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Retail Sales Rise 0.8% Retail sales jumped 0.8% in October after dropping a downwardly revised 0.1% in September. September sales were initially reported as rising 0.1%. Sales were up 4.6% from October 2017. Ten of thirteen categories showed increases. Core retail sales, which exclude autos, gasoline, building materials and food sales, rose 0.3% in October and core sales for September were revised down to 0.3% from the 0.5% increase first reported. Both headline and core sales for August were also revised down. The Commerce Department could not isolate the impact of Hurricanes Florence and Michael on October’s sales, but analysts believe the storms boosted sales of automobiles, which rose 1.1%, and building materials, which jumped 1.0%. Many economists are unsure about how the trade wars and new tariffs will impact retail sales. Thanksgiving Weekend Sales The National Retail Federation (NRF) reported that 165,000 consumers shopped over the long Thanksgiving holiday, spending about $60 billion from Thanksgiving through Cyber Monday. Shoppers spent $3.7 billion on Thanksgiving Day and another $6.2 billion on Black Friday. Cyber Monday racked up nearly $8 billion in sales, with about $2 billion in purchases made through mobile devices, a 17% increase in mobile shopping from last year. However, the number of people shopping actually dropped from last year’s record of 174,000. The average shopper spent $313, down from $335 last year, and an indication of the tough competition in retail that’s fueling deep discounts and amazing deals. Amazon said they sold more than 180 million items in the four days after Thanksgiving, and said Cyber Monday was their biggest sales day ever. Older millennials and GenX shoppers each spent about $100 more than other shoppers, and multichannel shoppers who shopped both in stores, online and on mobile devices, spent $93 more than average, according to NRF and survey partner Prosper Insights & Analytics. Holiday Spending Forecasts The National Retail Federation (NRF) expects holiday retail sales in November and December to increase between 4.3% and 4.8% to a total of $717.4 billion to $720.9 billion. The average annual increase over the past five years has been 3.9%. Holiday sales in 2017 rose 5.3% to $687.87 billion. Analysts say that last year the anticipated tax cuts caused consumers to spend more than expected. NRF expects annual retail sales for 2018 will grow at least 4.5% over 2017. The NRF forecast includes online and other non-store sales. EMarketer projects that total retail sales in the US will rise 5.8% to $1 trillion this holiday season. Retail sales between November 1 and December 31 will get a boost from Thanksgiving coming early this year, leaving 32 shopping days between Thanksgiving and Christmas. Ecommerce sales are predicted to increase 16.6% to $123.73 billion and account for 12.3% of all holiday retail sales. eMarketer is projecting brick-and-mortar holiday sales between $863 and $878 billion, and noted that while online sales are growing, brick-and-mortar still represents 87.7% of holiday sales. A survey by payment solutions company Square found that 72% of Americans prefer to shop in person for purchases of more than $250. According to Chain Store Age, 84% of shoppers prefer to support small business when they can. The Home Depot Q3 sales rose 5.1% to $26.3 billion, narrowly missing analysts’ estimates. Comp sales rose 5.4% in the US and were up 4.8% overall. Q3 conference call with analysts: Sale were strong across the entire US, with only one of their 19 regions posting negative comps. The exception was the Gulf, which faced very tough comp sales associated with the anniversary of Hurricane Harvey, which created nearly $300 million in hurricane-related sales in the third quarter of last year. The devastation wrought by Hurricanes Florence and Michael was more geographically compact. Both Canada and Mexico posted positive comps in local currency. Online sales grew 28% from Q3 last year and online traffic growth was healthy. They continue to make investments and enhancements to make sure they are providing a frictionless interconnected customer experience. Comp ticket rose 3.5% and comp transactions increased 1.2%. Comps in tools, appliances, electrical, plumbing, décor and flooring were above company averages. All other departments except lighting were above average; lighting was positive, but below average. They believe the vast majority of increases in ticket were driven by innovative products that have both consumers and Pros trading up. Commodity prices were volatile in the quarter, with inflation in lumber, building materials and copper positively impacting average ticket growth by 61 basis points. Today lumber prices have dropped below 2017 levels. Foreign exchange rates negatively impacted average ticket growth by 43 basis points. Higher supply chain and transportation costs trimmed 23 basis points from gross margins. Big ticket sales were up 9.1% in the quarter. Big ticket sales are transactions over $1,000 and represent 20% of US sales, They saw strong performance in many Pro-heavy categories as Pro sales grew faster than average comp. Pro-heavy categories like power tools, concrete and some plumbing and electrical categories all had comps above average. DIY categories showed strong growth in the quarter, including safety and security, vanity, lawnmowers, ceiling fans and interior and exterior paint. They have reduced the number of out of stocks per store by 24% in their top selling SKUS. Several events helped drive traffic and create excitement in stores, including Halloween and Labor Day, which all showed solid growth from last year. They are in the early stages of a five-year investment in the One Home Depot supply chain that will enable the fastest and most efficient delivery network in home improvement. Today they can reach 95% of the US population in two days or less with parcel shipping. At the end of the five years they will be able to reach 90% of the US with same day or next day delivery for an extended SKU offering that includes big and bulky goods. They are on track with their pilot testing and learning programs from new fulfillment facilities and their first few pilot facilities are live, with more scheduled to open this year and throughout next year. Since rolling out car and van delivery to more than 40% of the US population they have seen increased utilization from both Pro and DIY customers. They have implemented their wayfinding sign and store refresh package in about 700 stores and are ahead of schedule. They continue to make progress on their redesigned front-end areas and pickup lockers. They are also working to help associates be more productive with their time and remove sources of friction for customers. They are updating their sales and earnings guidance for the year and now expect fiscal 2018 sales to grow 7.2%. They thanked their supplier partners and said that suppliers trust them with many exclusives and innovative product launches due in part to their 400,000 plus store associates who bring enthusiasm to the aisles every day. Two recent exclusives are Stanley Hand Tools and Troy-Bilt Outdoor Power Equipment. The tariffs that have come through to date represent 1% of US purchases; if the 25% additional tariffs were to go into effect it would impact another 3.5% of US purchases. They will work to mitigate as much as possible, but it will have an impact on prices. Holiday décor has been a very strong business; rather than increasing décor in stores they have expanded décor online. Only a small percentage of their associates have actually adjusted their withholding, so they think they will get a nice surprise when they file their taxes next year. 97% of their customers have an average income under $250,000 so they don’t think they will be negatively affected by the climbing tax bills people in upper brackets living in states with high local taxes like California and New York are going to experience. Competitors closing stores and liquidating inventory have created a lot of promotional activity; they have no idea how to measure that or how it affects their numbers. They have made a lot of improvements online. They have started doing a lot of category refreshes, have done a lot of work on searches and now they can tell people by zip code when their order will arrive. About 40% of online orders were picked up in store at the customer’s choice. The new labor model they are using has improved productivity in stores; they should see measurable benefits from the new model next year. Lowe’s Q3 sales rose 3.8% to $17.4 billion, beating expectations, and comp store sales rose 1.5% overall and 2.0% in the US. Transactions declined 1%. Lowe’s lowered their guidance for the year and now expects total sales to rise 4% rather than the 4.5% previously guided and comp store sales to increase 2.5% rather than the previous target of a 3% increase. CEO Marvin Ellison said that the favorable macroenvironment and great deals drove traffic to the stores but continuing issues with inventory out of stocks, poor reset execution, and assortment concerns in certain categories kept them from converting visits to transactions. Ellison went on to say, "Rather than chase short-term solutions to these problems, we are redesigning processes and systems to deliver sustainable improvement and expect to see positive trends as we enter 2019.” Lowe’s is getting out of their contracting service, Alacrity Renovation Services and their Iris Smart Home business in the US. Lowe’s will be closing their 13 retail stores in Mexico and shuttering 51 underperforming stores in the US and Canada, moving most of the employees to nearby Lowe’s stores, many of which are within 10 miles of the underperforming store. Lowe’s also is opening nine stores and a new direct-fulfillment center this year. Twenty of the stores being closed are in the US; the remainder are in Canada, most of which are Rona stores. The stores are expected to be closed and associates relocated by February 1, 2019, the beginning of the company’s fiscal year. Hilco Merchant Services will help with the closings. Lowe’s is also closing all 99 of their Orchard Supply Hardware stores, which they acquired about five years ago. CEO Marvin Ellison gave rival The Home Depot a nod, saying that Home Depot’s best practices and their playbook are really the retail playbook, and they are going to put those things in place, so they will have more efficient processes. Q3 Conference Call with Analysts: Their top priority during the quarter was taking the steps necessary to build a sustainable foundation for long-term success. They were difficult decisions, but they believe they will help them focus on running outstanding retail businesses in the US and Canada. They are not going to sacrifice the future to short-term results. They are being very transparent about the issues they are dealing with as a company. They have substantially completed their strategic reassessment of the business and are now shifting attention to improving execution in retail stores and online. They had positive comps in 11 of 14 geographic regions during the quarter, with Tampa and Houston having the weakest comps because of tough prior-year comparisons from Hurricanes Harvey and Irma. They posted 12% comp growth on lowes.com. They know they have some issues with functionality that they are addressing, as well as issues with search, navigation and ease of checkout. Their mobile app also needs to be much more robust. Their inefficient reset process continued to create disruption in stores and contributed to out of stocks. All of the categories with negative comps were pressured by poorly executed resets. Their store processes are too complex, their labor management system is primitive and their associates are burdened by too many tasks that prevent them from spending enough time with customers. Their project specialists and installed sales business is too complicated, which prevents them from delivering an outstanding customer experience and pressures sales. The leadership team has developed strategic initiatives to address these chronic issues. With the addition of new CIO Seemantini Godbole, their world-class leadership team of core retail experts is now in place. They undertook an aggressive clearance process for $500,000 in inventory in the third quarter focused on eliminating slow-moving and underperforming SKUs and reducing clutter. They are now reinvesting those dollars into improving in-stock on best-selling SKUs and focusing on job-lot quantities for Pro customers. They are streamlining the decision-making process within merchandising and shifting to managing to an inventory turnover goal rather than a dollar amount. Throughout the fourth quarter they will showcase Craftsman and highlight exclusive products and offers, including three great values featured at $99. They have new plans for an integrated omnichannel holiday experience. They are implementing a localized assortment strategy with the development, rollout and support of a field-based merchandising team. They realized that some of the basic and foundational elements of merchandising were not in place, including in-store processes and labor scheduling systems. As part of simplifying operations, they are focusing on developing processes and procedures that address the issues. They are rebuilding their reset process by reducing their reliance on third-party labor. And they are changing their endcap and off-shelf strategies. They’ve significantly reduced the volume of communications and reports going to the stores. Inventory turnover was 3.84 times, a decrease of 10 basis points compared to Q3 last year. Their conversion issues were mostly due to being out of stock on items. What they have been most pleased with is the people side of the business; their associates are top-notch even though the company has not always made it easy for them to do a good job. The Pro customer is very important, but they are also “very, very simple” compared to consumers. They are looking for a great price, brands they identify with and service that saves them time, because for them time is money. According to Ellison, Pros don’t really care about much of anything else. Lowe’s once had a dominant share of the Pro business and lost it because they no longer delivered what Pros are looking for. They are now actively engaged in giving them those things, including the brands they want that Lowe’s does not currently carry. They do not spend much time or energy worrying about The Home Depot, which they referred to as “looking across the street.” They believe if they take care of the customer, everything else will take care of itself. Their largest competitor has less than $200 billion in market share, which means there is more than $700 billion up for grabs in this fragmented marketplace. Other News: Lowe’s tried to give shoppers a jump on Black Friday deals, rolling out early specials on a wide variety of goods. GPShopper reported that 81% of consumers find shopping during the holidays very stressful and would prefer to shop earlier, with many saying they would like to shop in October and early November and be essentially done before Thanksgiving. Lowe’s snagged their new CIO from Target. Seemantini Godbole took over as CIO November 12. Godbole was senior vice president of digital and marketing technology at Target and has more than 25 years of global technology experience. CEO Marvin Ellison said she is a tremendous addition to Lowe’s leadership team and will help them advance Lowe’s technology into the future. She’s taking over from Paul Ramsey, who had been CIO since 2014, and quietly departed over the summer. Godbole’s appointment is the latest in a string of leadership changes in the C-suite since Ellison took the helm in early July. Lowe’s is stepping up their efforts to hire more veterans. Lowe’s already offers a 10% discount on veterans’ purchases; Lowe’s says that has saved veterans $1 billion this year so far. Now Lowe’s plans to honor their veteran employees by issuing them camouflage vests instead of the usual red vests. They already offer these employees camo name badges that show their branch of service. On Veteran’s Day this year the first 100 customers at every Lowe’s store got full-sized US flags with any purchase. Lowe’s has several other veteran-friendly programs, and has been named a Top 10 Military Friendly Brand by military marketing firm Viqtory. Walmart Q3 sales rose 1.4% to $124.9 billion and comp store sales rose 3.4%, slightly below the 4.5% increase in comp store sales in Q2. Sales were slightly below expectations. Walmart’s US division had its best results in more than a decade, with customer traffic up 1.2% and transactions up 2.2%. International sales and sales at Sam’s Club both fell. Online sales rose 43%, after rising 33% in the first quarter and 40% in the second quarter. Sam’s Club is preparing to open their first cashier-less location in Dallas, dubbed Sam’s Club Now. It’s a retail club that will double as a technology lab. The location will “incubate, test and refine technologies to help define the future of retail,” according to Jamie Iannone, CEO of SamsClub.com. The 32,000 square foot store is 25% smaller than the average Sam’s Club and will feature an assortment of 1,000 to 2,000 of the items members buy most, including convenience items, fresh foods, grab and go meals and consumables. Members will launch the Scan & Go app and machine learning will use customer purchase data to create an electronic shopping list. Customers can add or remove items; as the merchandise is scanned, the list will automatically move chosen items to the member’s mobile basket. Shoppers will navigate through voice search functionality and new way-finding and navigation features. Sam’s Club plans to eventually use beacon technology and a member’s smart shopping list to map out the best route through the club for shoppers. More than 90% of members who try the Scan & Go app use it again on their next trip, and app usage is up 40% this year. Sears Filings with the bankruptcy court show that billionaire Eddie Lampert claims that his hedge fund, ESL Investments, did not get any “windfalls or sweetheart deals” from Sears. ESL’s equity stake in Sears was worth $12 billion in 2007. That number fell to $5 billion in 2012, and is now less than $20 million, according to ESL. Lampert’s newly-filed court papers were in response to claims by creditors that ESL was secretly enriched by various financial actions. ESL is reportedly now looking to rescue as many as 400 Sears stores from bankruptcy. Ace Hardware Q3 sales rose 6.3% to $1.43 billion, fueled by new store growth, 1.8% comp sales growth and a 35% increase in ecommerce sales. During the quarter Ace added 50 new domestic stores and cancelled 24 stores. Retail revenues from Ace Retail Holdings, which is essentially the co-op owned Westlake Ace Hardware, rose 20.6% to $79.0 million, the result of 14 new retail stores added since the third quarter of 2017. The co-op’s investment in advertising also increased during the quarter. Expanded product assortments, higher inventory and increased warehouse employee turnover drove expenses up and profits down for the quarter. W.W. Grainger Kathleen S. Carroll becomes Grainger’s new Senior Vice President and Chief Human Resources Officer (CHRO) in early December. Carroll will succeed Joseph High, who, as previously announced, retired from Grainger earlier this year. She brings more than 25 years of experience, and joined Grainger from a senior executive position with First Midwest Bank. Amazon Amazon finally announced that Long Island City in Queens and Arlington, Virginia’s Crystal City will both become headquarters for Amazon’s HQ2, although analysts are now saying that since Amazon is splitting HQ2 into 2 and 3, perhaps they should just be looked at as regional offices. Virginia insists Amazon will be revenue positive from day one. Virginia offered Amazon $800 million in public incentives in investments designed to boost local university curricula and the tech workforce pipeline. In return, Amazon is expected to bring a $2.5 billion investment, 25,000 new jobs and 4 million square feet in development. The state of New York offered up a $1.5 billion package of incentives and is already being criticized for offering Amazon hundreds of millions of dollars in tax breaks when New York City’s infrastructure is badly in need up updating. Amazon is offering free shipping with no minimum purchase to all customers in the US this holiday season for the first time. The deal will last until Amazon can no longer promise items with free delivery in time for Christmas. Target has also scrapped the minimum order for free shipping until December 22. The news will put new pressure on Walmart as so far they are sticking to their $35 order threshold. Just over half of all US households currently subscribe to Prime, which now costs $119 a year. Amazon will offer Prime members additional perks, including free same-day delivery on more items through the holidays. Amazon is hiring fewer seasonal employees this holiday season. They plan to add about 100,000 temporary workers compared to the 120,000 they hired last year. Some analysts point to Amazon’s increasingly automated fulfillment centers that utilize robotic systems and say that Amazon will use robots to replace those 20,000 employees. CBI Insights estimates that the robotics have helped Amazon cut fulfillment operating center costs by 20%. However, Amazon says that they have focused on more ongoing, full-time hiring in their warehouses since the last holiday season and have overall increased hiring and points out that since they began using robotics in 2012, they have added nearly 300,000 full-time jobs globally. They are also hiring thousands of seasonal delivery drivers to supplement services provided by USPS, UPS and FedX. Amazon opened their Black Friday Deals Store, offering discounts on a wide range of products and other perks to lure holiday shoppers. Amazon and Apple finally came to an agreement, and Amazon will start selling and shipping all the latest Apple products with the exception of Apple’s HomePod speaker, which competes directly with Amazon’s Echo lineup. Amazon says third-party sellers currently selling Apple products will need to become authorized retailers; they believe this move will help cut down on counterfeiting. Amazon is expanding their 4-star store concept, opening a second location in Lone Tree, Colorado. They opened the first store featuring products that are rated four stars and above, trending and best-sellers, in September in Manhattan’s SoHo neighborhood. The 4,000-sq-ft. store features some items that the New York store does not carry, including sports and outdoor items, with about one-third of the space dedicated to consumer electronics. Amazon is partnering with Qualcomm to put Alexa in wireless headphones which will enable the user to talk to the Alexa voice assistant by tapping a button on the headphone, similar to how users of Apple’s wireless earbuds can tap the device in order to talk to Apple’s virtual assistant, Siri. Amazon has donated $100 million to charitable organizations through the AmazonSmile program, which allows customers to support their favorite designated charity every time they shop at no extra cost. Customers can select from more than one million local and national charities as well as schools, hospitals, cultural organizations, pet shelters and much more. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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