Distribution August 2021
Retail Sales Rise 0.6%
Retail sales rose 0.6% in June after falling a downwardly revised 1.7% in May. Retail sales were up 18% from June 2020 when pandemic restrictions impacted sales. The increase in sales was greater than analysts had expected. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose 1.1% after dropping 0.7% in May. Core retail sales correspond most closely with the consumer spending component of GDP. Online sales rose 1.2% month over month and were up 12% year over year. The increase came after two consecutive monthly declines. Shortages of big-ticket goods are also playing a part. The chronic shortage of both used and new vehicles continues to limit spending in this traditionally big-ticket category. Sales at building material stores fell 1.6% in June after tumbling 5.9% in May. The National Retail Federation (NRF) forecast that 2021 retail sales will rise between 6.5% and 8.2%, which would beat the previous record growth rate of 6.3% in 2004.
The Home Depot
THD is using Bluetooth to deter organized retail crime, a growing problem for retailers. They are piloting the technology on power tools at test stores in several states. The tech activates at the cash register or point of sale and allows items to work once they leave the store. A stolen item that is equipped with Bluetooth tech will not operate. The tech is applied to the item, not the packaging. They are working with partners such as Stanley, Black & Decker on the program. They are also considering tagging other items with high resale value, such as smart home merchandise.
THD has partnered with the Buy Safe America Coalition in support of the INFORM Consumers Act, which Amazon soundly opposes. This legislation would require verification of independent sellers on online marketplaces as part of an effort to stop the sale of counterfeit and stolen items. THD says they want to block criminals without alienating the vast majority of paying customers.
THD is extending their multiyear cloud services deal with Google Cloud as part of their goal to expand the array of digital tools that helped them capture and keep up with skyrocketing demand from both consumers and Pros. CIO Matt Carey said expanded tools will help them enhance existing digital services and support new ones, such as a recently launched tool that generates more accurate estimates for kitchen renovation projects. AI is also being used for voice-activated product searches, predicting inventory shortages and pinpointing products that need to be restocked. They also use models to watch weather activity and predict where products might be needed most. The shift to the cloud has helped THD handle sharp spikes in online traffic and meet customer expectations, which are now higher than ever.
Robert Baird Global Consumer, Technology & Services Conference:
Consumer demand has been very broad-based, and they are not seeing any pullback in demand as pandemic restrictions ease and people resume more activities outside the home.
One of the pandemic trends they see continuing is consolidation. Consumers are making fewer trips and trying to accomplish more each trip.
The investments they’ve made in their digital channels also helps them meet growing demand for omnichannel shopping.
Customers are in the driver’s seat; they will dictate how and when they want to shop, and retailers will need to be flexible enough to meet the consumer’s needs online and in-store.
Promotional activities and clearances were curtailed during the pandemic, and they don’t intend to go back to their previous level of promotional activity. They want to get to more of an “every day low price” (EDLP) position.
Generally, the retailers they compete with are very rational from a pricing and promotion perspective with the exception of a few regional players. In CEO Marvin Ellison’s opinion, Lowe’s was doing too many promotions when he took the helm in 2018, and CMO Bill Boltz agreed they were creating a situation where customers only shopped Lowe’s when there was a deal, which was not a good foundation for building the business.
They are experiencing inflation in certain categories and within the transportation and supply chains. Going into the year, they had expected input costs to begin to rise.
They have been upgrading their systems so they can rapidly adjust prices to maintain margins either by SKUs or within certain product groups.
Lowe’s spends a lot of time talking to their professional customers because they have a lot of insight into future trends. Pros are very confident they will stay busy. Three years ago their installation business was losing money; now it is doing very well and gives them the ability to look at quotes and leads months out in advance.
Their Pro program is working well; existing customers are buying more and they are acquiring new Pro customers thanks to all of the programs they’ve put in place, including the Pro loyalty program launched in 2019 and the tool rental centers. They hope to open an additional 100 to 200 tool rental centers every year going forward. While the supply chain has been very challenging, they are in a much better in-stock position on job lot quantities for Pros than they were a couple of years ago.
One of the changes they have seen as the country recovers from the pandemic is that people have shifted more shopping activity to the week. They think people are getting out and doing more socializing and traveling now on the weekends and shifting shopping activities to free up more time.
Housing metrics remain very strong, and the shortage of new homes on the market is actually good for the maintenance, repair and remodeling markets, the vast majority of their business.
Many of the initiatives they will be putting into place over the next three years are tech driven. Technology enhancements are enabling them to pull hours out of the stores. Some of those hours saved go to the bottom line; others are invested back into service on the floor to support the sales effort.
One example of a program that saves hours is the return to vendor program, which used to be handled by every store and took 40 to 80 hours per week. Now they’ve consolidated that into three central consolidation centers.
The net result is that even though they have a labor reduction, they have a service improvement. It was shocking to them that 60% of labor was spent on something other than helping customers and driving sales. Now 60% of labor is on the floor serving customers.
There are parts of the country where labor is harder to come by; they give local teams the flexibility to adjust wages based on the market so they can be competitive.
The heart of their supply chain is going from a store-based delivery model to a market-based model, which means bulk distribution centers. Doing that greatly improves both service and visibility because customers can easily see where their order is at any time.
Today 60% of ecommerce fulfillment comes out of the store. They will be adding enhancements and expanding that capability. Soon they will be able to deliver ecommerce orders in two days or less to virtually every zip code in the country, and same day in some areas. Their goal is to move closer to same-day capability across the country.
Walmart is partnering with Adobe and in early 2022 will begin offering a number of capabilities to other businesses interested in online and in-store fulfillment and pick up and delivery via a subscription model. Walmart will be offering their services to businesses seeking to develop their digital capabilities. Walmart claims utilizing their technologies will help businesses improve the customer experience and operate more efficiently.
Q2 sales rose 13.1% to $3.2 billion with 15% organic growth. Sales were in line with expectations. Grainger maintained their guidance for the remainder of the year.
Demand for pandemic products stalled earlier than expected as vaccination rates rose and mask mandates were relaxed. That resulted in further inventory adjustments and had a negative impact on gross profit margins, according to Grainger CEO DG Macpherson. Their underlying gross profit margin has improved as customer demand has returned to a more normal mix.
In the High-Touch Solutions N.A. segment, sales were up 13.7% on a daily basis versus the prior year second quarter due primarily to a strong recovery in non-pandemic product growth.
In the Endless Assortment segment, daily sales growth was up 23.0% versus the second quarter of 2020 from strong customer acquisition in both Zoro U.S. and MonotaRO.
Q2 sales grew 27% to $113.1 billion, below analysts’ estimates of $115.3 billion, a rare miss for Amazon and well below 44% growth in Q1. Amazon Web Services (AWS) revenue rose 37% to $14.8 billion. Amazon now expects Q3 net sales of $106 to $112 billion, which would represent year-over-year growth of
10% to 16%.
Amazon CEO Jeff Bezos stepped down July 5 as he announced he would do back in February. Andy Jassy, who had been leading Amazon Web Services, took over as CEO. Bezos will still have an active role in the company he started in his garage in 1995. In his new role as executive chair, he will focus on new products and initiatives while Jassy focuses on running what is now a $1.7 trillion company. Among his many challenges will be dealing with growing calls for tighter regulations on tech giants and new rules that would make it harder for them to acquire companies.
Best-selling categories for Amazon Prime Days included tools, beauty, nutrition, baby care, electronics including Amazon devices, apparel and household products. Research from tech market research company Numerator studied more than 30,000 Prime Day orders. Numerator also noted that average spend per order dropped 18% to $44.5 from Prime Day 2020, and average household spend was roughly $106.41, because more than half of all households placed more than one order. Adobe Analytics reported that Prime Days generated a reported $11 billion in sales across all online retailers, up 6.1% from 2020. About 75% of shoppers reported shopping only at Amazon for Prime Days; 21% said they also made purchases from another online retailer.
Amazon will be putting more research and development support behind Scout, their autonomous delivery robot that was tested last year in Georgia and Tennessee. Scout will now get its own development center in Helsinki, with more than 20 engineers working on the robot. They are focused on developing 3D software to simulate the complexity of real life and make sure Scout will be able to safely navigate around obstacles while making deliveries.
Amazon plans to hire more than 100,000 US veterans and military spouses by 2024. Amazon currently employs more than 40,000 veterans and military spouses across multiple businesses who all receive a starting wage of at least $15 per hour and have access to Amazon’s comprehensive benefits. Amazon also offers a variety of programs to assist transitioning service members and spouses, including access to company-funded skills training in high-demand areas such as cloud computing. They also have access to fellowships, mentorships, military spouse support and deployment benefits.
The Pentagon announced that it canceled a disputed cloud computing contract with Microsoft and will instead pursue a deal with both Microsoft and Amazon, as well as other potential providers. The Pentagon stated that the long-delayed JEDI Cloud contract no longer met their requirements in this rapidly evolving and changing field. There was no mention made of the Amazon lawsuit filed in October 2019, immediately after Microsoft was awarded what could have eventually become a $10 billion business.
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