Distribution December 2021
Retail Sales Rise 1.7%
Retail sales rose 1.7% in October after rising 0.7% in September, well ahead of expectations. Sales were up 16.3% year over year. Spending rose 4% at online retailers. Analysts noted that online shopping was dominating early holiday shopping but expect in-store shopping to rise as the holidays draw closer and shipping deadlines loom. Excluding automobiles, gasoline, building materials and food services, core retail sales rose 1.6%, doubling September’s increase. Core retail sales were up 11.3% year over year. Core retail sales correspond most closely with the consumer spending component of GDP. The National Retail Federation 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.
Holiday Sales Recap
Nearly 180 million Americans shopped from Thanksgiving Day through Cyber Monday, according to the annual survey from the National Retail Federation and Prosper Insights & Analytics. That’s down from 186.4 million shoppers in 2020, but about in line with the average of the past four years. With retailers offering up deals as early as October, 49% of shoppers said they started shopping well before Thanksgiving.
The number of people who shopped in stores was up from 2020 but still down 23% from pre-pandemic levels. The total number of online shoppers decreased as people became more comfortable returning to stores.
Black Friday remained the most popular day for both in-store and online shopping, with 66.5 million shoppers in store and 88 million shopping online, compared to 77 million who shopped on Cyber Monday. About 51 million shoppers supported local businesses by going shopping on Small Business Saturday. By the end of the four-day holiday shopping period more than three-quarters of shoppers had completed at least half of their holiday shopping.
Thanksgiving weekend shoppers spent an average of $301.27 on holiday-related purchases such as gifts, décor, apparel and toys. That’s down slightly from $311.75 in 2020. As in previous years, about two-thirds was spent directly on gifts. As always, many people shopped both in stores and online.
The Home Depot
Q3 sales rose 9.8% to $36.8 billion and comp sales rose 6.1% overall and 5.5% in the US. Both overall sales and comp sales greatly exceeded expectations.
Q3 Conference Call with Analysts:
Twelve of 14 merchandising departments posted positive comps, including building materials, tools and appliances. Lumber posted high negative comps as lumber prices declined to more normal levels.
Comp average ticket rose 12.7%, driven in part by inflation across several product categories. Commodity categories positively impacted average ticket. Comp transactions dropped 5.8%.
On a 2-year basis both comp average tickets and comp transactions were healthy and positive. Big ticket comp transactions, which are tickets of $1,000 or more, rose 18% compared to Q3 2020. Pro sales growth continued to outpace DIY growth.
Digital sales (online and mobile) grew 8% in Q3, bringing their two-year growth in digital sales to 95%.
Customers continue to utilize all channels; 55% of online orders are picked up in or fulfilled by stores.
They are focusing on making in-store space more productive while also enhancing the customer’s shopping experience. By using models along with the expertise of local field merchants they were able to create store specific plans that adjusted assortments and made better use of space. The changes improved sales per square foot, in-stock availability and labor utilization as well as customer satisfaction scores. They will be rolling out to 400 stores this year and targeting more stores for 2022.
At the end of Q3 inventories were up $4.4 billion compared to last year with inventory turns of 5.4 times compared to 5.9 times during Q3 2020.
They saw record sales for their Halloween event featuring exclusive product offerings and innovative approaches. They intend to apply the same principles to their holiday, Black Friday and Gift Center events coming up.
They are managing to a relatively short cycle because they don’t believe they can accurately predict how the external environment and cost pressures will evolve or how they will ultimately impact consumer spending. In order to deal with that uncertainty, they are committed to remaining flexible and nimble.
They are very pleased with their overall growth with the Pro customer. Larger Pros were more challenged during the pandemic; that business is recovering. They’ve relaunched their Pro loyalty program and are seeing record enrollment. Pros respond to the fact that their supply chain can deliver products that are often in short supply elsewhere. For example, despite nationwide paint shortages they have remained in good positions with their two key paint suppliers.
Pros report that they still have multiple weeks and months of backlogs, ensuring that Pro demand will continue.
Their business-to-business (B2B) website and Pro app are both performing at record levels. Basket sizes, tickets and transactions are all growing and Pros are spending more time on the website and using the app. Pros engage with them at a much higher level than the average customer. They are able to reach out to Pros through field sales, Pro associates in the stores and through digital marketing channels.
Their one supply chain rollout is going “incredibly” well as they transition to their new bulk distribution centers. Seven of their flatbed distribution centers are up and running now. Eventually a total of more than 20 direct fulfillment centers will let them provide 90% of the country with same day or next day delivery. They’ve taken over the delivery of about half of their appliance volume and are on target to deliver all big and bulky products from fulfillment centers.
They believe that supply chain bottlenecks and other challenges are likely to persist well into or through 2022 and they will continue to work hard to make sure they continue to get what they referred to as “disproportionate flow” i.e., more than their share of goods.
Beginning in the second quarter their merchant inventory and supply chain teams leveraged tools and analytics and worked with their vendor partners to adjust assortments and in some cases turn to alternative products. Their efforts have enabled them to improve their in-stock positions even though demand has remained high.
Their mix of tools and other products that are popular in the fourth quarter are largely sourced from overseas and supplies may impact Q4 sales even though they have already received most of their Q4 goods. Even though they still have 95 container ships parked off Long Beach they are not overly concerned about the product.
Product costs, transportation costs and wage pressure all have real impacts that are hard to project so they need to stay flexible and manage to them.
They believe that the increase in home values makes people feel good about investing in their homes. The housing shortage is creating a backlog of demand that they believe will be present for quite some time.
Throughout the third quarter they saw weekend traffic flow pick up without any real drop in weekday traffic.
Share data is difficult to pinpoint exactly, but based on government data, third-party trackers and conversations with their suppliers, they believe they are growing their share faster than the market is growing overall.
Some suppliers have made the decision to focus exclusively on The Home Depot because they are not able to service everyone due to shortages of goods and other supply side issues. Their exclusives give both Pro and DIY customers more reasons to shop with them.
THD hosted their first-ever Corporate Career Day the end of November. The virtual event was open to external job seekers at all levels and all career interests. Participants learned about corporate career opportunities and joined discussions led by THD’s corporate leadership team members on topics including retail technology and coding, creating an interconnected customer experience, product, company culture and more.
Q3 sales grew 2.7% to $22.9 billion and comp sales grew 2.6%. Online sales rose 25%.
Q3 Conference Call with Analysts:
They credited their Total Home strategy for growing their share of wallet, with both Pro and DIY customers becoming more confident that Lowe’s can meet their project needs.
Like most retailers, they are looking at sales and trends on a two-year basis, because comparisons to 2020 don’t make sense. The only way they can get a handle of real trends is to compare them to pre-pandemic figures. Just as an example, they incurred $45 million in CV19 related expenses during the quarter, compared to $290 million in Q3 last year.
They were also comfortable enough with their growth trajectory to issue quarterly guidance, something that many other retailers have not wanted to do. Their improved expectations for 2021 include sales of $95 billion compared to the $92 billion forecast earlier; that would produce two-year sales growth of 33%.
Customers are more aware of potential global supply chain disruptions and are more likely to purchase products as soon as they are available.
Their battery-powered outdoor power equipment sales grew more than 20% during the quarter and had strong sales to both DIY and Pro customers. They are continuing to expand the brands and products available.
They continue to build out their Pro power tool accessory program and launched new products from Spyder and DeWalt, including exclusive circular saw blades from both brands.
They saw an increase in DIY demand on weekends as children returned to school and travel slowed.
Tickets over $500 increased 11%, thanks in part to particularly strong performances in appliances and flooring. Comp average ticket increased 9.7%. Commodity inflation did not have a material impact on comp sales for Q3 as deflation in lumber was largely offset by inflation in other categories. Comp transactions dropped 7.5% during the quarter due to lower sales to DIY customers of smaller-ticket items, as well as lower DIY lumber unit sales.
They are making significant progress growing Pro sales, with Pro sales up 16% for the quarter and 43% on a two-year basis.
They recently completed their first Pro Pulse Survey, which was designed to give them more insight into what Pros want. They are encouraged about how optimistic Pros are about the future and their strong job pipelines. A full 80% of Pros expect the increased home improvement demand that developed during the worst of the pandemic to keep growing and continue well into 2022. They have insight into the top five projects Pros will be focused on next year. Also, many Pros say they plan to take advantage of holiday deals by buying tools and supplies.
Pros are also responding very well to their new in-store convenience features, including Pro trailer parking, free phone charging stations and air stations for refilling tires. They are also working on carrying more job-lot quantities and maintain consistent in-stock positions for high demand goods. Pros are always in a hurry and if they come in and don’t find what they want they think twice about coming back.
With quarterly growth of 25%, online sales represented 9% of sales for the quarter with two-year comp growth of 158%. They launched a paint visualizer during the third quarter and are continually working on fully integrating the online and in-store shopping experiences.
They have been ordering inventory much earlier in order to assure supplies and minimize cost increases, including seasonal buys for 2021 and 2022. They have a growing network of coastal holding facilities so they can hold products upstream from their regional and bulk distribution centers until they are needed. Even though they are carrying more inventory than normal there are areas where they would like to be even heavier but are limited by supplies.
Building inventory has also helped them take advantage of changing consumer habits, such as the early season buying that began in October. Their tools business shifted into a gifting mode very early and storage products have also been moving briskly.
Their perpetual productivity improvement (PPI) initiatives are designed to make incremental improvements in processes. Two examples are a simplified interface at checkout that has allowed them to train cashiers more quickly and also improve the customer experience. It has worked so well they have started introducing the simplified interface to other selling stations throughout the store. Lowe’s internally designed self-checkout stations are another good example. The new screens are so much easier to use they are seeing much higher customer adoption rates.
During the quarter they offered first responders a discount for the first time.
After seeing the success of their market-based delivery model for big and bulky products in their test market in Florida, they expanded to their second geographic area, the Ohio Valley region. The new delivery model is driving higher sales in appliances as well as improving operating margins, reducing inventory and raising their on-time delivery rate. They plan to complete the US rollout over the next 18 months.
On the conference call they also announced the launch of Lowe’s Livable Home products and installation services as part of a collaboration with AARP. They will offer affordable on-trend solutions such as walk-in bathtubs, grab bars, stairlifts, nonslip floors, pull-down cabinets and wheelchair ramps so customers can modify their homes and age in place.
Results in Canada lagged the US as the Canadian business is more heavily weighted toward lumber.
Lowe’s was named Fortune’s Most Admired Specialty Retailer for the first time in 17 years.
Lowe’s recently launched program, “Making It...With Lowe’s, is designed to help entrepreneurs take their ideas to market. The entrepreneurs who are chosen receive grants and mentoring from Shark Tank star Daymond John. Lowe’s says it is part of their commitment to small, diverse businesses.
Q3 revenue grew 4.3% to $140.53 billion, beating expectations. Comp sales excluding fuel rose 9.2%, driven by high grocery demand and people buying more at stores. Walmart reported they added 11.5% to their inventory for the quarter to meet holiday demand. They now expect full-year US comp sales to exceed 6%, topping the high end of their previous forecast.
CFO Brett Briggs will step down next year. Analysts were surprised, as the long-time exec was considered the logical successor to CEO Doug McMillon. Biggs will remain in the role until a successor is named next year and will continue to represent the company as a board member of their fintech startup until January 2023. The startup, a joint venture with investment firm Ribbit Capital, aims to develop financial products for Walmart's employees and customers. Walmart said it was considering internal and external candidates to replace Biggs.
Q3 revenues rose 1.4% from Q3 2020 to a record $2.0 billion. On a two-year basis revenue was up 32%. US retail comp sales reported by the 3,400 Ace retailers who share daily retail sales rose 0.3% during the quarter, a result of a 7.5% increase in average ticket that was offset by a 6.7% drop in comp store transactions.
Ace added 48 new domestic stores in the third quarter and cancelled 18 stores, leaving the company’s total domestic store count at the end of the third quarter up by 174 stores to 4,759.
More than three-quarters of Americans planned to host or attend a Thanksgiving celebration this year, with only 17% planning to quarantine compared to 40% last year. Ace held their popular Thanksgrilling event in stores nationwide the weekend before Thanksgiving. In order to prepare for the event, Ace holds BBQ boot camp training for associates so they can knowledgeably assist customers. Many stores brought in local chefs and grill experts for free demonstrations and consultations. On December 4 participating stores will host a Gifts and Grilling party that will focus on indoor and outdoor power tools, Yeti products and the best in grills from Weber, Traeger and Big Green Egg.
Amazon set off alarm bells by announcing that they are considering dropping Visa as a partner on their US-branded credit card after confirming they would stop accepting Visa credit cards in the UK due to an intensifying dispute over payments. They are reportedly in talks with several payment networks, including Mastercard and American Express. In October, Visa began charging 1.5% of the transaction value for credit card payments made online or over the phone between the UK and the EU. In 2016 Walmart’s Canadian division stopped accepting Visa after being unable to reach an agreement on fees; it took seven months to settle that dispute.
Amazon agreed to pay the state of California $500,000 for concealing CV19 case numbers from workers. It was the first such action under the state’s new “right to know” law meant to improve workplace safety. Amazon also agreed to submit to monitoring and improve how it notifies local health agencies and workers about cases in the workplace. While not a big fine for Amazon, it’s a very large fine from the California Division of OSHA for safety violations.
Amazon’s most recent employee survey showed that people want to go back to the office two to three days per week and work remotely the rest of the time. The hybrid office concept is gaining momentum as employees and employers look for ways to deliver the productivity and flexibility of remote work along with the opportunity for networking, brainstorming and team interactions provided in office settings.
Amazon asked the US government for permission to send two high-speed Internet provider satellites into space in 2022. Amazon stated that the satellites will allow them to test the communication and network technology they will use in their final design and is one of the first steps towards completing the Kuiper project. The project will launch 3,236 satellites into space that will orbit a short distance from Earth and provide high-speed internet to all parts of the world. Amazon has promised to invest more than $10 billion dollars in this project.
Amazon’s biggest, newest warehouse, a five-story behemoth the size of 17 football fields, employs ten robots for every human. The $250 million facility in New Castle, Delaware, is home to 10,000 robots and about 1,000 human workers who all spend 10 to 12 hour shifts at the 3.7 million-square foot complex. Amazon has plans to open more super-centers, as robots make it easier to manage inventory and speed deliveries. Amazon says automation frees workers from boring, repetitive tasks. Warehouse turnover is traditionally very high, with 100% annual turnover not uncommon.
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