Retail Sales Fall 0.2%
Retail sales fell 0.2% in April after rising 1.6% in March. Core retail sales, which exclude food services, car dealers, building-materials stores and gasoline, also fell 0.2%, reflecting broad weakness in the retail sector. Rising prices at the pump pushed sales at gas stations up 1.8%. Rising gas prices generally mean consumers have less disposable income to spend on other things. However, economists say that rising wages and the lowest layoffs and unemployment rate in 50 years should keep the US growing steadily through the summer. Sales at building materials and garden supply stores fell 1.9%, but were up 3.3% year over year. The National Retail Federation commented that underlying fundamentals including job and wage growth continue to support spending.
Retailers Dealing with Tariffs
The Trump administration imposed a 25% tariff on $200 billion in Chinese goods in early May, up from the 10% duty put in place in October. The trade fight has thus far not impacted US shoppers, as major consumer categories, including apparel and toys, have not yet been hit with tariffs. Currency fluctuations have made imports cheaper and US retailers have worked to take costs out of their supply chains in order to avoid raising prices and dampening consumer spending. The Home Depot estimates that it will cost the chain about $1 billion more to buy goods with the 25% tariffs in place, on top of the roughly $1 billion in costs added by the 10% tariffs. THD plans to manage the cost increases by buying more volume at lower prices from some vendors and spreading price increases across more types of items in order to limit the impact on sales. They are also looking at doing more sourcing and production outside of China. Walmart said they will likely raise prices on some items, but are managing increases on a product-by-product basis. In general, large retailers and manufacturers are better positioned to extract price cuts from suppliers or spread increases strategically across lines. Retailers will not have to absorb cost increases until early June when many products subject to the 25% tariff come off container ships in US ports.
Amazon Most Valuable Brand
Amazon is the most valuable brand in the world, according to WPP/Kantar’s new BrandZ report on the top 75 most valuable global retail brands. Amazon’s reported brand value is $315.5 billion. China's Alibaba took second place at $131.2 billion, with McDonald's ranked number three. The Home Depot took the fourth spot with a brand value of $53.5 billion. The ranking combines market data from Bloomberg with extensive consumer insights from more than 3.7 million consumers around the world, covering more than 166,000 brands in more than 50 markets.
The Home Depot
Q1 sales rose 5.7% to $26.4 billion. Comp sales were up 2.5% from Q1 last year and US comps were up 3%. Canada’s comps were slightly negative. Nevertheless, sales were below THD’s expectations due to declining lumber prices and the second wettest February on record for the US.
Q1 Conference Call with Analysts:
Comps were above average in tools, building materials, plumbing and hardware, appliances, garden and décor.
Lumber has negatively affected comps, because lumber prices have fallen sharply; for example, a 4x8 sheet of OSB has fallen more than 50%. Without lumber, average ticket growth would have been closer to 3%. During the first quarter big ticket comp transactions over $1,000, approximately 20% of US sales, were up 3.9%, reflecting in part the impact of last year’s hurricane-related sales. Excluding hurricane-related markets, big ticket comps were up approximately 5.1%. Big ticket comps were flat in February, reflecting unusually wet weather.
Lumber prices are dictated by housing starts and home construction; their unit sales have been excellent, but the price decline has really impacted the category. Lumber is already one of their lowest margin categories.
Comp sales were also affected by February sales, which produced negative comps of 2%, due to extremely wet weather, with 17 out of 19 US regions reporting negative comps for the month.
Online sales rose 23%, online traffic growth was healthy, and they are using their digital platforms to branch into adjacent categories like home, pool and work wear.
For consumers, they are investing in new category experiences that make it easier for customers to shop their full project list online, such as making it easy to find matching and complimentary products with a minimum of effort.
Customers also continue to value the store environment. They are investing in stores to improve their front-end checkout experience and are continuing to roll out automated lockers, streamline customer service desks and simplify tools for associates.
Their efforts have led to shorter waiting time and growing customer satisfaction, with scores for both checkout time and customer service up more than 500 basis points from last year.
They are also investing in Pro customers. Pro business once again outpaced DIY business. They believe they will be creating a value proposition for Pros over the next several years that will be unique to the marketplace.
Their new B2B website added 35,000 Pro customers during the quarter and now has 135,000 customers, with plans in place to have 1 million by the end of the year.
They know that 90% of Pros rent tools; several years ago only 1 out of 10 Pros rented from them. Today that is up to 1 in four, but there is plenty of opportunity for growth.
They are implementing a wide variety of features to make it easier and more efficient for Pros to do business with them, including a way for Pos to add authorized users or purchasers to the account so that all purchases are tracked. They can also link their purchases to QuickBooks and easily upload purchase history. During the second quarter they will be adding the ability for Pros to use their Pro credit card online and have their purchases added to their account history.
They are also opening a new flatbed delivery center in Dallas later this year that will be focused on Pros, and have implemented two and four-hour delivery windows that give Pros reliable delivery schedules.
They hired 80,000 new associates for spring and thanks to their new in-aisle mobility training solution, PocketGuide, they have product knowledge at their fingertips and can get up to speed quickly.
They opened a net of two new stores during the quarter for an ending store count of 2,289 and 238 million square feet of selling space. Sales per square foot for the first quarter were $435, up 5.6% from last year.
Two factors have changed since they put their 2019 plan in place. One is the increase in tariffs; they are still working through how it will impact them, and did not include any impact in their guidance. The other factor has been the significant deflation in lumber prices. Nevertheless, they reaffirmed their 2019 guidance.
For 2019, they expect comp sales to rise 5%, with overall sales increasing 3.3%. While they do not provide quarterly guidance, they had planned on comps of 4.5% for the first quarter. However, sales lost in February are coming back as weather improves. Their Pros report they have backlogs in excess of 90 days.
Q1 revenues rose 2.2% to $17.74 billion, above expectations for $17.66 billion in sales. Comp sales rose 3.5% for the quarter. Comp sales in the US rose 4.2%.
Q1 Conference Call:
Despite solid top line performance, gross margins contracted, due to a convergence of cost pressures, significant transitions in their merchandising organization and what CEO Marvin Ellison termed ineffective legacy pricing tools and processes.
Lowe’s lowered their guidance for the fiscal year, and now expects total sales to increase approximately 2% and comp sales to rise 3%.
Unfavorable weather in February exerted 315 basis points of top line pressure and resulted in negative comps of 1.4% for February; in contrast comps were up 7.2% in April.
Transactions rose 2.2% and total average ticket rose 2.9% to $77.19, partially offset by a slight decline in total transactions. They delivered positive comps in 10 of 13 merchandising departments and all geographic regions except Tampa and Houston, which faced tough prior year comparisons due to Hurricanes Irma and Harvey.
Lowes.com posted comp growth of 16% for the quarter, and they are pleased with the progress their new leaders are making to improve their online business.
Comps were negative in Canada, due to the weaker Canadian housing market.
Their Pro comps significantly outperformed their DIY comps and they are seeing evidence that their strategic initiatives with Pros are gaining traction.
Cost increases agreed to by merchants in 2018 are now flowing through the P&L as they turn over inventory.
Over the past six months they have made a lot of changes in merchandising personnel, replacing two out of three merchandising senior vice presidents and 11 of 13 merchandising vice presidents. They believe this will positively impact the future, but it created more disruption than anticipated during the first quarter.
New CIO Seemantini Godbole will be implementing changes to their pricing and point of sale systems that will streamline who can affect costs and pricing changes and prioritize those that have the greatest impact on gross margins. They will also make it easier for their merchants to understand the impact of pricing actions without having to view multiple systems and numerous reports. That will help merchants do a better job of offsetting cost pressures and adjusting prices.
They are in a very competitive environment and the new processes they have in place will help them strategically increase prices. It’s an SKU by SKU review process. And they have one team in place to manage cost and price.
They believe that customers are responding favorably to the strategic changes they are making, based on their comp sales results and growth in transactions and average ticket.
They transitioned into spring more smoothly than last year, and began setting stores from South to North three weeks earlier. They have also improved sales productivity by better using endcaps and leveraging Spring Black Friday.
They saw strength in tools and appliances during the quarter. They have posted above average comps in tools as the Craftsman reset continues to drive strength in categories like tool storage and mechanics tools and they are looking forward to completing the reset by the end of the second quarter.
Their promotional cadence during the quarter was about the same; they are striving to reduce promotional activity, not increase it.
They are encouraged by the early results they’re seeing from their new merchandising service teams supported by their vendors. The teams are responsible for the day-to-day bay maintenance and resets in the stores along with setting and maintaining endcaps and helping execute off-shelf displays.
They will be introducing new and innovative products from Bosch and Metabo HPT and leveraging existing partnerships with brands such as DeWalt.
They rolled out the smart customer service model that guides the way they hire, train, evaluate and coach associates. In the first quarter they trained more than 280,000 associates on smart customer service.
They also rolled out 88,000 smart mobile devices throughout their stores, so associates don’t have to leave the sales floor to log in. The smart devices can process Buy Online Pick Up in Store orders, which reduces them from a 12-step paper-based process to an average of two digital scans. In Q1 60% of online purchases were picked up in stores.
They replaced a series of non-facing customer positions with more than 6,000 assistant store managers and department supervisors.
They decided to sell the assets of their Mexico operations rather than sell the operating business, which resulted in an $82 million tax benefit.
CEO Marvin Ellison said that while there have been many challenges, they still feel good about the outlook they gave last December. There is a lot of work to do, and his team knows that one of his favorite comments is “All the easy jobs are filled.”
Marvin Ellison is approaching the end of his first year as CEO of Lowe’s. He did an extensive interview with the Charlotte Business Journal that looked back on his first year at the helm. His strategy and investments have focused on making operations efficient and making customer experiences seamless. He said that having a strategy that focuses on their brick and mortar locations allows them to allocate capital effectively for their core business needs. Since Ellison became CEO Lowe’s stock has gone up 16.5%, compared to a 9.3% increase in the DJIA overall. Ellison is now focusing on Lowe’s having great prices on the products customers need, making sure associates are courteous and knowledgeable, making their technology and supply chain world class and giving back to the community in significant and meaningful ways.
Lowe’s acquired the Retail Analytics platform from Boomerang Commerce to accelerate their tech capabilities. The platform will be used to bolster strategic, data-driven pricing and merchandise assortment decisions.
Analysts noted that Lowe’s results provided a stark lesson in the perils of using outdated technology, which Lowe’s new CIO is now aggressively updating and replacing.
Q1 revenue rose 1% to $123.93 billion, below expectations of $125.03 billion. Comp store sales rose 3.4%, the best first quarter increase in comp store sales in nine years. Sam’s Club reported a disappointing 0.3% increase in comp sales. Ecommerce sales climbed 37%, due primarily to rising grocery sales. Walmart noted that currency is expected to remain a significant headwind, knocking about $1 billion off sales for the year.
WM began offering one-day delivery service in selected markets in May as part of their commitment to better compete with Amazon. The new service rolled out in Phoenix and Las Vegas for orders of $35 or more. Walmart says the service will roll out gradually over the coming months, with plans to reach approximately 75% of the US population this year, which includes 40 of the country’s top 50 major metro areas. Walmart’s one-day delivery will be free; Amazon’s Prime costs $119 annually. CEO of Walmart ecommerce Marc Lore said it will actually cost them less to deliver orders the next day, because eligible items come from a single fulfillment center located closest to the customer. So the order ships in one box, or as few as possible, and travels a shorter distance via inexpensive ground shipping.
Walmart met with large consumer goods companies and advertising firms for the first time in New York at the end of May to pitch their advertising business and showcase their website and stores as a platform for other companies to reach customers. Hundreds of companies were expected to attend, along with the country’s top marketing and advertising firms. Walmart will be encouraging them to shift spending to Walmart and away from rivals like Google, Facebook and Amazon. Walmart says their massive customer base and big data on what shoppers purchase give them a compelling edge. More than 300 million customers visit Walmart’s stores every month and in January more than 300 million people shopped with Walmart online, more customers than shopped Amazon, Google and Facebook. Walmart’s offerings will include sponsored search and display ads, and they plan to add videos later this year.
Suresh Kumar is Walmart’s new chief technology officer (CTO). He joins Walmart with extensive executive experience at Google, Microsoft and Amazon. He fills the void left by the March departure of Jeremy King, Walmart’s longtime CTO.
Q1 revenues rose 5.1% to $1.38 billion. Comp sales were up 3.9% and sales on the website were up 55%. The increase in comp sales was reported by the approximately 3,200 Ace retailers who share daily retail sales data and resulted from a 3.0% increase in average ticket and a 0.9% increase in comp store transactions. Increases were noted across most departments with grilling and power tools showing the largest gains.
Ace gave out one million American flags nationally on Saturday, May 25, to celebrate the true spirit of Memorial Day, according to CMO John Surane. Ace partners with the VFW on this program. Last year, Ace sent a total of 530,000 flags to 2,250 local VFW Posts across the country. Ace’s name itself is a commemoration of the famous “Flying Aces,” the courageous fighter pilots from the First World War. Flags were limited to one per customer and were available in participating Ace stores while quantities lasted. No purchase was necessary.
Amazon’s promise to give Prime members one-day delivery is sparking a backlash from labor unions. The Retail, Wholesale and Department Store Union says that speeding up deliveries could be dangerous for employees of Amazon’s fulfilment centers. Union President Stuart Appelbaum said that workers are already struggling to keep pace and handle 200 to 300 orders per hour during a single 12-hour shift. An Amazon spokesperson told CNN that workers don’t struggle to keep up and they have a very safe work environment. It is unclear whether or not Amazon plans to add jobs at their fulfilment centers in order to deliver on their promise.
Amazon revealed their first plans for HQ2 in Arlington County, Virginia. The plan submitted for the first two buildings calls for a pair of 22-story buildings combining about 2.1 million square feet, along with nearly 2,000 parking spaces and a significant amount of public open space. Project architect ZGF Architects LLP is doing the design.
Ford is partnering with Amazon to allow Prime Members to have packages delivered to their vehicles when they are not home. The Key by Amazon In-Car Delivery Program will be available for owners of select Ford models produced from 2017 on as well as for owners of Lincoln 2018 and later vehicles.
Amazon lockers at Whole Foods are increasing visits to the store, but most of the people who stop by to pick up Amazon packages stay less than five minutes.
Amazon has launched another retail partnership, announcing that customers will soon be able to pick up packages at 200 Steinmart stores across 28 states. Amazon lockers are currently in place at a variety of locations, including Whole Foods, an Amazon subsidiary, and 7-Eleven, Chase Bank and Sprint stores. In addition, Kohl’s accepts Amazon returns. Steinmart acknowledged that the idea to use their stores as pickup locations actually came from Amazon.
Amazon’s portfolio of fulfilment centers has grown to more than 233 million square feet globally, up from 209 million square feet in 2017.
Amazon may acquire Sizmek, an operator of online ad campaign management and distribution platforms, according to Financial Deals Tracker.
Amazon is selling a $3,990 tiny retail kiosk that can be assembled in hours and serve as a store, bar or chicken coop, according to Business Insider. The 94-square-foot structure has three service windows and what is described as a “unique Scandinavian retail design.” The only tools required for assembly are a hammer, saw, screwdriver, pliers, drill., ladder, level, box cutter and measuring tape, plus another person to help with assembly. Amazon also sells a $7,250 tiny-home kit that can reportedly be put together in just 8 hours.
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