffic dynamics as they unfold.
They are encouraged by the first six months of working together with the RONA team and feel that integration is on track. The teams are identifying new areas of synergy and joint operations they might not have planned on prior to the acquisition.
Lowe’s is building on a popular promotion tactic used by Menard’s, their 11% rebate offer. In some markets, Lowe’s customers who make a purchase for any amount will get a coupon printed on their receipt good for 11% off at a future visit before December 31. Menards frequently runs their popular 11% rebate offers, but fulfillment requires mailing in a form and your receipt and waiting six to eight weeks to get a gift card. Neither Lowe’s nor Menards wanted to comment, but a spokesperson for The Home Depot said they generally match discounts from competitors, including Menards’ 11% rebate when it is offered. Analyst point out that Lowe’s program is not really a rebate; it’s a discount on a future purchase, a device designed to increase repeat customer traffic. Florida chain Beall’s Department stores uses a popular in-store program called Beall’s Bucks; during these promotions shopper receipts show a percentage of their purchase as Beall’s Bucks, which can literally be used as cash on a future purchase made sometime in the next few weeks or month. Promotional Marketing Insights says that studies show that fewer than half of the people who intend to send in a rebate form actually do so, and of those who do, 20% of them don’t actually cash their check.
Q3 revenue rose 0.7% to $118.2 billion, below analysts’ expectations of $118.69 billion. Comp sales in U.S. stores rose 1.2%, the ninth consecutive quarter of increase in comp store sales. Traffic rose 0.7%. Ecommerce sales added 0.5% to comp store sales. Net sales at Walmart International fell 4.8% to $28.4 billion. Excluding currency impacts, net sales increased 2.4% to $30.5 billion. Global ecommerce sales increased 20.6%.
Walmart is investing heavily in response to Amazon’s ambitious growth plans, and will add more than 1,000 online grocery pickup locations at store by the end of the year.
Walmart has slowed the pace of new store openings, opting to invest in improving the performance of existing stores.
Several ecommerce execs are leaving Walmart’s operations now that Jet.com founder and CEO Marc Lore has taken over ecommerce operations. Departures include Fernando Madeira, head of Walmart.com, Dianne Mills, senior vice president of global ecommerce human resources and Brent Beabout, senior vice president of the ecommerce supply chain. Beaubout will be succeeded by Jet.com co-founder Nate Faust, who will take over fulfillment operations of both Jet.com and Walmart.com. Helen Vaid, vice president of digital store operations for Walmart’s ecommerce, left in September to become chief customer officer for Pizza Hut. Inside sources said her departure was not related to the Jet.com deal. The departure is a signal that Walmart’s ecommerce operations are going to get a drastic makeover.
Walmart is deploying what they referred to as an army of Holiday Helpers to improve customer service. They’re also going all out to attract customers, offering more than 150,000 product demos, 23,000 visits from Santa and transforming stores into “Winter Wonderlands.” Walmart dramatically increased the number of products available through their buy online, pickup in store service, and added pickup staff and dedicated pickup managers for all stores. They said that during the holidays their pickup center is five times busier than normal. They’ve also rolled back prices on thousands of items.
Walmart opened a training academy in Tennessee to develop skills for their hourly supervisors and department managers. The training academies help provide associates with the skills they need to succeed, advance and create a better and more consistent customer experience. Walmart plans to open 200 academies by the end of next year that will train more than 14,000 employees each year.
Sears offered Craftsman tools at big discounts online only for Cyber Monday, but actually started the sale at midnight on Sunday.
Sears is reportedly getting serious about shopping some of its brands, including Craftsman, DieHard and Kenmore. No factories will change hands if and when Craftsman is sold because all Craftsman tools are produced by outside manufacturers. Stanley, Black & Decker, TTI, Apex Tool Group and Husqvarna are all reportedly interested.
Menards is entering the Kansas City market, opening two stores in the Kansas City metro. Four years ago Menards announced they planned to open as many as six stores in the Kansas City area. Forbes ranks Menards No. 37 on the list of the largest private companies in the U.S.
Daily sales were flat in October compared to October 2015, driven by a 1% increase in volume offset by a 1% decline in price. Daily sales in the U.S. were down 1%. Daily sales in Canada were down 13% in local currency and 15% in U.S. dollars.
For the 2016 fourth quarter Grainger expects sales to increase 1% to 3%. For the full year 2016, Grainger reaffirmed previous guidance of sales growth of 1.5% to 2.5%.For the full year 2017, they expect sales growth of 2% to 6%.
Amazon called the stretch from Thanksgiving Day to Cyber Monday the “Turkey 5.” By mid-morning on November 25 Amazon reported that mobile orders for the day had already surpassed the number of mobile orders on both Thanksgiving Day and on Cyber Monday in 2015.
Amazon opened their Black Friday Deals store at midnight on November 1. Amazon promises tens of thousands of deals, with new ones coming as often as every five minutes. The Black Friday shop will be open through December 22. Amazon also updated their mobile apps to allow for easier shopping, even when the customer is in a physical store. People can now use their phone’s camera to do a visual search for an item within the Amazon app. A new feature called Package X-Ray was debuted in mid-November that allows iPhone users to peek inside a box without opening it; just scan the barcode. Amazon Echo’s Alexa will have access to other exclusive deals, and will also offer exclusive deals to Amazon Prime members.
Amazon Prime has reportedly grown to 49.5 million members, according to new third-party data from Cowen & Company. Amazon does not disclose the number of Prime members, so Cowen based its estimate on a panel of 2,500 U.S. consumers. Last year Cowen estimated there were 40 million Prime members using the same methodology. Some other data includes the fact that 83% of Prime members purchased an item from Amazon in October compared to 49% of U.S. consumers who don’t have Prime. The number of people purchasing groceries and consumables rose 12% from last year; people making that same type of purchase at Walmart fell 2%.
Amazon has increased their warehouse square footage by 30% this year, but is trying to incentivize the millions of merchants who rely on Amazon to fulfill their online orders not to stock up on items that aren’t expected to sell before the end of the year, like Valentine’s and Easter merchandise. To that end, Amazon is charging sellers a premium for storing merchandise in their warehouses during November and December, which is partly offset by lower fees for fulfilling orders. Amazon has also temporarily stopped accepting shipments from new sellers. Amazon reports that about a quarter of the merchandise sold on Amazon.com is part of the fulfillment program, which charges storage fees based on volume. The temporary increase in storage fees is one of Amazon’s first experiments with surge pricing, or charging more for goods and services when demand is highest.
Amazon Home has expanded to 20 metro areas nationwide. The service, which launched in 2015, connects customers with plumbers, carpenters, installers and other trades. Customers can read reviews and schedule services online that are backed by Amazon’s Happiness Guarantee. Amazon says they handpick the service providers who are authorized to participate and they must go through business and criminal background checks, maintain trade licenses and have insurance on file with Amazon.
Non-Prime members now pay more for books at Amazon’s physical bookstores, where Prime members get discounts and non-members don’t. Amazon is using the discount as a way to attract more Prime members; customers can sign up for a 30-day Prime trial at checkout. Amazon devices such as Fire tablets are the same price for everyone.
Amazon is testing a part-time team initiative pilot program, which allows entire teams to work 30-hour weeks for 75% of salary and full benefits. Amazon says the program is designed to help them recruit and retain skilled tech workers and also to diversify the company’s employee base. Current employees can apply to transfer to one of the three teams now being formed.
Amazon has hired U.S. army veteran Ardine Williams to be one of their lead recruiters for their fast-growing computing unit, with an emphasis on recruiting veterans. Amazon says they’ve hired more than 10,000 veterans in the past five years and has pledged to hire more than 25,000 veterans and military spouses in the next five years.
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