Distribution May 2017
RETAIL SALES FALL 0.2%
Retail sales fell a seasonally adjusted 0.2% in March after falling a downwardly revised 0.3% in February. However, retail sales have risen 5.2% over the past 12 months. Core retail sales, which exclude auto sales, gas and building materials and factor into GDP, rose 0.5% in March after dropping a downwardly revised 0.2% in February. Building materials sales dropped 1.5% in March. Sales at non-store retailers, which include internet sales as well as catalog sales, rose 0.6% in March and were up 11.4% over the past 12 months. Retail sales account for one-third of all spending, with services making up the other two-thirds.
CUSTOMER SATISFACTION SURVEY
Both The Home Depot and Lowe’s increased their customer satisfaction scores, according to the American Customer Satisfaction Index’s (ASCI) 2016 retail report. Customer satisfaction grew 10% for THD, with a score of 80 out of 100. Satisfaction grew 7% for Lowe’s to a score of 79. ASCI attributed some of THD’s improvement to a successful integration of ecommerce and brick and mortar stores. Both retailers were part of ACSI’s specialty retail stores category, which boosted customer satisfaction overall by 3.9%. The overall category winner was Costco. The overall retail sector reversed two years of declining scores and gained 5% to an all-time high of 78.3.
WALMART TOPS NPD GROUP STUDY
Walmart was the number one place where people shop or ate last year, according to a study from NPD Group, with 95% of consumers making at least one purchase from Walmart. McDonald’s was second, at 80%, and Target was third, at 84%. Amazon was tied for 19th with Dunkin Donuts; both companies reached 42% of consumers.
ACE TOPS TEMKIN RATINGS
Ace delivered the best customer experience in the retail industry, according to the 2017 Temkin Experience Ratings, an annual customer experience ranking of companies based on a survey of 10,000 U.S. consumers. Ace tied with BJs and QVC for the top spot out of the 28 retailers included in this year’s ratings. True Value and Amazon were also in the Top Ten, with both Lowe’s and Home Depot right behind. Walmart and Sears were near the bottom of the list.
RETAIL STORE JOB CUTS ACCELERATE
Retailers lost a total of 60,600 jobs in February and March, the largest two-month decline since December 2009. Retail analysts say that retail job losses are due at least in part to changing consumer buying habits. As the retail climate changes, retailers that are not prepared to deal with omnichannel consumers are facing dropping sales and squeezed profits, leading to an increase in job cuts, store closings and bankruptcy filings. Retail jobs now account for 10.9% of jobs, compared with 11.6% in 2000, according to research firm The Retail Economist. Retail wages are not keeping pace, having risen just 1.1% over the last year compared to a 2.7% average increase for all U.S. workers. Stores are also increasingly adopting technology that reduces the need for employees, like shopping kiosks and iPads that allow shoppers to buy online while they are in the store.
THE HOME DEPOT
A recent article in HBS Dealer reported that THD wants to reduce consumers’ electricity costs by more than $2.8 billion by 2020. They are also committed to cutting consumers’ greenhouse gas emissions by 20 million metric tons. They plan to do that by sourcing and selling the right mix of products, including Energy Star certified products. The Home Depot says they offer more than 20,000 Energy Star products in stores and online. They were awarded the EPA’s Energy Star Retail Partner of the Year award for the 10th consecutive year, as well as the EPA’s Sustained Excellence distinction, for their continued leadership in offering the latest innovations in energy efficient products. THD is also committed to reducing store energy use by an additional 20% from 2010 levels and procuring more electricity from onsite fuel cells, solar installs and offsite solar and wind developments.
Lowe's launched Lowe's Vision, their new in-store navigation app that is reportedly the first retail application of indoor mapping using augmented reality. The app uses Google's augmented reality technology called Tango, and is designed to simplify the home improvement shopping experience. Customers visiting stores in Sunnyvale, California and Lynwood, Washington will be able to use Tango-enabled smartphones to easily search for products, add them to a shopping list and locate the product within the store using augmented reality. The app resulted from work done in Lowe's Innovation Labs. Lowe's says their research shows that it pays off for both customers and employees when it’s easier for customers to find products in store. Lowe's intends to build a portfolio of augmented reality offerings that meet the needs of the evolving customer.
Walmart is offering a discount to customers who order online and pick up their order in a Walmart store. Items must be available online only to qualify. Walmart says more than one million products will qualify for the discount by June. No percentage of discount was announced, but some examples cited include: An infant car seat that was priced at $148.05 would be discounted $7.40, and a Lego Great Vehicles Ferry priced at $23.99 would have an additional pickup discount of $2.55. Walmart’s online sales increased 29% in the fourth quarter, up from a 20.6% increase in the previous period, the third consecutive quarter of gains.
Walmart is rapidly buying up small, hip online retailers that appeal to wealthier shoppers as part of their strategy to be more competitive with Amazon. Thus far Walmart has bought ShoeBuy, outdoor specialty retailer Moosejaw and hip clothing website ModCloth. Walmart says it will allow the retailers to run as separate entities. However, customers of the companies they’ve bought have taken to social media to express their disappointment and outrage and stating their preference for independent brands. Moosejaw offers upscale outdoor brands like North Face and Patagonia that are not sold by Walmart, and is known for its irreverent marketing and loyal Michigan following.
Walmart submitted a large-scale development plan to the city of Bentonville that describes “Project Maple,” which includes a 1.27 million-square-foot distribution center across the street from the current center in Bentonville. Walmart wants to increase their logistics capabilities and better support distribution needs in the Midwest. Walmart currently has 147 distribution facilities throughout the U.S. which ship about 78% of U.S. store item; the rest are shipped directly from suppliers.
Sears increased their cost-saving target for 2017 by $250 million to $1.25 billion. The company named Rob Riecker, an 11-year veteran, as chief financial officer. Riecker is currently controller and head of capital market activities. Sears said it has already achieved $700 million in annualized cost savings after closing stores and other measures. Plus, a special committee formed to evaluate its real estate has received bids of more than $700 million on more than 60 properties. The company is also in talks with lenders on refinancing options for a secured loan facility that matures this year. Sears Holdings Corp. tops the list of retailers that are most vulnerable to defaulting on their debt in the next year, according to S&P Global.
Ace is restructuring their eastern U.S. distribution network. They’re opening a new 1.1 million-square-foot retail support center in Pennsylvania and closing several other facilities. The transition will take about two years to be complete. Ace intends to grow even more aggressively over the next several years, according to Lori Bossmann, EVP, supply chain, inventory replenishment and retail support. They are striving to be faster and more nimble.
Mark Spanswick is the new president and general manager of Ace Wholesale Holdings, a subsidiary of Ace Hardware. He’s joining the company from a career at W. W. Grainger that spanned 27 years and included stints as VP of mergers, acquisitions and sales integration and most recently regional sales VP. Ace says they want to grow Ace Wholesale Holdings and Spanswick is an ideal choice to help them reach their goals.
David Elliott is the new senior VP, marketing for True Value. Elliott is the former general manager of marketing at New Zealand hardware and home improvement co-op Mitre 10, where True Value President and CEO John Hartmann served as CEO from 2010 to 2013.
Sales rose 1.0% in the first quarter to $2.5 billion. CEO DG Macpherson said that first quarter sales fell short of their expectations, primarily due to greater than anticipated response to price cuts in the U.S., which drove up the volume of products sold at more competitive prices. Based on the positive customer response, they are pulling the remaining pricing actions they had scheduled for 2018 into the third quarter of this year, and therefore lowered their sales and earnings guidance for the year. Grainger now expects sales growth of 1% to 4% compared to the 2% to 6% growth previously forecast.
First quarter sales were driven by a 5% increase from volume that was partially offset by a 3% decline in price and a 1% decline from lower sales of seasonal products.
Sales in the U.S. fell 1% compared to the first quarter of 2016, driven by a 4% drop in price and a 1% decline from lower sales of seasonal products, partially offset by a 4% increase in volume. Sales in the Government and Heavy Manufacturing end markets led the sales performance.
Sales in Canada increased 4% in U.S. dollars and 1% in local currency. The increase came from a 4% increase in volume, partially offset by a 2% decline from lower price and a 1% drop from unfavorable holiday timing.
Macpherson highlighted some of the pricing actions they implemented in January and February, including adjusting list prices to make it easier for large customers to consolidate purchases, introducing new online prices on about 450,000 SKUs to drive medium and large noncontract customer acquisition and growth and negotiating large customer contracts with more competitive pricing for infrequently purchased items.
Raymond James upgraded Fastenal to Outperform, saying that volume growth could reach double digits by the third quarter, driven by onsite rollouts and vending. They also expect lagging margins to slowly improve based on improving pricing.
Q1 sales rose 23% to $35.7 billion. Amazon Web Services (AWS) net sales accounted for $3.7 billion, up from $2.6 billion in the first quarter of 2016. Sales in North America, Amazon’s biggest market, rose 23.5% to $20.99 billion. Amazon expects second quarter sales of between $35.25 and $37.75 billion.
Amazon is hosting a three-day gathering in May at their Seattle headquarters in order to persuade some of the world’s biggest brands to start shipping products directly to consumers and bypass chains like Walmart and Target.
Amazon’s point is that companies should start designing products that can be shipped quickly to a consumer rather than focusing on making products stand out on store shelves. Amazon will be trying to persuade big packaged good manufacturers that even though ecommerce is currently a small part of their business it is the future, and being a leader will require a major shift in thinking. Amazon has already persuaded some toy manufacturers to develop packaging that pops open more easily, and now offers thousands of “frustration free” products. Retail analysts point out that Amazon has 300 million shoppers, and can always private label manufacture their own products if brands aren’t willing to sell on their marketplace or change and adapt to new needs.
Amazon is delaying the public opening of their first cashier-less convenience store due to technical complications. The store was supposed to open the end of March, but the opening has been delayed indefinitely while Amazon works out the kinks in the technology that automatically charges customers when they leave. Reportedly the store uses cameras, sensors and algorithms to watch customers and track what they pick up, but has been unable to handle more than 20 people at one time. The system has also had trouble keeping tabs on an item if it has been moved from its specific designated spot on the shelf. The technology functions flawlessly when there are a mall number of customers in the store, or when their movements are slow, but for now the store will continue to need employees.
Amazon is rapidly gaining share in the lucrative private label credit card market. According to a Morgan Stanley AlphaWise survey, 23% of adults have an Amazon credit card (co-branded with Chase), tied with Walmart. Plus 13% of those who do not have an Amazon card now said they are “very likely” to get one. And Amazon has recently upped the cash-back bonus that comes with its card.
Amazon introduced Amazon Cash, which provides shoppers with a special barcode redeemable at participating stores like CVS. Customers show the card to the cashier and then add as much cash as they would like to their Amazon account. There are no fees. Amazon Cash is designed to appeal to people who prefer not to use a credit or debit card online.
Amazon successfully made their first drone delivery of a product in the U.S. through their delivery system Amazon Prime Air. Amazon successfully made a delivery in Great Britain in December, but U.S. federal regulations have kept it from public flights here until now. The Prime Air website says that right now it looks like science fiction, but one day seeing Prime Air vehicles will be as normal as seeing mail trucks on the road. Technical and air space regulations still remain hurdles for U.S. drones to deliver packages on a regular basis, but drone delivery has already become a reality in parts of China, with China’s second-largest online retailer, JD.com, using drones on a daily basis to make deliveries to four provinces, particularly in rural areas. JD.com reports that everything is going very smoothly.
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