Distribution November 2016
RETAIL SALES RISE 0.6%
Retail sales rose a very strong 0.6% in September after dropping an upwardly revised 0.2% in August and were up 2.7% year-over-year. Online retail sales rose 0.3% after an upwardly revised drop of 0.1% in August and were up 10.6% from August 2015. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose 0.1% in September after dropping 0.1% in August. Core retail sales correspond most closely with the consumer spending component of GDP. Sales at building material, garden equipment and supplies dealers were up a strong 1.4% after dropping 0.8% in August. Control group sales, which are used in the calculation of GDP, rose a disappointing 0.1% after dropping 0.1% in August; analysts were expecting these sales to rise 0.4%. September is the last month of the third quarter; economists say third quarter results overall will show that consumers were still spending, but not at as strong a pace as in the second quarter. Results were largely in line with economists’ expectations. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
NATIONAL RETAIL FEDERATION FORECAST
The National Retail Federation (NRF) forecasts that retail sales will rise 3.6% overall in November and December to $655.8 billion, which would be a big improvement over the 2.5% average growth over the 10-year period, and slightly better than the 3.4% average in the last seven years since the country emerged from recession. The biggest increases would be in online sellers, with the NRF projecting that non-store sales will increase between 7% and 10%, to $117 billion.
A growing list of national retailers will stay closed on Thanksgiving and start their big sales on Black Friday. The list includes The Home Depot, Lowe’s, Sam’s Club, Costco and Pier 1. Mass market retailers such as Walmart and Target are expected to announce Thanksgiving hours soon. Shopper Trak says their findings show that Thanksgiving Day impacts the distribution of holiday traffic, but not the overall traffic count.
TOP HOLIDAY SHOPPING DAYS
Black Friday, November 25 this year, took the No. 1 spot in a ranking of the anticipated 10 busiest shopping days of 2016 by ShopperTrak. The second and third busiest shopping days are expected to be Monday, December 26 and Friday, December 23. Unlike most years, Super Saturday (the last Saturday before Christmas) is not expected to be a top ten busiest day as it falls on Christmas Eve this year. Saturday, December 17 is expected to be the busiest shopping Saturday in December this year.
Most retailers are hiring about the same number of seasonal holiday employees this year as they did last year. Amazon is bucking the trend and hiring more than 120,000 seasonal holiday employees this year, up from 100,000 last year. About 14,000 of Amazon's seasonal employees last year were eventually hired for permanent positions. Amazon is hiring for its network of fulfillment centers, sorting centers and customer service sites.
Improving ordering, fulfillment, delivery and customer service are keys to a lucrative holiday season, according to the Consumers’ 2016 Holiday Shopping Expectations survey from Radial. Free shipping will get 91% of shoppers to spend more, but 81% will shop at a competitor if the product is out of stock or on backorder. Delivery is important, too, with 60% of shoppers preferring items arrive in one shipment and 90% choosing delivery options that ensure orders arrive in no more than seven days. Retailers who fail to meet expectations could pay a high price; 51% of consumers said they would stop shopping with a retailer who delivers their order later than promised. And 78% of respondents planned to use in-store pickup more often if shipping costs increased over the holidays.
THE HOME DEPOT
CFO Carol Tome told the Wall Street Journal that THD is allocating capital in ways that will ensure they can satisfy today’s changing customer. With about 42% of online orders being picked up in stores, they have allocated capital to build out storage areas in the stores to stage those products. They also do resets in about a third of each store annually that could mean a change in their assortment or a change in display, all designed to drive sales and provide a better customer experience. They used to open a new store every 48 hours; now they are focused on making better use of their existing stores.
They are targeting Pros because they account for just 3% of their customers but 40% of their sales, according to Tome. Their average Pro spend is $6,200 a year, so they know there is a lot of opportunity to increase their share of the Pro wallet.
Lowe’s is the number one appliance retailer for major appliances for the third consecutive year, according to TWICE’s Top Major Appliance Retailers rankings. Lowe’s bumped Sears all the way down into fifth place. Lowe’s was lauded for an extensive assortment of both mass premium and luxury brands, including Bosch, Dacor, Electrolux, Fisher & Paykel, KitchenAid, LG and Samsung. Lowe’s was also ranked highest in customer service in J.D. Power’ 2016 Appliance Retailer Satisfaction Study, with customers saying that Lowe’s excels in deliveries and installation. Lowe’s also got high grades for price, promotions and store facilities.
Lowe’s is now carrying Echo, Amazon’s wireless speaker, personal digital assistant and home-automation hub with celebrity-voice Alexa now anchoring Lowe’s new in-store connected-home display. Meanwhile Lowe’s Iris devices have recently become available on Amazon.
Lowe’s cut 95 IT jobs, most in their Mooresville headquarters complex, as part of their goal to improve operational efficiency.
Walmart plans to cut back on the number of new stores they open and focus instead on becoming an ecommerce powerhouse that draws more customers into existing stores. Walmart plans to open 35 new U.S. supercenters in fiscal 2018, down from 69 in fiscal 2017. Over the past four years the majority of Walmart’s growth has come from new stores, according to CFO Brett Biggs, but same-store sales gains and ecommerce are starting to play a much bigger role. WM’s comp store sales have risen for eight consecutive quarters.
Walmart is on track to double the number of distribution warehouses dedicated to online sales to 10 by the end of this year, a full year earlier than analysts had expected. It’s part of Walmart’s bid to narrow the gap with Amazon and carve out a bigger share of online sales. Walmart had online sales of $13.7 billion last year, compared to Amazon’s sales of $107 billion. They are committing more of their $11 billion in annual capital spending towards boosting ecommerce sales, technology used in stores and customer service.
Walmart CEO Doug McMillon told Dow Jones that they were going through a transformative period. In fact, at Walmart’s recent investor conference, executives took the stage wearing open collars and no ties. Reportedly Walmart has also eased their dress code for employees at headquarters.
Walmart is in the second year of their $2.7 billion investment in employees that includes higher pay and more training. Walmart says that the investment is paying off and that customer service in stores has improved.
Analysts believe that Walmart’s acquisition of Jet.com will help attract higher-income and younger customers. Walmart plans to incorporate some of Jet.com’s technology that lowers prices in real time. Marc Lore, co-founder and CEO of Jet, is overseeing both that site and Walmart.com.
Walmart is looking to CEO Doug McMillon to improve their public image, casting McMillon in a commercial that aired on social media and traditional television for about three months through the end of September. The commercial focuses on Walmart’s commitment to take care of their employees. Media analysts say that McMillon, a youthful 50 years old, has a good camera presence and credibility and is someone that people can relate to.
Walmart upped their stake in China’s number two ecommerce site, JD.com, to 10.8% from 5.9%.
Sears launched a new program designed to give members of the chain’s Shop Your Way loyalty program a holiday shopping advantage. Sears offered members a chance to get a jump on their holiday shopping during an October Sears Days Lowest Prices of the Season Member Bonus Event. If any items bought in-store during the bonus event are discounted in the same store through Christmas Eve, Sears will automatically credit Shop Your Way members with the difference in points.
Jason Hollar has been promoted to CFO for Sears Holdings. Hollar succeeds Robert A. Schriesheim, who left to focus on other career opportunities. Hollar, 43, joined Sears Holdings in October 2014 as senior VP, finance. Sears also consolidated some other financial responsibilities under Robert Rieker, who has been VP and controller since 2011 and will now take over as head of capital markets activities.
Ace CEO John Venhuizen told the Chicago Tribune that he believes there is still room for local, neighborhood stores. Venhuizen became president of Ace in 2012, and launched a strategy called 2020 Vision with an objective of addressing challenges and leveraging strengths. They believe in being globally trusted, but locally embraced. They have won 10 consecutive J.D. Power awards because of what he called a “maniacal commitment to customer service, high quality and differentiated and locally relevant product.”
Local businesses are also Ace customers; on average, local businesses account for about 15% to 20% of a store’s volume. The competition for them is not Grainger or Fastenal; it’s Sam’s and Costco. They emphasize that their stores are locally owned, and in the neighborhood. They have 4,931 stores; only 92 are corporate stores. When Vision 2020 was initiated, they had been losing stores. This year is the fifth consecutive year they have added stores. They will open between 150 and 160 new stores this year, and lose fewer than 90.
True Value will add direct-to consumer ecommerce in more than 90% of the country beginning in January. CEO John Hartmann says it’s a result of what he called a “critical investment in logistics and distribution systems.” True Value will be able to offer two-day shopping to 94% of the country. Hartman said that while order online, pick up in stores is important, it’s also important to offer customers options.
Third quarter sales rose 3% to $2.6 billion, in line with company expectations. Sales included a 2% contribution from Cromwell Group (Holdings) Limited and a 1% contribution from foreign exchange. Excluding acquisitions and foreign exchange, organic sales were flat, based on a 1% contribution from sales of seasonal products offset by a 1% drop in price. Their single channel online businesses continued to grow and they started operations in their new 1.3 million square foot distribution center in New Jersey.
Grainger lowered their guidance for the year and now expects 2016 sales growth of 1.5% to 2.5% compared to previous guidance of growth of 1% to 4%.
Sales in the U.S. declined 1% versus the 2015 third quarter. The decline was driven by a 1% decrease in volume and a 1% decline in price, partially offset by a 1% contribution from increased sales to Zoro, the single channel online business in the United States. Government and Retail customers posted the strongest sales growth in the quarter for the segment.
For the nine months ended September 30, 2016, sales were up 2% to $7.7 billion.
Third quarter 2016 sales in Canada dropped 16% in U.S. dollars and local currency, due to a 15% drop from lower volume and a 1% decline in price.
Q3 revenues rose 29% to 32.7 billion, but earnings missed expectations. Amazon expects sales to rise 25% in the fourth quarter to between $42 to $45.5 billion, which would be 17% to 27% growth compared to fourth quarter last year. Amazon Web Services revenue grew 58% year-over-year, and accounted for 9.5% of Amazon’s total revenue. AWS is Amazon’s most profitable division.
North American sales rose to $18.87 billion from $15 billion in Q3 2015. Amazon has been spending heavily to roll out services such as Prime Now, which is now in 40 cities world-wide compared to 17 a year ago. Prime Now offers one-to-two-hour delivery up through midnight Christmas Eve, and could favor last-minute holiday shopping.
Amazon ended the third quarter with more than 306,000 employees, a 38% increase from last year.
Amazon is continuing to beef up the benefits of Amazon Prime, adding free books, magazines and comics that can be read with the free Kindle app or on an actual Kindle. Amazon is focused on making Prime so attractive people feel as if they can’t afford not to belong.
Amazon has automated their shipping processes so much that on average it takes just one minute of human labor to ship out a package. All the rest of the work is done by robots and automated systems. Amazon says that the addition of robots in 2014 has allowed them to store 50% more inventory. Amazon employees called pickers used to have to walk many miles each day to find items on shelves; now they stand in place and the robots bring them what they need. Amazon is also using specialized facilities; their new facility in Baltimore ships out items smaller than a breadbox, so shelves can be partitioned into cubbyholes. The computer tells the employee what size box to use; the reporter who toured the facility for CNN Wire reported that the Amazon packers he watched needed only 15 seconds to assemble the right box, add bubble wrap, tape the package, add a barcode and put it back on the conveyor belt. Machines stamp on the address labels and laser scanners direct the packages to the right mail truck. The Baltimore facility is nearly a million square feet and has about 3,000 full-time employees. Amazon hired 76,700 new employees in 2015 and 38,100 in the first six months of 2016.
Amazon is considering opening up members-only convenience stores. These small stores would sell produce, milk, meats and other perishable items. Primarily using mobile phones or potentially touch screens around the store, customers could also order items with longer shelf lives like peanut butter, cereal and other goods, for same-day delivery. Amazon is reportedly soon going to roll out designated drive-in locations where online grocery orders will be brought to people’s cars. Amazon is said to be developing license-plate reading technology to speed up wait times.
Amazon is promoting “hands free” shopping by Alexa this holiday season via Echo, Tap and Fire TV. Customers tell Alexa to order something and Echo’s search engine then searches for the lowest priced option that ships through Amazon Prime and then applies any available discounts.
Amazon CEO Jeff Bezos passed Warren Buffet to take over the number two spot on the Forbes 400 list of the richest people in the U.S. with a net worth of $70.7 billion. Bill Gates, co-founder of Microsoft, remained in the top spot with a net worth of $81 billion.
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