Distribution July 2018
Retail Sales Rise 0.8%
Retail sales rose 0.8% in May after rising 0.3% in April. Sales were up 5.9% from May 2017. The increase was twice what analysts were expecting. Core retail sales, which exclude autos, gasoline, building materials and food sales, rose 0.5% in May after rising 0.3% in April and were up 5.2% year over year. Sales at building material stores rose 2.4% after being revised downward to a 0.8% decline in April. Many economists continue to expect that the higher take-home pay that resulted from President Trump’s tax cuts will cause consumer spending to rise in the coming months.
Menards Takes Top Spot on J.D. Power
Menards took over the top spot on the annual J.D. Power Home Improvement Retailer Satisfaction Study. Ace Hardware, which held the top spot for the previous 11 years, came in second. The study factors in customer satisfaction with merchandise, price, sales and promotions, staff and service and store facility. Menards scored 836 points on the 1,000-point scale. Ace scored 832 and also performed highest in staff and service. Lowe’s scored 828 and performed highest in merchandise and store facility. Some other key findings: customers expect to receive assistance from a store employee within two minutes of entering the store. Satisfaction drives loyalty. Among respondents with overall satisfaction scores of 901 or above, 80% say they will definitely repurchase from the retailer, compared to the study average of 48% for all respondents. Additionally, 83% of respondents who are highly satisfied with a particular retailer would definitely recommend that retailer to others, compared to the study average of 49% who would recommend a retailer.
The Home Depot
From the Sanford Bernstein Strategic Decisions Conference:
Back in 2007 then CEO Frank Blake made a very tough decision on the best path for future growth, and changed the strategy from new square footage growth, which had driven company growth for 30 years, to productivity and efficiency. Back then they had been opening a new store every 48 hours. It was a huge cultural shift for them, but it was the right thing to do. Back then a typical home improvement retailer was supported by 75,000 to 80,000 households; today that number is closer to 38,000.
The other key strategic decision they made was to not construct a traditional retail supply chain. They aggregate up to 100 stores’ worth of product at their rapid deployment centers, which allows them to meet vendor minimums and speed up in-stock positions for customers.
They think they often make strategic choices that other retailers then follow several years later.
They contrasted their stock management model with Amazon’s, which is driven entirely by algorithms, with each buyer handling as many as 50,000 products, while theirs is driven by a combination of science and the art of merchandising. Menear said “Buyers buy products. Merchants sell products. We are focused on being merchants.”
In 2015 they did a study on what they see as opportunities and what they should focus on 8 to 10 years out. They brought in 4 different groups of millennials to design what the Home Depot of the future should look like, and they learned a lot of things from them. One thing they were pleased about was learning that stores would still matter, and that they have the same desires as previous generations. They do want to own a home, it’s just an issue of timing. THD thinks the typical cycle is delayed about 6 to 7 years, due to the fact that millennials are coming out of school heavily in debt, getting married later, having children later.
Over the next 3 years they will be investing $1.2 billion in building a downstream network that will take goods from distribution facilities and stores directly to customers’ homes and jobsites.
They purchased Interline to get back into a subset of the MRO space that they feel is important to their business: multifamily, hospitality and institutional.
They are focused on creating One Home Depot, so no matter what channel customers engage with, they think of them as Home Depot.
Right now about 60% of households are more than 30 years old; by 2020, 54% of households will be more than 40 years old. Older homes need more maintenance, which bodes well for their business. And more customers are remodeling because it’s easier than finding a new home with the features they want that they can afford.
Menear listed Costco and Nordstrom as two retailers he greatly admires.
Their M&A approach is to look at capabilities that make more sense to buy than to build.
They are doubling the investment they make in the business over the next three years to $11.1 billion. About half of the investment will go into stores for two specific purposes. First, going to the store needs to be a great experience. Second, they need it to be interconnected because the customer starts in the digital world, even if they finish in the physical world. They are also investing to give customers the two things they ask for, speed to checkout and more help finding things. They are focused on making it easier to shop and find things in stores. They will be spending more than 50% of the investment to make sure the stores are the hub of their business. They are also continuing to enhance digital capabilities and build out a more personalized approach for the customer, including a business to business website experience for business customers.
From the RBC Capital Markets Conference:
They hired 80,000 associates in Q1 and did not have any trouble finding them. They had multiple applications for most positions despite the tight labor market.
They assessed today’s competitive environment as fragmented, with mom and pops and regionals holding the overall majority of market share.
They have a clear advantage over Amazon in that Amazon cannot handle complex projects nor do they have 400,000 associates who can knowledgeably work with customers. When they perfect The Last Mile (store to customer) and get all of their delivery market centers up and running they will have a huge advantage over internet-only retailers. They already offer Pros a 2 to 4 hour delivery window.
Right now their specialized DCs cover about 30% of the US. They are planning to cover 90% within the next three to five years and want to be able to offer deliveries of two days or less to consumers.
Over the last two years much of the growth in comps has come from rising average ticket rather than an increasing number of transactions.
They are also focused on upgrading assortments and improving training to make sure they have the best associates in retail.
Tesla’s broad restructuring includes ending its partnership with Home Depot, according to a report by CNBC. THD said that they will remain partnered with Tesla through the end of the year and will continue to offer solar solutions. Tesla is reportedly laying off 9% of its workforce.
CFO Marshall Croom, who has spent 21 years in various financial roles with Lowe’s, is retiring in October, but will remain in the CFO position until a replacement is named and through a transition period.
Walmart is starting an order by text service, another step in their efforts to compete with Amazon. Customers will be able to order items from Walmart.com or even rival retailers’ websites and have them delivered the same day. The same-day and next-day delivery will be free with a Jetblack membership, which costs $50 annually. Amazon Prime recently raised the annual cost of membership 20% to $119.
Walmart is suing to prevent a former top tax executive from taking a job with Amazon, arguing that Lisa Wadlin has sensitive information that would be a significant advantage to a competitor, including knowledge of strategic information and future business plans, along with mergers and acquisitions. Wadlin is bound by a non-compete clause.
Sears will expand the number of stores in which customers can have tires purchased on Amazon installed from 47 to 118. More than 90% of Amazon tire buyers are new to Sears’ auto services.
Giant Eagle opened their first Ace Hardware location; it’s in North Huntington, Pennsylvania. Remodeling at other Giant Eagle locations is expected to begin later this year. Ace announced the partnership in April of this year. Ace has entered into similar arrangements with independent grocery retailers but is starting to team up with larger players. Progressive Grocer reported earlier this year that The Kroger Co. was exploring the idea of a store-within-a-store concept with Ace.
Amazon is teaming up with American Express to launch a credit card for small businesses. Amex has stated they want to become the leading payments and working-capital provider for small and middle-market companies. They reported small business credit card balances of $11.4 billion globally for the first quarter, a 14% increase from the previous year. Amazon has separate deals with JPMorgan Chase, which issues Amazon consumer credit cards and Synchrony Financial, which issues cards that are primarily limited to Amazon-only purchases.
Amazon pushed back when the Seattle City Council approved legislation imposing taxes on Amazon and other large companies in order to help combat the homeless situation. Amazon temporarily halted construction planning on a new high-rise building near their Seattle headquarters in protest. In the end, city leaders capitulated to pressure and reversed their decision. The tax would have charged companies about $275 per full-time worker each year for affordable housing and homeless services. It targeted nearly 600 businesses making at least $20 million in gross revenue. The companies fought back with an effort bannered “No Tax on Jobs.”
© Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
Comments are closed.