RETAIL SALES RISE 0.6%
Retail sales rose 0.6% in June after rising a downwardly revised 0.2% in May and were up 2.7% year-over-year. It was the third straight month of gains. Online retail sales rose 1.1%. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose a solid 0.5% in June after rising an upwardly revised 0.4% in May. Sales of building materials rose 3.9% after falling 2.5% in May. Core retail sales correspond most closely with the consumer spending component of gross domestic product. Results were well ahead of analysts’ expectations. Retail sales account for about one-third of all spending, with services making up the other two-thirds. Analysts said that the report showed that the economy was strengthening.
NRF RAISES RETAIL SALES FORECAST
The National Retail Federation raised its forecast for retail sales in 2016 to 3.4% from the 3.1% forecast earlier based on continued strong consumer spending. Online and other non-store sales, which are included in the overall figure, are expected to increase 7% to 10% year-over-year rather than the 6% to 9% forecast earlier. NRF also cited the improved housing market, job growth, higher wages and other factors that have strengthened the economy and boosted consumer spending. Retail sales in the first half of 2016 grew close to 4% on a year-over-year basis, according to NRF calculations, which exclude automobiles, gasoline stations and restaurants. NRF expects GDP to grow between 1.9% and 2.4% this year. NRF did caution that political uncertainty in this contentious election year could affect consumer behavior.
THE HOME DEPOT
The 2016 Harris Poll EquiTrend Retail Brands of the Year study named The Home Depot the hardware and home brand of the year for the fourth consecutive year. The study also showed that compared to other industries assessed in the study, retail ranks high on the brand equity scale, placing third just behind the restaurant industry. Food was the top-ranked industry, with technology and travel rounding out the top five industries. Within retail, hardware & home store was the top-ranked category. Harris said the ratings are driven by baby boomers and GenX shoppers who are investing in home improvements and moving up from starter homes. More than 97,000 U.S. consumers assessed more than 200 retail brands for the study. A brand's equity is determined by a calculation of familiarity, quality and purchase consideration.
Lowe's is building a new $100 million direct fulfillment center in Robertson County, Tennessee. Lowe’s direct fulfillment center will cover some 1.1 million square feet, the equivalent of 22 football fields under one roof. Plans call for it to be operational by the third quarter of 2018, initially employing approximately 400 people and growing to 600 employees by 2022. Lowe's says their first direct fulfillment center will allow them to offer customers more products online, consolidate multiple parcel shipments and ship purchases directly to customers faster and more efficiently.
Lowe's launched an original series on the Lowe's TV app now available on Apple TV. DIY and home expert Monica Mangin stars in The Weekender. Mangin is known for her ability to create Pinterest-worthy spaces on affordable budgets. The 10 episode original series will follow Monica as she helps homeowners tackle five DIY projects in one weekend to turn lackluster spaces into inspired, functional rooms. The objective is to inspire and help DIYers feel confident enough to undertake projects. It's Lowe's first episodic venture onto streaming devices. The Weekender series will be released on Amazon Fire TV and on the Roku platforms in August and will also be available on the Lowe’s YouTube channel.
Analysts think Walmart needs to give customers incentives to use their new mobile payment system, Walmart Pay, which is offered through the Walmart app and works with both Apple and Android devices as well as any credit, debit, prepaid or Walmart gift card. Walmart reported that 88% of Walmart Pay transactions are from repeat users, and the Walmart app, which has many other features, has more than 20 million active users. Walmart does not plan to add Apple Pay or Android Pay. More than 25% of U.S. smartphone users use payment apps at least once a month, according to a recent data analysis by Parks Associates. The firm says that more than three million retailers now accept popular payment services, but data indicates consumers currently prefer retailer-specific applications. One analyst highlighted Starbucks, which processes 5 million mobile pay transactions per month, and rewards customers who use mobile payment with coupons and other perks. Benefits to the retailer include the ability to collect purchase information and other shopping habits.
Walmart is cutting about 1,500 non-sales jobs at about 500 locations in the Western region of the U.S. The employees being cut are expected to be offered new positions that will involve direct contact with shoppers. The goal is to get workers out of the backroom and onto the selling floor. As part of that strategy, Walmart is centralizing the invoice department for that region and installing cash recycler machines that automatically count money.
Walmart has formed a strategic partnership with Publicis Groupe, which will initially apply to Walmart’s U.S. advertising and in-store creative efforts, but may expand eventually worldwide. That agreement ends Walmart’s decade-long relationship with Virginia-based Martin Agency. Publicis is a massive global holding company of marketing and advertising agencies. According to Tony Rogers, CMO for Walmart’s U.S. stores, they’ve defined their target customers as “busy families,” a group that consists of 26 million households that have the highest need to save time and money.
Ace Hardware ranks highest in customer satisfaction with home improvement retailers for a 10th consecutive year, according to the J.D. Power 2016 Home Improvement Retailer Satisfaction Study. The study measures customer satisfaction with home improvement retailers by examining merchandise; price; sales and promotions; staff and service; and store facility. Satisfaction is measured on a 1,000-point scale. Ace Hardware scored 810 in overall customer satisfaction. Menard’s followed Ace in second place overall with a score of 803. Lowe’s placed third with a score of 799. Overall customer satisfaction with home improvement retailers rose to 795 from 788 in 2015.
Sales rose 2% in the second quarter to $2.6 billion. Organic sales fell 2%. U.S. business sales fell 2.6% to $1.98 billion. Canada sales fell 18.8% to $194.42 million due to the weak economic environment. Other businesses’ sales rose 48.7% to $474.17 million. CEO Jim Ryan said the performance in the U.S. was slightly below their expectations, and that they remain challenged by the difficult industrial environment. Canadian business continues to be affected by a myriad of factors, including low oil prices, fires in Fort McMurray and unfavorable foreign exchange. Grainger lowered their sales guidance for the year from 0% to 6% growth to 1% to 4% growth.
From their Q2 Earnings Call with Analysts:
They're investing in areas that will promote growth and make them more efficient, including their supply chain, ecommerce capabilities, onsite services and tools to make the sales force more efficient.
In the United States they launched a new inside sales team, which has 275 representatives who primarily call on medium-sized customers.
They closed 27 branches in the United States as part of a previously announced plan to adjust the U.S. branch network.
Ecommerce represented 46% of sales in the first half of the year, up from 40% in the first-half 2015
Single channel online businesses increased revenue 34% on a daily basis over the 2015 second quarter. Zoro, their single channel online businesses, primarily serves small customers in the United States and Japan.
They initiated $6 million of restructuring costs in the United States which were more than offset by gains on sales of branch real estate of $15 million.
In the United States, June daily sales decreased 3%, driven by a 4% decline from volume and a 1% decline from price, partially offset by a 2% gain from intercompany sales, primarily to Zoro.
Customer end market performance for June was primarily flat or down. Retail was flat; light manufacturing, government and commercial were down in the low single-digits; heavy manufacturing was down in the mid-single digits; contractor was down in the high single-digits; reseller was down in the mid-teens, and natural resources was down in the high-teens.
Q2 sales rose 31% to $30.4 billion, well ahead of analysts’ expectations. It was Amazon’s third consecutive record-breaking quarter, and their fifth consecutive quarterly profit. For the current quarter Amazon expects sales to rise 22% to 32% to between $31.0 and $33.5 billion. Quarterly results did not include the impact of Amazon Prime Day, as the quarter ended June 30. Strong demand for ecommerce services and Amazon’s cloud business lifted sales. Amazon saw shipping expenses rise 44% to $3.3 billion during the quarter. Reducing shipping costs has been an area of focus for Amazon of late.
Amazon’s second annual Prime Day, which was July 12, surpassed last year’s totals by more than 50% in the U.S. and 60% around the world. JPMorgan estimated that the 2015 Prime Day produced $400 million in additional revenues for Amazon. Shoppers globally bought more than 2 million toys, 1 million pairs of shoes, 90,000 TVs and hundreds of thousands of Kindle e-readers. Reportedly small businesses using the Amazon platform, an increasingly important part of Amazon’s bottom line, saw orders triple compared to last year. Retail analysts noted that while there were lots of deals, there were not many that were extraordinary, and lots of items could be referred to as “clearance.”
Amazon will open a bookstore in Manhattan, according to a report from New York Post. Sources say that Amazon Books will open in the large Hudson Yards retail space in late 2018 or early 2019. So far, Amazon has one physical bookstore open in Seattle and a second space planned in San Diego, although analysts report that insiders say that hundreds of bookstores are on the way. The move is viewed as part of the trend for online-only retailers to become omnichannel.
Amazon was granted a patent for a drone version of the Pony Express, described as a “multiuse unmanned aerial vehicle docking station system.” A flotilla of drones would be deployed from tiny depots perched on light poles, carrying packages for customers. Drones would make their way from docking station to docking station until they reach the customer, stopping whenever they get low on charge. Amazon’s most recent prototypes can carry packages of up to five pounds. Actual drone delivery is far in the future; the most recent drone rules do not allow for package delivery. Most likely packages would be delivered to centralized points where people would take over and make the actual delivery to the customer.
Amazon in Great Britain has pledged to stop using large boxes to deliver small items and is testing software called Box on Demand that is designed to ensure that items are sent in packaging of an appropriate size. Amazon says the change was driven by customers protesting that it was wasteful to ship tiny items in big boxes. Amazon will be testing the software at warehouses throughout Europe for the next year.
Amazon bought cloud computing company Cloud9, which they’ll integrate into their cloud computing division. Cloud9 is a startup founded in 2010 in San Francisco. Financial terms were not disclosed. The company’s technology allows software engineers to write software in a cloud environment.
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