Retail Sales Fall 0.6%
Retail sales fell 0.6% in November after rising 1.3% in October. It was the biggest decline in retail sales in 11 months and was largely due to falling automobile sales, which are sensitive to rising interest rates. Sales fell 2.5% at home centers and also fell at department stores, online retailers and outlets that sell clothing, home furnishings and recreational items. Shoppers spent less on holiday categories including electronics, clothing, and sporting goods, both online and at department stores. They spent more on everyday staples such as food and at health-care stores, but also on restaurant meals. Unlike many government reports, retail sales aren't adjusted for inflation and can reflect price differences in addition to purchase totals so are impacted by rising prices. Core retail sales, which exclude automobiles, gasoline, building materials and food services, dropped 0.2% after rising a downwardly revised 0.75% in October. The retail sales report covers about a third of overall consumer spending and doesn't include services, such as travel and entertainment. Core retail sales correspond most closely with the consumer spending component of GDP.
The Home Depot
From the Goldman Sachs Retail Conference:
Pro and DIY customers are very engaged in the home. The Pro backlog remains very healthy, and that's what they saw in Q2.
They saw positive comps with both Pro customers and DIY customers, and CEO Ted Decker thinks that is due to the somewhat unique customer base THD has.
THD’s customers tend to be homeowners with strong income levels sitting on an incredible increase in the value of their homes. Homes are the principal asset that home improvement is focused on.
THD believes home values overall have gone up $8 to $9 trillion over the last 2 years. While that growth in value has slowed somewhat in recent periods, home appreciation is still up 8% year-over-year.
In addition, people have been spending more time in their homes, which also supports demand. Despite all the work done during the pandemic, no one is ever done with their home project to-do list.
Aging housing stock ensures an ongoing need for maintenance, repairs and updating. Even as people transition back to the office, many companies are adopting hybrid working models, which means people need a permanent workspace at home. That need can also drive a major remodel. During the pandemic there was a huge spike in improving the outdoor space. Now there is more emphasis on inside projects.
Their seasonal business underperformed, most likely because so many projects were done during the pandemic that the comparisons were tough.
They believe their total addressable market is about $900 billion, also about 50/50 Pro and consumer. The Pro has always been very important to THD. They believe that if they satisfy the Pro with the brands, the pricing and the inventory availability they need, the consumer will piggyback on that. So they’ve always focused on the Pro piece of the business.
They tend to do much better with smaller Pros who buy virtually everything needed for a project from THD. With larger Pros they have been more of an infill/emergency supplier. To get the larger share of wallet, or what they call the Pro planned purchase for those larger Pros, they need to build up a series of capabilities to satisfy that Pro.
Big Pros want a point of contact, logistics support and ways to expedite their orders. They require that THD be able to provide on-time and complete delivery to the job site. In order to meet those expectations, THD is beefing up all their large Pro capabilities and building out their One Supply Chain. They also need to expand assortments to better serve larger Pros.
Pros often demand delivery from flatbed facilities. That can be logistically challenging. Just the process of building and packaging an order can make the Pro’s life much more productive.
Bulk and flatbed distribution centers also help take activity out of the store and make store personnel more available to customers. They noted that it is very inefficient to ship product to a store, stage it on shelf for retail and then clog up the aisles taking it back down again, packaging it, putting it back on an 18-wheeler truck and delivering it to a job site. Plus they would often have to go to multiple stores to fill a Pro order. Now they can load up the night before and ship out early in the morning.
They have a deep understanding of virtually all the cost components of every product that they sell. They tear down products and have labs around the globe that look at commodities and parts and pieces of virtually everything they sell. They analyze all costs, including labor and energy, and manage accordingly with their suppliers.
They pride themselves in being an everyday value retailer for the majority of their business, which allows them to be the value leader. They participate in promotions in specific categories that are traditionally promotionally-driven, such as appliances. They now have 100% of their appliance delivery volume managed through their market delivery operations, which has really improved the customer experience.
Their project business remained healthy. They saw double-digit comp performance in building materials, plumbing, lumber and new work departments as well as in other categories like fencing, siding, conduit boxes and fittings, tubs and showers and cabinets.
On-time and complete deliveries have increased meaningfully, and customer satisfaction metrics have gone up 6% over third quarter last year.
Online sales leveraging their digital platforms increased nearly 10% compared to the third quarter of last year. Approximately 50% of their online orders were fulfilled through their stores.
THD landed on several investment firms and analysts best investment bets for 2023 list. Analysts noted that Home Depot delivers best-in-class retail execution with leading Pro share that should help them weather a challenging macro climate in 2023. THD is expected to further consolidate market share as they expand their share of the Pro market with their flatbed distribution centers and improved inventory programs for Pro.
Walmart introduced their latest digital shopping tool, called TrendGetter, which enables image-based search and suggestions from Walmart’s extensive inventory. Walmart says the technology will allow customers to find lower-priced options as well as make sure they’re getting the lowest possible price, which Walmart assumes will be the Walmart price.
Amazon is offering $2 dollars per month to a select group of users who choose to participate in the company’s invite-only ad verification program, according to a Business Insider article. Amazon will track what ads participants see as well as where and when they see them. They’re looking to better hone their ad personalization and ensure that ads more closely reflect previous purchases. The program is being launched as an add-on to the Amazon Shopper Panel, which pays participants $10 per month for uploading 10 receipts of purchases made at non-Amazon retailers.
Over the last year, Amazon made almost $36 billion dollars from advertising versus just over $34 billion from all of its subscription programs combined, including its hallmark service, Amazon Prime.
Amazon Prime customers must be very thankful for their overworked drivers; a program that promised drivers would get a $5 tip from Alexa if people simply told her to thank their driver hit its $1 million cap in just a few hours.
Amazon is rolling out Inspire to select customers. Inspire allows people to tap on a video or photo and quickly see colors, options, reviews and prices. They can choose from more than 20 different interests, such as gaming, pets or make-up, to personalize their feed. As the feature rolls out in the coming months Amazon plans to add more shoppable content, with a focus on more immersive shopping experiences tailored to people’s interests.
© Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.