Distribution March 2020
Retail Sales Rise 0.3%
Retail sales rose 0.3% in January after rising a downwardly revised 0.2% in December and were up 4.4% (unadjusted) from January 2019. Sales at building material and garden supply stores were up 2.1% in January but down 1.4% year over year. Sales at general merchandise stores, a category which includes big retail chains such as Walmart, rose 0.5% in January after rising 0.4% in December. Sales at nonstore retailers, a category that includes online and catalog sales, rose 0.3% in January after dropping 0.1% in December. Control group retail sales, which exclude automobiles, gasoline and sales at building and supply stores and factor into calculations for GDP, were essentially flat in January and gains for December were revised down to 0.2%.
Retail Sales Forecast
US retail sales are expected to rise between 3.5% and 4.1% to more than $3.9 trillion in 2020 despite fears surrounding the coronavirus and an ongoing trade war, according to the National Retail Federation (NRF). Preliminary results show that retail sales grew 3.7% in 2019 to $3.79 trillion, short of forecasts for 3.8% growth. The NRF expects the economy to gain between 150,000 and 170,000 jobs per month in 2020, down from 175,000 in 2019, and unemployment, currently at 3.6%, to drop to 3.5% by the end of the year. NRF expects online sales, which are included in the overall sales number, to grow between 12% and 15%.
The Home Depot
Q4 sales fell 2.7% to $25.78 billion, in line with analysts’ expectations. Comp sales rose 5.2%, well ahead of expectations. Comp traffic grew about 1%. THD had missed comp store expectations for the previous four quarters. There was one less week in the fourth quarter compared to the previous year. Based on that, the number of customer transactions fell 6.4%. However, average transactions rose 4.1% and sales per retail square foot rose 2.8%.
THD expects comp sales to grow about 3.5% to 4% this year, based on guidance that the US economy will grow slightly less than 2% this year.
Q4 Conference Call with Analysts:
CEO Craig Menear said that 2019 was a record year, and they achieved the highest sales in company history. Excluding the extra week in 2018, fiscal 2019 sales grew 3.5% to $110.2 billion.
The enhanced signage and store refresh package and other investments in the front-end of stores have made associates more productive and improved the customer experience.
They are blending physical and digital platforms into a more seamless interconnected experience; for example, they did a chainwide rollout of digital appliance labels connecting ratings from the digital world to the physical world, enhancing the shopping experience.
The website continues to be an engine for growth for the business, driving increased traffic and additional visits to stores. Therefore they are continuing to invest in search functionality, category presentations, product content and also to enhance fulfillment options to make shopping easier.
They are also investing in the online experience tailored specifically for Pros; they now have more than one million registered Pro customers.
Excluding the extra week in 2018, online sales grew 20.8% in the fourth quarter and 21.4% for the full year. Customers chose to pick up their orders in store more than half of the time.
They have opened a dozen Market Delivery Operations (MDOs) that have enabled them to move 20% of client deliveries from an outsourced model to one more under their control. They plan to continue to ramp up the supply chain, with the largest number of facilities coming online in 2021 and 2022.
For the fiscal year, all merchandising departments posted positive comps. Non-seasonal décor and storage and tools posted comps above the company average of 5.2%.
Q4 big ticket sales (sales more than $1,000, which represent 20% of US sales) grew in the double digits, driven in part by the shift in their event timing as well as strong performance in a number of other big ticket categories like appliances, vinyl plank flooring and installation services.
Consumer demand is strong; smartphone power tools, hand tools and decorative holiday were among very strong Black Friday performers.
They have seen that when a customer adopts a battery platform that works with multiple tools, they see great value in sticking with that platform. They currently offer more than 1,000 cordless power tools, and that number will continue to grow as their supplier partners are constantly introducing innovative products.
Pro sales were healthy, driven by strength in categories like pneumatics, concrete, hand tools and COGS, all of which grew faster than company average.
They are building an entire “ecosystem” for their Pro customers, one that encompasses product, brands, delivery, credit services, digital capabilities and a dedicated B2B website and much more.
Merchandise inventories grew by $606 million to $14.5 billion and turns dropped slightly to 4.9.
Their new positioning campaign, “How Doers Get More Done,” is now debuting in advertising and promotions, and they already see customers responding positively.
They are closely monitoring the coronavirus situation. All of their Q1 merchandise is already in the US or on the way but the Q2 picture is still developing. Teams are working with all of their factories and suppliers, both domestic and import, as well a logistics service providers. It’s a fluid situation. They are putting plans in place to mitigate any possible impact going forward. THD sources about 30% of their products from China.
They are actively working to get refunds on tariffs that were paid on categories that were excluded, like luxury vinyl plank flooring.
THD will hire 80,000 part-time associates for their 1,988 US stores in preparation for the busy spring selling season.
Q4 sales rose to $16 billion from $15.6 billion in Q4 2018. Comp sales increased 2.5% overall and 2.6% in the US, below expectations of a 3.6% increase. CEO Marvin Ellison said sales growth was driven almost entirely by their US brick and mortar stores.
Q4 Conference Call with Analysts:
Lowe’s is one year into a multiyear plan to transform the company and has a detailed roadmap in place to modernize their ecommerce platform and grow online sales.
Lowe’s had total sales of $72 million in fiscal 2019 and projects sales growth of 2.5% to 3% and comp sales growth between 3% and 3.5% for fiscal 2020.
Q4 sales were softer than they expected. CEO Marvin Ellison attributed the disappointing results to three things. First, they failed to optimize their marketing execution so that it aligned with the shortened holiday season. They should have started promotions earlier in November. Second, they were lapping the exit of the Project Specialist Interior (PS-1) program in the fourth quarter, which pressured installed sales growth more than they anticipated. Third, their website is still very much under construction, and online sales lagged market growth, delivering about 3% comp growth for the quarter. Lowe’s will be migrating the website to Google Cloud during the second quarter to improve performance and expand the brands and products available.
One of the key strategic steps to improving lowes.com is transforming the supply chain. Therefore they will be investing $1.7 billion in the supply chain over a five-year period. They opened three new bulk distribution centers and four new cross-dock terminals in 2019.
Getting the website more functional is key to growing both their online business and their instore business; so many transactions begin online, even when they end up in the store. When the website is not as functional as it should be, it hurts business overall.
Their focus on Pro continues to be a catalyst for US sales growth, with Pro comps outpacing DIY in the fourth quarter. Both Pro customer service scores and Pro sales improved in the quarter.
In 2019 their Pro strategy was focused on improving the retail fundamentals Pros need, such as job lot quantities, better service, dedicated loaders, pro supervisors and consistent volume pricing.
In the first half of this year they will launch their Pro loyalty program nationally, integrated with a program that allows them to strategically market to Pros. In tests Pro customers were very enthusiastic about the benefits of the loyalty program, which include personalized offers, the ability to track spending and business management tools.
All three US divisions and 14 of 15 regions generated positive comps during the fourth quarter. The West was their top performing geographic region.
Several departments delivered above average comps, including tools, lawn and garden and lumber and building materials. Décor has been a very strong performer for the company.
In tools they are still seeing strong customer response to Craftsman. They are also gaining traction within key programs with their exclusive DeWalt 12-volt compact line of power tools.
They announced an extension to the DeWalt power tool program, with the launch of a new 20-volt MAX XR power tools aimed at giving Pros better performance. They are also leveraging new and innovative products from Bosch, Lufkin, Spider, Metabo HPT and Cobalt.
They plan to add approximately 7,000 vendor funded MSTs to the stores in the first half of 2020. Their merchandising service teams (MSTs) have improved their merchandising reset executions and day-to-day bay and end cap maintenance at store level, delivering a better shopping experience for customers and taking time consuming tasks off the shoulders of associates.
In the first half of the year they’ll complete the rollout of their new signage and way finding package, the first one in fifteen years. In pilot stores customer surveys showed that the new package improved the customer experience and made it easier and faster for customers to locate products.
They are excited to be introducing Honda Outdoor Power Products, including walk-behind lawn mowers, generators, snow blowers, tillers, pumps and trimmers for both residential and commercial.
They completed the national rollout of their new customer-centric scheduling system in the third quarter, and they’ve been able to align payroll hours to peak customer traffic hours.
In the first half of 2020 they will deploy a centralized return to vendor process, which will limit product damage and free up additional space in stores. They’re also rolling out their new point of sales system.
They are planning on capital expenditures of approximately $1.6 billion in 2020 and they continue to look for investment areas to enhance the business over the long term.
Q4 revenue rose 2.1% to $141.67, well below estimates. Comp sales in the US rose 1.9% excluding fuel, well below analysts’ average estimate of 2.3% growth. Walmart said they experienced softness in a few general merchandise categories in US stores in the few weeks before Christmas, and were also hurt by the shorter holiday season.
WM has been spending heavily to grow their online business and build up the digital capabilities of their stores, including promoting services like buy online and pick up in store parking lots. WM expects online sales growth to fall to about 30% this fiscal from last year’s growth of 37%. Online sales rose 35% during the fourth quarter, the slowest increase in two year.
Walmart is creating their own paid membership program to compete with Amazon Prime. The new service is called Walmart+. Walmart confirmed the story, but did not provide any further details; news of the program was leaked by news website Vox. According to their report, Walmart will begin publicly testing the program next month. Reportedly benefits include some that Amazon could not match, such as discounts on prescription drugs at Walmart pharmacies and on fuel at Walmart gas stations. Last year Walmart debuted a subscription delivery option called Delivery Unlimited that cost $98 annually or $12.95 per month. Amazon Prime is $119 a year.
Mark Ibbotson, Walmart’s head of central operations and realty, Is leaving the company. Some of the operations that reported to him will now report to newly named Walmart US CO, Dacona Smith. Other pivotal operations work, including building shopper and worker-facing technology and further rolling out online grocery pickup and delivery, will move to Janey Whiteside, recently hired as Walmart’s first chief customer officer. Whiteside and her team have been given more responsibility for luring shoppers away from Amazon.
Q4 revenues rose 6.1% to $1.5 billion. Total wholesale revenues for the quarter rose 4% to $1.3 billion and retail revenues rose 30.8% to $142.2 million. Full-year revenues rose 6.2% to $6.1 billion. Ace added 168 new domestic stores in fiscal 2019 and canceled 88 stores, bringing the company’s total domestic store count to 4,556, an increase of 80 stores from the end of fiscal 2018. Both Ace Wholesale Holdings and Ace Ecommerce Holdings (The Grommet) struggled to achieve their revenue targets and posted large losses.
Ace Hardware is opening up their first store in Manhattan. Construction on a new 15,000-square foot building began in late February. The store is expected to open in late September or early October. The owner, Steve Bachmeier, owns another Ace Hardware in Belgrade. The Manhattan one will be smaller, and will fill a void created when Hardware Hank closed up shop several years ago.
True Value’s 2020 Spring Reunion in New Orleans had a simple theme: “Thrive.” Thousands of home improvement retailers gathered to see new products, take advantage of hot deals, attend educational sessions, learn about marketing opportunities and network with industry peers. Making a comeback in New Orleans was True Value’s Buy with Confidence Guarantee, which means the price retailers see is the price they will get, regardless of tariffs and commodities prices.
Amazon opened their largest cashierless store to date in Seattle. At 8,000 square feet and about 5,000 items it’s about four times the size of the Amazon Go stores that debuted two years ago. The store reportedly relies on many of the same suppliers that serve Whole Foods. There are bagging stations throughout the store, giving customers a chance to rearrange their items as they browse. Customers use the Amazon Go app on their mobile device. Customers are tracked by cameras above and sensors on the shelves; if a customer changes their mind and puts an item back, it disappears automatically from their running tally. When they are done shopping, they simply leave, no need to go through a checkout station.
Goldman Sachs is reportedly considering a small-business lending deal with Amazon, according to an item in the Financial Times. Both Goldman and Amazon declined to comment on the report. Goldman Sachs is in the process of transforming itself from an investment bank to a consumer-oriented, universal bank.
A judge granted Amazon’s request to temporarily halt the US Department of Defense and Microsoft from moving forward on an cloud computing deal worth around $10 billion. Amazon says the deal reflected undue influence by President Donald Trump. Trump has publicly derided Amazon CEO Jeff Bezos and repeatedly criticized the company. Bezos also owns the Washington Post, which has been critical of Trump. Amazon was considered the front-runner for the contract.
Amazon plans to open ten more Amazon 4-star stores in 2020. The 4-star concept debuted in fall 2018. To date Amazon has opened nine locations that carry items from some of the most popular categories on Amazon. Everything in the store is rated four stars and above, is a top seller or is new and trending on Amazon.com.
Amazon CEO Jeff Bezos launched the Bezos Earth Fund, donating $10 billion of his own money to combat climate change. Bezos said he will start issuing grants this summer, and that the new global initiative will make charitable donations funding scientists, NGOs and any efforts that offer real possibilities to help preserve and protect the natural world. He described climate change as the biggest threat to the planet. Bezos is the world’s richest man; his $10 billion investment represents about 10% of his net worth.
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