Distribution August 2019
Retail Sales Rise 0.4%
Retail sales rose 0.4% in June and were up 3.4% from June 2018, according to the latest figures from the Commerce Department. It was the fourth consecutive month retail sales increased. Core retail sales, which exclude food services, car dealers, building-materials stores and gasoline, also rose 0.7% after an upwardly revised gain of 0.5% in June. Core retail sales correspond most closely with the consumer spending component of GDP. Online and other non-store sales were up 11.6% year-over-year and up 1.7% month-over-month seasonally adjusted. Building materials and garden supply stores were down 4.7% year-over-year but up 0.5% month-over-month seasonally adjusted.
Potential Antitrust Case Against Big Tech
The Retail Industry Leader’s Association (RILA), which represents large players like Walmart and Target, says it is preparing comments for potential antitrust cases against some big tech players, including Amazon and Facebook. RILA delivered a letter to the FTC that claims that dominant technology firms are creating an “information bottleneck” that can boost their own brands at the expense of rivals. The group has already presented arguments to the House Judiciary Committee’s antitrust subcommittee. The FTC is one of several federal organizations considering taking action against big tech. The Department of Justice (DOJ) is also preparing an investigation.
Prime Day Impacts Retail
Amazon’s Prime Day, which this year was actually a full 48 hours in mid-July, created a ripple effect in retail, with several other players offering competitive deals. Target expanded last year’s One Day sale, which they termed one of their biggest days of the year for online sales, to two full days, July 15 and 16. Target offered both same-day delivery and in-store order pickup within hours as well as drive-up pickup, and free two-day shipping when customers spend $35 or use their Target RED card. Many other retailers also saw a bump in sales over the Prime Day event.
Walmart US CEO Doug McMillon told attendees at Fortune’s annual Brainstorm Tech that he admired Amazon for their speed, innovation and customer-centered approach. He acknowledged that Walmart fell behind in ecommerce and is now playing catch-up. He said that the culture at Walmart is not egotistical; that if someone else is doing something better, they study their methods and adopt what makes sense for them. He also said that Walmart is learning to adjust their pace in order to create a more seamless experience for customers across all their platforms and eliminate competitiveness between retail and ecommerce. McMillon also noted that Walmart’s physical stores in the US gave them an advantage over competitors like Amazon because 90% of the US population lives within 10 miles of a Walmart store. However, he also said that his store visits were making him “grumpy” as the stores were not executing the vision in ways that made them attractive to customers and rewarded customers for making a trip to a retail store.
Ace is recommending members streamline workforce management with a new platform for scheduling and people management. The new platform, which was tested in South Carolina, produced a 50% increase in efficiency. The platform reduces the time store managers must spend making monthly schedules and enables store employees to use their own mobile devices to perform tasks such as swapping shifts, putting in requests for vacations and other types of leaves and sending out messages to the store team.
Ace Hardware was named the 2019 overall category leader in retail in the first Localized Social Marketing Benchmark Report from market researcher LSA and SOCi, the leading platform for social and reputation management for franchise and multi-location marketing brands. The research examined the top franchise marketing brands on their performance in localized social marketing in three key areas: the brands' localized presence, customer care (in the form of local ratings and reviews), and local community engagement. The report concluded that the top 10 brand performers grew three times faster than their category peers based on a 5-year trend of each brand's revenue growth rate. The study covered the 163 top franchised brands in ten industries.
Ace is now offering product assembly on select items at participating Ace stores. Ace views product assembly as another way they can best competitors like Amazon that deliver items unassembled, forcing customers to tackle assembly themselves or hire someone to do it.
Berkshire Hathaway’s Benjamin Moore paints will become the primary paint supplier to Ace Hardware. The deal is a setback to Sherwin Williams, although they will still supply Ace with some products. Last year Sherwin-Williams became the exclusive paint supplier for Lowe’s. The paint industry is dominated by four players: Sherwin-Williams, PPG, Benjamin Moore and Masco, who collectively produce 90% of the paint used for residential and commercial purposes in the US.
True Value is spending $150 million to revamp their supply chain, retool their distribution network and upgrade their technology so they will be able to compete more nimbly in the home improvement market. True Value distributes goods to more than 4,500 stores and businesses in the U.S. and abroad. They operate 13 regional distribution centers in several states, including California, Ohio, Texas and Pennsylvania. The company is revamping that network to deliver goods along a "hub-and-spoke" model to use inventory more efficiently so that seasonal items like patio furniture don't take up space where faster-moving products such as hand tools and plumbing supplies could be stored. Instead of stocking each warehouse with every product, the wholesaler is placing slower-moving goods in large central locations and pushing inventory that turns over more quickly out to satellite facilities closer to customers. Orders drawing from the hub are sent out to the spokes, where they are matched up on the loading dock with items pulled from those distribution centers. New software is being added to help True Value be better at forecasting demand and replenishing inventory more quickly and efficiently.
W. W. Grainger
Q2 sales rose 1% to $2.9 billion, with the increase driven by 1.5% increase in volume and a 0.5% increase from price, partially offset by a 1% negative impact from currency.
Grainger lowered expectations for the year and now estimates revenue will grow 2% to 5%, down from the 4% to 8.5% growth originally projected. They also lowered their estimate for market growth from a 1% to 4% positive gain to a decline of 1% to 2%.
Grainger has named Chicago-based gyro their creative agency of record after a formal business review. Gyro is a dedicated business-to-business agency that will support Grainger’s US marketing strategy. Gyro became Grainger’s media agency of record in 2017.
Q2 revenue rose 20% to $63.4 billion, beating estimates. But profits were short of expectations due to heavy investment spending, and Amazon forecast that operating income in Q3 will be $2.1 billion to $3.1 billion, well shy of analysts’ estimates of $4.34 billion. Amazon had forecast spending of $800 million in the second quarter to move to one-day delivery for Prime customers, but actually spent much more than planned because the program was more expensive to implement than expected.
Q3 is typically a heavy investment quarter for Amazon as they ready facilities for the busy holiday shopping season.
Amazon Web Services sales rose 37% to $8.38 billion, slightly below estimates. Revenue from seller services rose 23% to $12 billion. Subscription services, mostly revenue from Prime memberships, rose 37% to $4.67 billion. Other revenue, which is mostly Amazon’s advertising business, rose 37% to $3 billion.
Amazon’s sales are expected to increase 14% this year to $586.9 billion, accounting for 10.7% of retail sales, according to eMarketer.
Customers purchased more than 175 billion items world-wide on Amazon Prime Day, making it the largest shopping event in Amazon history. Amazon also reported that customers saved more than one billion dollars taking advantage of Prime Day specials. Large US retailers also benefitted from Prime Day, with retailers with more than one billion in annual sales seeing a 64% spike in sales, according to Adobe Analytics.
Kohl’s will begin offering free returns for Amazon shoppers. Customers bring in their eligible Amazon returns; no box or label is needed. Kohl’s will pack and ship items back for free. Kohl’s CEO Michelle Gass said that their top strategic priority is driving traffic. She called the Amazon return program “transformational” because she believes it will drive new customers into the stores and result in incremental purchases and return visits. The program was tested in 2017 in 100 stores in Chicago, Los Angeles and Milwaukee.
Amazon shoppers can now pick up their orders at more than 100 Rite Aid stores across the US. That will expand to 1,500 Rite Aid locations by the end of the year. Amazon said they are looking to bring the new service, called Counter, to other stores both big and small. Amazon said this option is for stores that don’t have room for in-store lockers. Stores will receive Amazon packages daily. Packages will be scanned by store workers and an email will be sent to shoppers letting them know their order is ready for pick up. They then have 14 days to come in, show store workers the emailed barcode and pick up their order. More physical retailers are working with Amazon in the hopes that doing so will help them reach Amazon’s huge customer base.
Amazon is currently delivering about 48% of packages themselves, according to market research supplied to Axios as reported in Eurotrade. In January 2017 the US Postal Service was handling more than 60% of Amazon’s packages and Amazon was delivering less than 15%. Amazon responded, telling Axios that the numbers were not an accurate representation of how shipments are shared between Amazon and carrier partners.
Amazon will spend more than $700 million by 2025 to retrain 100,000 workers, about one-third of their US workforce. The training will focus on making employees more tech-savvy and enabling them to switch to more technical jobs. Most of the training will be free to employees and will be offered at a variety of levels from basic tech training to highly specialized jobs such as software engineering.
Amazon's move to one-day delivery, an extra perk announced for Prime members in April, will drive higher conversion rates, leading to faster unit growth in second-half 2019 and into next year, according to Cowen & Co. analyst John Blackledge. Higher purchase conversions could result in $1.1 billion to $2 billion incremental US revenue this year, according to Cowen, who based his projections on survey data revealing that 32% of US Prime households abandon their shopping carts because products won't be delivered in a timely fashion. Cowen expects the US Postal Service's share of Amazon's last-mile delivery to drop from an estimated 54% in 2018 to 35% in 2024 as Amazon ramps up faster delivery programs.
Amazon plans to launch 3,236 broadband satellites into low orbit in order to provide internet service to most of the US and other parts of the world. Company subsidiary Kuiper Systems filed an application with the FCC as part of a regulatory hurdle that needs to be cleared before they can launch the first operational satellites.
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