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Retail Sales Rise 0.3% Retail sales inched up 0.3% in October after rising a downwardly revised 1.6% in September and were up 5.7% from October 2019. Although the pace of sales was below expectations and well below September’s surge, it was the sixth consecutive monthly increase in retail sales. Core retail sales, which exclude automobiles, gasoline and sales at building and supply stores and food services and factor into calculations for GDP, inched up 0.1% in November after rising a downwardly revised 0.9% in October. Online and other non-store sales were up 3.1% from September and 26.3% year over year. Holiday Sales Break Records Holiday sales over the long Thanksgiving weekend broke online sales records on both Black Friday and Cyber Monday, with Black Friday online sales of $9 billion and Cyber Monday online sales coming in at nearly $13 billion. Brick and mortar stores saw foot traffic on Black Friday drop about 48%, but in-store sales only fell about 30%, according to retail analytics firm RetailNext, which noted that shoppers that did venture out were very intent on purchasing as much as possible. Analysts say sales overall reflect the fact that consumers began shopping much earlier in the season, and retailers actively attempted to avoid using very limited time promotions to draw big crowds. The Home Depot Q3 sales rose 23% to $33.54 billion, exceeding analysts’ expectations. Comp sales rose 25% in the US and 24% year over year in all markets. The number of customer transactions rose 13% from Q3 2019 and average ticket rose to $72.98. Sales per square foot increased more than $100 to $552.85. Conference Call with Analysts: Comp average ticket increased 10%, with all of their top 40 markets posting double-digit comps, and Canada posting comps above the company average. Visits, app use, app downloads and mobile use have all risen dramatically. They saw strong double-digit growth from both Pro and DIY customers. Growth with smaller Pros has been consistently in the double-digits and growth with large Pros has been healthy and has grown from Q2 even through some large Pros are suffering because customers are not comfortable letting people into their homes. Big ticket comp transactions of more than $1,000 were up 23%. DIY customers are gaining confidence in their abilities and tackling more projects. A variety of categories posted comps well above average, including power tools. They are featuring several exclusive power tool assortments in their gift centers. They’ve adjusted their Black Friday events this year to cover an extended period of time and reorganized how they are staging their gift centers to assist with social distancing. All the actions they have taken across the supply chain and in partnership with their suppliers have enabled them to improve in-stock levels, reduce lead times, better manage in-store replenishment and improve fulfillment options and delivery times. Sales using their digital platforms are up approximately 80% compared to Q3 last year and they have had record-level web traffic for more than six months. Approximately 60% of online orders are fulfilled through a store. Their online business grew nearly $2 billion in the quarter. They have used their online platform to showcase assortments for events, and their Halloween event produced the strongest customer response they’ve had. They are expecting holiday to perform very well also as people look for some sort of normalcy. They will continue to focus on taking care of their people, extending weekly bonuses for hourly associates in stores and distribution centers for the full third quarter. They have decided to give all the frontline hourly associates permanent increases instead of temporary weekly bonuses. They implemented mechanized floor loading in two-thirds of their rapid deployment centers, which has helped reduce lead time, improved in-stock positions and improved productivity. Merchandise inventories were up $444 million to $16.2 billion and inventory turns were 5.9x, up from 5x in Q3 2019. Customers tell them their homes have never been more important to them, and they intend to continue to invest in them. Continued growth in household formation, appreciating home prices and low inventory are all creating very strong housing metrics. They are finishing the investment in the new look and feel for their stores, and the signage packages will be in all US stores this year. It will be the first time the brand standard across all the US stores has been the same since they opened in 1979. They are trying to position THD to grow faster than the market on a consistent basis no matter what the operating environment is. They plan inventory week to week and release orders every day. About 70% of what they purchase is domestic goods with short lead times. In stocks are still not where they would like them to be but they are much better than when the pandemic hit. THD agreed to buy HD Supply Holdings for about $8.7 billion, bringing the wholesale distributor of electrical, plumbing, janitorial and other supplies back under the Home Depot banner. THD sold HDS in 2007 to a coalition spearheaded by Bain Capital for about $8.4 billion. CEO Craig Menear noted that the MRO customer is an important Pro customer for THD, and the success they have had with their existing MRO business makes them confident than can grow share in the highly fragmented $55 billion MRO market. HD Supply has about 44 distribution centers in the US and Canada and reported sales of nearly $6 billion in the latest fiscal year, although about half of that revenue came from the White Cap construction unit that was sold to Clayton Dubilier for $2.9 billion in cash. HD Supply competes with W.W. Grainger, Fastenal and HD’s own Pro business. Analysts say the deal will accelerate Home Depot’s initiatives to serve professional customers, broaden their ability to provide job-site delivery and help them penetrate the under-served MRO market. Other News: The pandemic pushed THD into rapidly developing services that allowed customers to safely shop in stores, according to Matt Carey, THD’s CIO, who did an in-depth interview with The Wall Street Journal. According to Carey, they went to crowd-limiting very early and had an app deployed within 24 hours that allowed associates to control the crowds coming in and out of the store. Over the ensuing months they got an immense amount of customer feedback related to the digital capabilities they offer. As an example, curbside pickup started out as a very manual process; associates actually made homemade signs that said “Curbside Pickup, Park Here” and met people in the parking lot. Curbside is now fully embedded in their app; customers can opt-in to location alerts that will automatically notify the store that they are there to pick up their order. They are seeing that many of the customers who were “forced” into trying to fix something themselves by the pandemic quickly developed confidence in their abilities and subsequently took on increasingly complex and ambitious projects. THD now has an image search function on their app that allows users to take a photo of their project and find what they need. They have also added voice search, product reviews and insights from other customers and an in-store product locator that will take shoppers to the exact aisle and bay that has what they’re looking for. THD reached a $17.5 million settlement to resolve a multistate probe into a 2014 data breach that allowed hackers to access payment card data belonging to 40 million customers. The settlement with 46 US states and Washington DC involved hackers using a vendor’s user name and password to infiltrate Home Depot’s network and deploy custom-built malware. THD noted that security is a top priority and that since 2014 they have invested heavily to further secure their systems. Lowe’s Q3 sales rose 29% to $22.4 billion and comp sales rose 30.1%, besting analysts’ expectations for sales, but falling short of expectations for earnings. Conference Call with Analysts: There was consistent growth across all channels and geographies. Growth exceeded 15% across all merchandising departments, 20% across all geographic regions and triple digits on lowes.com. Overall sales on the website grew 106%, with online business representing 7% of sales overall. DIY comps outpaced Pro comps, with consumers focused on redesigning the functionality of their homes and many still reluctant to allow Pros to work inside. Customers are focused on creating a home office, home school and home center for recreation and entertainment. The Pro business remained strong with comps exceeding 20%. They are seeing a significant number of new Pro customers, with good repeat purchases. They launched a significant merchandising investment in the third quarter to reset the footprint of their US stores, shifting to a project-focused layout versus a product-focused layout. They believe the changes will create a more intuitive shopping experience for customers, especially Pros. They continue to see strong sales trends in urban areas, with comp sales in urban markets outperforming remote or rural markets by more than 500 basis points. Customers were actively engaged in outdoor projects over the quarter, and they continued to strengthen their position as the number one destination for outdoor power equipment. The have been rapidly enhancing their website since re-platforming it to the cloud. They are working to deliver a better customer experience, including enhanced delivery scheduling, easier shopping over product collections and the ability to ship products like lithium batteries that require special handling. They are adding a Pro flex area, making it easier for Pros to grab and go. Secondly, they are moving the cleaning category to the main or first aisle in the stores. They are eliminating all bays without planograms so they can open up areas to higher velocity displays. Their first-ever drive through curbside trick or treat event at the stores was a huge success. They gave away candy and pumpkins to hundreds of thousands of families who did not have the usual ways to celebrate Halloween. They feel customers will be spending much more time at home over the holidays and they plan to deliver a season of savings over an extended period to avoid creating congestion in their stores. Their recent annual associate survey showed that associates feel supported by the company during this challenging year and that they are energized by their work. They are bringing on 20,000 associates across US stores and distribution centers for the holidays to support elevated customer demand. They have begun adding touchless buy online pick up in store (BOPUS) lockers to their stores to complement curbside pick-up and pick-up at checkouts. They focused on rolling out these touchless lockers by Thanksgiving in major metro markets, along with dedicated fulfillment teams who are already improving speed of service and customers satisfaction. They are encouraged by the initial results from the tool rental program that uses an online platform to allow people to reserve their tools ahead of time. They are getting strong feedback from both DIYers and Pros for the program, which debuted in Charlotte in August. They believe that post-Covid, what they call the “nesting effect” will begin to decline and the Pro business will grow exponentially as people become comfortable again with having others work in their homes. They are investing so heavily in their Pro capabilities now because they know they have an opportunity to grow their Pro business significantly. They are committed to the core retail business; they will target the MRO segment as part of their current Pro strategy with their outside sales reps. They probably are investing an incremental $70 million or so per quarter on costs associated with cleanliness and safety and expect that to continue for quite some time. They have been experiencing shrink pressure over the past several quarters, and have a good sense of where it originates and the challenges in preventing it. They have been making significant investments from a loss prevention standpoint and are making progress. They will be doing an in-depth update for investors on December 9 during which they will go over many of their long-term plans. Other News: Lowe’s is building a massive bulk distribution center in Alabama that will provide daily shipments of appliances, riding mowers, grills, patio furniture and other bulky items to Lowe’s cross-dock facilities for last-mile delivery to customers. They will also replenish inventory at more than 112 stores in seven states. The 1.2 million-square-foot facility is part of a $1.7 billion investment Lowe’s is making in their supply chain through 2023. Lowe’s is interested in subleasing about 100,000 of their 200,728 square feet of office space in Charlotte Plaza. A Lowe’s spokesperson said that the company’s tech team occupied three floors at the Plaza prior to transitioning to remote work this spring. Walmart Q3 sales rose 5.2% to $134.7 billion, beating expectations. Comp sales in the US rose 6.4% excluding fuel, well above expectations. Sam's Club comp sales rose 11.1%, an indication of how shopping patterns have changed and customers are trying to make fewer trips to the store and buy more when they go. US ecommerce sales grew 79% with strong results across all channels and helped boost comp sales and profit margins. CEO Doug McMillon said that they’ve accomplished three to five years’ worth of ecommerce growth this year. McMillon said that the surge in demand for essentials seen at the peak of the coronavirus lockdowns carried into the second half of the year, with consumers relying heavily on Walmart’s same-day delivery and store pick-up services. While optimistic about holiday sales, McMillon noted that resurging CV19 cases and possible restrictions along with continued expenses related to ensuring worker and customer safety and compensating the workforce may pressure margins. Walmart is reinforcing safety procedures and has resumed limiting the number of shoppers allowed in stores at one time. They noted that consumers were stocking up again on paper goods, cleaning supplies and dry grocery, and said they would be able to respond in this instance better than it did at the start of the pandemic, but cautioned that the supply chain was "still stressed in some places." Walmart is creating pop-up ecommerce distribution centers to fulfill home delivery orders and meet holiday demand. They’re taking space in 42 of their existing regional distribution centers (RDCs) across the US, and expect to ship up to 30% of holiday volume using them. Traditionally, RDCs ship pallets of goods to Walmart stores, but supply chain technology enhancements will allow them to deliver directly to customers. Walmart launched Walmart Pet Care, a full service, omnichannel business that will include not only goods but services such as pet insurance, dog walking and pet sitting, via partnerships with PetPlan and Rover, and its online pharmacy. Analysts say Walmart’s push to provide more products and services meshes well with consumers’ desires to shop at fewer stores during the pandemic. In addition, it fits in well with Walmart’s focus on high-growth businesses, as the pet care economy has been booming. W.W. Grainger Q3 sales rose 2.4% to $3.0 billion and organic daily sales rose 4.6%, driven by significant share gains in the US segment and strong growth in the endless assortment businesses which more than offset declines in Canada. US segment sales were up 3.1%, outperforming the MRO market, which declined an estimated 5% to 6%. This increase was driven largely by higher volumes of pandemic-related products, partially offset by year-over-year decreases in non-pandemic product sales. The declines in non-pandemic product sales continued to moderate, while growth in pandemic product sales remained elevated, but began to ease from the levels experienced earlier in the year. There was no material impact from foreign exchange rates during the 2020 third quarter and the third quarter of 2019 and 2020 had the same number of selling days. Ace Q3 revenues rose 30.7% to a record $2.0 billion and US comp sales rose 28.9%. Acehardware.com revenues soared 221%. The 28.9% increase in U.S. retail comp store sales reported by the approximately 3,300 Ace retailers who share daily retail sales data was the result of a 12.3% increase in transactions and a 14.8% increase in average ticket. Ace added 43 new domestic stores in the third quarter of 2020 and cancelled 22 stores. The Company’s total domestic store count was 4,585 at the end of the third quarter, which was an increase of 57 stores from the third quarter of 2019. On a worldwide basis, Ace added 46 stores and cancelled 29, bringing the worldwide store count to 5,403. Ace Hardware is asking people to decorate their homes with festive lights and then share on social media as part of the #AceLightsUpTheTown contest that supports Children’s Miracle Network Hospitals (CMNH). The three towns with the most submissions will win a donation in the town’s name to their local CMNH. Ace has partnered with CMNH since 1991 and has raised more than $130 million nationwide. Ace Hardware was named a 2020 Top Workplace by the Chicago Tribune. The Top Workplace designation is based solely on employee feedback gathered from Ace Hardware corporate team members through a third party survey administered by research partner Energage. The anonymous survey measures several aspects of workplace cultures that are critical to the success of an organization. Ace was ranked No. 4 on the survey; this is the fourth consecutive year Ace has ranked among the top 10 workplaces. Amazon Amazon expanded their test of in-garage delivery for Prime members from the initial 50-city market to more than 4,000 cities and towns across the US. The Key program is not mandatory; it is designed to give customers peace of mind and help them keep porch pirates at bay. In order to utilize the service, Amazon Prime members need a myQ smart garage door opener. The driver receives a temporary, one-time access code for the garage door; once it is closed, the key expires. All drivers that participate must undergo extensive background checks and are not permitted to go further than five feet into the garage. The European Commission is formally charging Amazon with distorting competition on their online marketplace through Amazon’s use of data involving independent sellers. Amazon is already being targeted by the governments of major European countries, including Germany, France and the UK, for failing to pay taxes. Amazon reported a 51% jump in advertising revenue to almost $5.4 billion the third quarter. Amazon’s ad business is high margin. Amazon opened an online pharmacy that allows customers to order medication or prescription refills and have them delivered in just a few days. The news sent stock prices for pharmaceutical retailers like Walgreens and CVS tumbling. Most insurance is accepted, and Prime members who don’t have insurance can also buy generic or brand name drugs. © Robert Bosch Tool Corporation. 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