Distribution April 2017

4/14/2017

RETAIL SALES RISE 0.1%

Retail sales rose 0.1% in February after rising an upwardly revised 0.6% in January and were up 5.6% over the past 12 months. Core retail sales, which exclude auto sales, gas and building materials, rose 0.1% in February after rising an upwardly revised 0.8% in January. Building materials sales were up 1.8% after rising an upwardly revised 1.2% in January. Sales at non-store retailers, which include internet sales as well as catalog sales, were up 1.2% in February after rising an upwardly revised 0.5% in January and were up 13% year-over-year. Retail sales account for one-third of all spending, with services making up the other two-thirds.

CUSTOMER SATISFACTION SURVEY

Both The Home Depot and Lowe’s increased their customer satisfaction scores, according to the American Customer Satisfaction Index’s (ASCI) 2016 retail report. Customer satisfaction grew 10% for THD, which earned a score of 80 out of 100. Satisfaction grew 7% for Lowe’s to a score of 79. ASCI attributed some of THD’s improvement to a successful integration of ecommerce and brick and mortar stores. Both retailers were part of ACSI’s specialty retail stores category, which boosted customer satisfaction overall by 3.9%. The overall category winner was Costco. The overall retail sector reversed two years of declining scores and gained 5% to an all-time high of 78.3.

AD EFFECTIVENESS STUDY

In February ads from Walmart, Home Depot and Walgreens’ took the top spots in advertising effectiveness according to the monthly Advertising Benchmark Study. The report noted that the top U.S. retailers tracked ran 432 new ads during the month. Ads are rated by a consumer panel on the basis of 14 variables with a score of 100 equaling average effectiveness. The winning ads had scores between 110 and 123, boosted by strong scores for the reputation of the retailer.

WORLD’S MOST VALUABLE BRANDS

Consulting firm Brand Finance reported that Amazon came in number one followed by Walmart and then Alibaba Group in their annual report of the world’s most valuable retail brands. The Chinese online marketplace Alibaba saw the value of its brand rise 94% this year. The formula for brand valuation includes corporate reputation, loyalty, staff satisfaction, familiarity in the market and marketing investment and other measures. For Amazon, the value of its brand rose 53% and they earned a AAA-rating. The value of the Walmart brand rose about 20%. The Home Depot earned the number four spot with a 5% increase in brand valuation.

AMERICA’S MOST REPUTABLE COMPANIES

Amazon lost the top spot on Forbes list of America’s Most Reputable Companies to Swiss luxury watch manufacturer Rolex. Amazon earned a total score of 83.71 to Rolex’ 84.03. Robert Bosch came in at number 13 with a score of 81.20. Home Depot was the highest ranked big box store at 28 with a score of 80.0.

THE HOME DEPOT

From the Raymond James Institutional Investor Conference:

They were trying to get to a 14.5% margin by 2018; margins expanded enough in 2016 they are already there.

Many other retailers talk about omnichannel retail; they refer to it as interconnected retail. They believe that means helping the customer, whether it’s a consumer or a professional, seamlessly move across all the different ways that customers want to engage with them.

They have changed their marketing focus, and now 55% to 60% of their marketing is digital. They still do a lot of TV and radio and traditional marketing. They are looking at ways to make their marketing and advertising more personal and relevant to customers. They have developed a wide variety of algorithms to help people find exactly what they are looking for.

They have also found they need to help people navigate their stores and be able to quickly find what they are looking for.

The new fulfillment centers they’ve rolled out are largely to enable parcel and less-than-truckload fulfillment for the millions of SKUs that they have online and they can now service about 90% of the U.S. population in two days or less.

While the stores deliver millions of items each year the process was “clunky.” Now they have it figured out so the customer can schedule deliveries as soon as the next day in two-hour windows.

Their new area of focus is going to be around tailoring an experience for their customers, being more aware of where they are at in their lives and jobs and better understanding what type of shopper each customer is.

Their contractor business is very important; about 3% of their customers represent 40% of their sales.

Other News:

THD plans to hire 80,000 people for their busy spring season.

LOWE’S

From Lowe’s Q4 Conference Call with Analysts:

For the full year total sales rose 10.1% to $65 billion and comp sales grew 4.2%, with all regions and product categories positive.

For 2017 they expect total sales to increase 5%, driven by a comp sales increase of 3.5%. Total sales growth will be reduced by 1.5% because there are 52 weeks in 2017 compared to 53 weeks in 2016.

Q4 comp sales overall rose 5.1% in the U.S. and were positive in all regions and 12 of 13 product categories. Comp sales on Lowes.com grew 25%, driven by growth in both transactions and tickets following their website redesign in the second quarter of last year. Average ticket increased 3.6% to $69.58.

They plan to open 35 new stores this year, 9 U.S. big box stores, 10 in Canada, a few in Mexico and 14 Orchard Supply locations.

Their project specialist interiors program turned in double-digit comp growth.

Pro customer sales had comps well above average and they intend to continue to invest in expanding their capabilities to serve Pros. Their account executive ProServices specialists (AEPs) have been very effective at growing their business with larger Pros, especially MRO customers.

New Chief Marketing Officer Jocelyn Wong will be focused on driving a more integrated omnichannel approach to communicating with customers.

Their international business is good. They had double-digit comps in Mexico, single-digit in Canada and are pleased with their progress on integrating RONA.

Toward the end of the quarter they rolled out a new staffing model across all U.S. stores that streamlines management structure and accountability. They are also moving to a centralized approach to scheduling installation services.

Customer expectations are dictating they align resources differently to better meet their changing needs. Robert Niblock commented that they, like most retailers, are in a position of having evolved into omnichannel. The structure that evolved is not necessarily the best one, nor the one you would create if you started from scratch, so they are reinventing themselves to maximize the opportunity and be more customer responsive.

For spring they are excited about their omnichannel kitchen, bath and outdoor refresh events.

After the presidential election they saw a very strong increase in homeowners’ intentions to invest in their homes and start a project within the next six months.

They had only modest commodity inflation for the year, with some dropping prices offsetting increases in lumber prices.

Their holiday showroom was very successful, and they enhanced it with Pinterest, Facebook, Instagram and YouTube as well as providing seamless shopping on Lowes.com. Black Friday delivered the largest sales in company history both in store and online.

Other News:

Lowe’s made quite a splash when they introduced a Holoroom How To in a store in Framingham, Massachusetts. The virtual reality experience allows customers to gain skills in things like tiling a bathroom and other challenging home improvement projects. Tactile responses on the equipment give the customer the sensation of actually holding and using the tool. News outlets reported that customers felt the virtual reality experience made it easier for them to do the actual project. Lowe’s plans to test the pilot in the Boston area and two RONA stores in Canada for several months.

CFO Bob Hull is retiring after 17 years with Lowe’s, including 14 as CFO. Marshall Croom, a 20-year Lowe’s veteran, will take over as CFO. CEO Robert Niblock said Hull’s contributions and leadership have been invaluable.

WALMART

Walmart is testing a touch screen monitor in the toy aisle at select stores in Texas. The solution connects shoppers to available inventory in the store; if the item is not available, customers can instantly order it online from the monitor. The research report detailing the test describes it as an “endless aisle concept,” as the kiosk enables shoppers to choose from the list of toys currently sold. The device can even suggest best-sellers if the customer will answer a selection of questions designed to help the device choose the perfect toy. Walmart CFO Brett Briggs said that the endless aisle kiosk coincides with Walmart’s mission to become a more digital enterprise as well as to make every day easier for busy families.

Walmart is creating a technology startup incubator in Silicon Valley to identify changes that will reshape the retail experience, including virtual reality, autonomous vehicle and drone delivery and personalized shopping. The incubator will be called Store No. 8, a reference to a location where Walmart experimented with new store layouts. Marc Lore, CEO of Walmart’s ecommerce operations, announced the incubator at the ShopTalk conference in Las Vegas. The incubator will partner with startups, venture capitalists and academics to promote innovation in robotics, virtual and augmented reality, machine learning and artificial intelligence. The goal is to
have a fast-moving, separate entity to identify emerging technologies that can be used across Walmart.

SEARS

Sears has lost $10.4 billion since 2011, the last year they made a profit. Sears said that despite the fact they were required by law to state that there was “substantial doubt” about their ability to stay afloat, they are not in imminent danger of going out of business as they execute their turnaround strategy.

Both the Stanley Black & Decker Craftsman deal and Sears’ 2014 spinoff of Land’s End could be in jeopardy if a federal bankruptcy court deems that Sears was insolvent at the time of the deals, or became insolvent because of them. SB&D could be required to turn over assets acquired. The law requires bankruptcy judges to examine recent transactions in which debtors shed assets to determine whether the deals unfairly extracted value that otherwise would have gone to senior creditors. SB&D had no comment on the situation.

ACE HARDWARE

Ace has a goal of expanding sales per square foot from $204 in 2016 to $210 in 2017. CEO John Venhuizen told attendees at the 2017 Ace Spring convention that they won’t achieve that goal by selling the exact same stuff they sold last year.

TRUE VALUE

True Value reported that total gross billings were up 2.0% to $2.1 million for the fiscal year of 2016. Revenue was $1.5 million, up 1.1%. Comp store sales rose 2.5% in traditional stores and 3.7% in Destination True Value format stores. There were comp store increases in 11 of 12 U.S. regions and 6 out of 9 merchandise categories. It was the sixth consecutive year of increased annual sales and third year sales from new stores exceeded the lost sales from terminated stores.

True Value also reported that they had a record of 101 remodeled stores and 68 completed ground-up stores, retrofitted three distribution centers and enabled two-day shipping. In addition, a fleet transition reduced transportation costs by $3 million.

True Value named Milwaukee Tool the Hand and Power Tool vendor of the year.

W.W. GRAINGER

Grainger was named to Fortune's annual list of the World's Most Admired Companies for 2017. It was the fourth consecutive year Grainger ranked No. 1 in the Wholesalers: Diversified category. Fortune's list of the World's Most Admired Companies is the definitive report card on corporate reputations. To determine the best-regarded companies in 51 industries executives, directors, and analysts were asked to rate enterprises in their own industry on nine criteria, from investment value and quality of management and products to social responsibility and ability to attract talent.

AMAZON

Amazon started collecting sales tax nationwide April 1 in all 45 states where the levies are required, putting an end to years of fighting about whether or not they are required to collect sales tax. Residents of Alaska, Delaware, Oregon, Montana and New Hampshire will still be able to shop tax-free because their states do not have sales tax. Analysts say the decision to stop fighting may have something to do with Amazon’s ambitious plan to open more distribution centers across the country in order to shorten delivery times and to establish more of a physical presence in the retail world with physical grocery stores and book stores.

Amazon’s huge cloud outage for Amazon Web Services that took down websites across the Internet one day in March was traced to simple human error; a team member typed the wrong codes and inadvertently took several servers offline, creating a cascading failure that required several hours to fix.

Alexa’s artificial intelligence software could generate $10 billion worth of business a year for Amazon from device sales and voice orders from Amazon’s site. Analysts have had a challenging time trying to gauge Alexa’s financial impact. Nevertheless, RBC Capital Markets projected that by 2020 the sales of products that incorporate Alexa could reach $5 billion a year and increased shopping on Amazon’s site via voice commands through Alexa could mean another $5 billion in sales.

Amazon’s newest endeavor is targeted at attracting more Spanish-speaking shoppers. Amazon will begin offering their website in Spanish, their first new language introduction since the site launched 20 years ago. The change will roll out over the coming weeks and impact what Amazon describes as the 40 million Spanish-speaking and 10 million bilingual Spanish customers in the U.S. It will impact both Amazon.com and Amazon’s mobile shopping apps.

Amazon opened two grocery pickup concept stores in Seattle. AmazonFresh Pickup locations allow Amazon Prime members to order groceries online, make an appointment to pick them up and then drive through and have their groceries loaded into their vehicle by an Amazon employee.

Amazon is shutting down Quidsi, the company behind Diapers.com that they bought for more than $500 million in late 2010, and closing all of the company’s shopping sites. Quidsi has never turned a profit despite Amazon’s efforts to turn the company around. Quidsi was co-founded by Marc Lore, who stayed with the company for about three years after Amazon’s acquisition, then went on to found Jet.com, which was acquired by Walmart last year for $3.3 billion, the highest price ever paid for a U.S. startup acquisition. Lore is now head of Walmart’s ecommerce operations.

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