Distribution June 2021
Retail Sales Unchanged
Retail sales were virtually unchanged in April after jumping an upwardly revised 10.7% in March. Retail sales were up 51.2% from April 2020 when pandemic restrictions were enacted across the country. Retail sales were also up 21% from April 2019. Despite occasional month-over-month declines retail sales have grown year over year every month since June 2020. Five out of ten categories posted modest growth in April and all ten categories were up year over year. Analysts note that flat sales following a significant increase mean that sales have remained at a very high level. Building materials and garden supply stores were down 0.4% after jumping 12.1% in March and were up 32.9% year over year. Online sales fell 0.6% after dropping 5.4% in March but were up 14.8% year over year. Core retail sales, which exclude automobiles, gasoline, building materials and food services, fell 0.8% after falling 3.5% in March but were up 40.6% year over year because most stores were ordered to close last April. Core retail sales correspond most closely with the consumer spending component of GDP. The National Retail Federation (NRF) 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.
The Home Depot
Q1 sales rose 32.7% to $37.5 billion, beating analysts’ estimates. Comp sales rose 31% overall and 29.9% in the US, also beating expectations and up from a 24.5% increase in the fourth quarter. The big jump eased concerns that demand would ease amidst climbing vaccination rates and loosening restrictions.
Q1 Conference Call with Analysts:
All top 40 markets posted double-digit growth in comp sales and Canada posted comps above the company average. In addition, 13 of 14 merchandising departments posted comps at or above 20%, led by lumber and kitchen and bath. The one category that was down was paint. In Q1 last year everyone stayed home and painted.
Comp average ticket increased 20.3% and comp transactions increased 19.1%. Growth was driven by increasing project demand, customers trading up to new and innovative products and continued inflation in many product categories, including lumber. Big ticket comp transactions over $1,000 were up 50% compared to Q1 2020.
It was a record-setting quarter for lumber prices. For example, last year a sheet of 7/16 OSB was $9.55; this year it’s $39.76. Lumber inflation impacted average ticket growth by 375 basis points. They have plenty of wood fiber in their supply chain; the bottleneck is the sawmill cutting capacity. They do not see a lot of capacity coming online, which limits the amount of finished lumber in distribution. That drives up prices, but so far demand has more than kept up.
There was double-digit growth with both Pro and DIY customers, with Pros slightly outpacing DIY, the fourth consecutive quarter Pro sales have grown, and the best quarterly Pro sales growth on record. They have been working to increase their business with larger Pros, who typically use THD mostly for unplanned purchases. They are now seeing more planned purchase business from larger Pros.
The services business has also strengthened, growing for three consecutive quarters as people become more comfortable having people in their homes.
Strong DIY demand continued, with both new and existing customers engaged with both home improvement and outdoor projects. Countertops, vanities, blinds and home décor all showed significant growth.
The housing environment remains very strong, with the current shortage of new housing driving up home values as well as investment in home improvements.
Their promotional activity was up slightly from Q1 last year, when some promotions were canceled entirely, but clearance activity was down significantly.
Disruptions in global supply chains were further exacerbated by port congestion. They leveraged their scale and partnered with vendors to maintain in-stock positions and also prioritized key SKUs in high demand categories.
Online sales through all their digital platforms rose 27% compared to Q1 2020, with approximately 55% of online orders fulfilled through a store. That adds up to more than 100% growth on a two-year basis. They emphasized that ecommerce is a capability, not a business, and is driven by top-level demand.
They rolled out mixed-cart selling from stores; it enables associates to meet total project needs by including products from the store and the website in a single transaction.
They are expanding their Rent Online, Pickup in Store program to all 1,300 rental locations in the US and Canada.
They continued to build out their One Supply Chain vision by opening several new facilities. Improving fulfillment capabilities creates a better customer experience and also allows them to drive productivity and expand opportunities. They are on track to increase their fulfillment square footage by more than 70% this year.
They now have four flatbed DCs open in various stages of ramping up, with all of them well ahead of plan.
They believe they picked up about 170 points in market share overall based on government data that came out in March. Their calculations show the overall market is $600+ billion, with MRO, which is largely focused on multifamily, adding another $55 billion. Customer satisfaction scores are up 11%.
They incurred about $80 million in CV19-related expenses during the first quarter.
They opened one new store in the US and one in Mexico during the first quarter, bringing their total store count to 2,298. Inventories at the end of the quarter were $19.2 billion, up $4.2 billion from last year. Inventory turns were 5.5 times, up from 5 times last year.
They repeatedly reaffirmed that it is very difficult to predict how business will be impacted by the return to more normal times and whether the reopening of the economy will slow down the pandemic-fueled boom in sales.
The Home Depot Foundation awarded $30,000 in skilled trades scholarships to six high school seniors and college/post-secondary students as the Southeast sponsor of SkillsUSA’s National Signing Day 2021. THD’s trades training program, Path to Pro, has certified more than 5,000 participants thus far.
Q1 sales rose 24.1% to $24.4 billion and comp sales rose 25.9% overall and 24.4% in the US. Sales on Lowes.com rose 36.5% and were up 146% on a two-year basis. Canada delivered comp growth that outpaced the US despite several CV19-related operating restrictions.
Q1 Conference Call with Analysts:
Growth was broad-based across Pro and DIY customers,
in-store and online and across product categories. All merchandising departments were up more than 20% on a 2-year comp basis.
Comp average store ticket rose 14.1% and transactions grew 11.8%, with strong repeat rates from both new and existing customers.
At the end of the quarter inventory was up $2.2 billion from Q4 to $18.4 billion, an increase of $4.1 billion from Q1 2020 when unexpected spikes in demand and CV19-related supply disruptions pressured inventory. About $780 million of the inventory increase is related specifically to inflation.
While difficult to measure, they estimate the March government stimulus checks provided 300 basis points of growth and commodity inflation boosted comps by 460 basis points.
Their shift to an everyday competitive price strategy continues to benefit them.
Lumber delivered the highest comp driven by strong Pro demand and unprecedented inflation in the category. Lumber products have been in tight supply; strong in-stocks in this tight market have allowed them to continue to strengthen relationships.
They extended their SpringFest event over four weeks to create excitement and prompt return visits as well as to avoid congestion in the stores.
They expect the elevated interest in all things home that developed during the pandemic will continue for many years, long after the masks are retired and people resume more normal lives.
They are focused on promoting a blend of national and private label brands. Powerful national brands appeal to both Pro and DIY customers and high value private brands build customer loyalty.
They are pleased to launch the Lowe’s exclusive FLEX cordless power tools collection that is targeted at the most discerning builders, contractors and trade professionals. Their strong Pro brand lineup includes Bosch, DeWalt, Simpson Strong-Tie, Spyder, Eaton and SharkBite.
Focusing on perpetual productivity improvement continued to yield results. Technology helps them reduce tasking hours, improve customer service and increase sales productivity.
They are leveraging an improved freight flow app that creates a fully digital process that gives associates info on when products will arrive in stores. The app, developed in-house, also helps store associates prioritize the incoming merchandise.
They launched secure mobile checkout to improve speed of service in high traffic areas inside the store and for busy areas outside such as lawn and garden and under the Pro canopy. This checkout app allows them to process customer orders on the spot and print or email a receipt.
They completed the rollout of BOPIS lockers to 100% of US stores in April. Customers love these touchless, easy to use lockers so much they have become the highest rated store fulfillment option.
Pro comps of more than 30% outpaced DIY comps. They have been focusing on growing their Pro business for two years and are very pleased with progress to date. They have concentrated on improving in-stock inventory levels, enhancing service offering and the new Pro loyalty program.
They are shifting to a more strategic phase of growth with Pros by resetting the layout of their stores with the Pro in mind and deepening their Pro relationships through a members-only loyalty program.
They are targeting small and medium-sized Pros because they are frequent shoppers and purchase products in multiple departments. They believe their biggest growth opportunity with Pros is expanding their share of wallet with their existing customers.
Pro customers are always pressed for time. They’ve launched a tailored shopping experience that offers new convenience products at checkout and services such as dedicated Pro trailer parking and phone charging stations.
They are also enhancing the online experience for Pros, which will give them access to options that DIY customers already have and allow them to quickly add more features. They estimate their penetration of the Pro market at 20% to 25% and can see that growing over time to 30% to 35%.
Their installation business is growing rapidly with comps over 60%. Two years ago installation was a money-losing business with poor customer satisfaction.
They are very bullish on the future of the home improvement market in general. All the macro factors, such as low mortgage rates, rising home prices, aging housing stock, improved household formation trends and strong consumer balance sheets, are favorable. They anticipate that millennials will become homeowners over the next several years, a trend that may have been accelerated by CV19.
Demand remains very strong, and they credit their preparation and all the work they’ve done to build strong supplier relationships with helping them keep up with unprecedented demand.
Top three strategic priorities over the next 18 months are continuing to invest in online, which is actually an omnichannel strategy, invest in the installation services business and improve their overall performance with the Pro. In the past they failed to understand the economic value of the Pro. Pros add a different dimension because of the frequency with which they shop and the fact that they shop the entire store.
Lowe’s hosted a National Hiring Day event as part of their search for 50,000 employees to fill seasonal, full-time and part-time positions. Candidates have an opportunity to meet with hiring managers, speak with employees and even receive a job offer on the spot.
Q1 sales rose 2.7% to $138.3 billion. Ecommerce sales grew 37% at Walmart and 47% at Sam’s Club. Comp sales in the US were up 6.2%, down from 10.3% growth in Q1 last year. For Q2, Walmart expects its US comp sales to rise in the low single-digit range. The previous guidance called for a slight decline.
Walmart noted that all segments performed well in the first quarter and sales were undoubtedly boosted by more than $325 billion in stimulus money that hit bank accounts in the first quarter.
Walmart has no immediate plans to expand their subscription service. Walmart+ was launched in September 2020 as a more affordable alternative to Amazon Prime.
Walmart is acquiring telehealth provider MeMD, which will allow Walmart to expand their Walmart Health services by providing access to virtual care services across the country. Walmart’s latest move comes as Amazon announced plans to expand their on-demand telehealth service, Amazon Care, to their nearly one million US employees by summer.
Wisconsin-based Menards is scouting for locations in Pennsylvania as part of their expansion strategy. The first Pennsylvania store will reportedly be located in Fayette County. Local sources say that Menards has also been looking for locations closer to Pittsburgh. Menards, founded in 1958, is a
family-owned chain that has grown to more than 300 stores in 15 states.
Q1 revenues rose 42% to $2.0 billion and US comp sales rose 29.9%. Revenue from Acehardware.com sales jumped 219.6%. It was the best quarter in Ace’s history, driven by increased inventory depth, booming digital sales and the addition of 51 new stores.
CEO John Venhuizen noted that the operational environment continues to remain challenging, due to high demand, limited supply and what he termed a ridiculously disrupted global supply chain.
Ace plans to hire more than 30,000 people for Ace stores and distribution centers nationwide in preparation for what they anticipate will be a very busy summer. They are already seeing increases in in-store traffic as people who have been shopping primarily online get out and enjoy browsing through stores again. Ace has more than 5,000 retail stores across the US.
Ace Hardware collaborated with the Veterans of Foreign Wars (VFW) again this year and honored veterans by giving away 1 million American flags nationwide on the Saturday of Memorial Day weekend. Consumers who visited a participating Ace store received a free American flag, and a second flag was donated to a local VFW post to be used for marking and honoring veterans’ graves. Last year, 535,000 American flags were given away to customers and another 535,000 were distributed to more than 2,000 VFW Posts.
Amazon will raise pay for about 500,000 US employees in their warehouses, delivery network and other fulfillment teams by between 50 cents and $3 an hour. The action follows scrutiny from lawmakers and an unsuccessful attempt to unionize a large warehouse in Alabama. Amazon added more than 400,000 employees in the US last year and typically reevaluates their wages each fall before the holiday shopping season. But this year they moved up the review program and began rolling out the new wages in mid-May. Amazon also said they are hiring for tens of thousands of open positions.
Amazon Prime Day will reportedly take place June 21 and June 22, according to internal memos leaked by Amazon employees to Bloomberg News. Amazon asked employees to keep the date confidential until the company made a formal announcement; uncertainty about the date makes it more challenging for other retailers to ride the Prime Day coattails. Amazon will not be holding Prime Day in Canada and India, due to CV19 concerns.
Amazon now offers in-garage delivery to all US Prime grocery shoppers as part of a program to stop porch pirates from stealing packages. When Key by Amazon launched in 2017 in-garage delivery for packages was available in 4,000 cities. Now customers in the 5,000 towns and cities where Amazon Fresh and Whole Foods Markets offer online deliveries will be able to chose it as a delivery option. Thefts by porch pirates lead to millions of dollars in losses each year.
Amazon’s physical store sales fell 15.5% to $3.92 billion in the fiscal 2021 first quarter even though overall net sales jumped more than 40%. Physical store sales also dropped in the fourth quarter of 2020. Results mostly reflect dropping sales at Whole Foods.
Amazon grew its advertising revenue 77% to $6.9 billion in the first quarter as shopping online continued to grow and brands shifted advertising spending to target online shoppers. According to eMarketer, Amazon has more than 10% of US ad revenues overall, with Amazon, Facebook and Google accounting for two-thirds of digital advertising dollars.
Amazon invested more than $700 million and employed more than 10,000 people during 2020 to protect their online stores from fraud and abuse. In addition, Amazon offers third-party sellers a variety of tools and services to help detect and prevent fraud. Amazon seized more than 2 million products sent to their fulfillment centers that it detected as counterfeit before any were sent to customers.
Amazon is focusing on improving the health and well-being of their hourly warehouse staffers, rolling out a new program called WorkingWell that aims to better educate employees on how to avoid on-the-job injuries and improve mental health. They’re using safety videos, kiosks that show guided meditation and calming scenes and sounds and wellness zones that provide dedicated spaces to stretch, meditate and relax.
Amazon plans to hire another 75,000 people for their fulfillment and logistics network and is offering pay hikes and a vaccination bonus. New jobs will pay more than $17 per hour, $2 more than Amazon’s current minimum wage of $15. Across many locations new employees will get signing bonuses of $1,000. Everyone already vaccinated for CV19 will get a $100 bonus.
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