Distribution November 2018
Retail Sales Rise 0.1%
Retail sales rose 0.1% in September after inching up 0.1% in August and were up 4.4% from September 2017. Sales were well below expectations of a 0.7% increase. Ten of thirteen categories showed increases. Core retail sales, which exclude autos, gasoline, building materials and food sales, rose 0.5% in September after rising 0.1% in August and were above expectations. Online and other non-store sales were up 8.9% year over year and 0.9% seasonally adjusted from August. Sales at building materials and supplies stores were down 0.3% year over year and up 0.1% seasonally adjusted from August. Hurricanes Florence and Michael may have affected sales in affected areas. Most of the negative impact from disasters is temporary and eventually recouped by recovery efforts. Many economists are unsure about how the trade wars and new tariffs will impact retail sales.
A number of factors are prompting experts to predict good growth this holiday season, including better financial conditions and increased consumer confidence. The National Retail Federation expects holiday sales in November and December to increase between 4.3% and 4.8%, to around $720 billion. Many retailers are trying to attract seasonal workers, with Amazon adding 100,000 workers and Target trying to hire 120,000 seasonal employees, 20% more workers than last year, partially in response to Sears exiting the holiday arena and leaving a void, particularly in toys. Walmart is taking a different tactic, saying that they have found it more effective to offer additional hours to current employees, and intend to continue that practice.
Thanksgiving and Black Friday Shopping
The National Retail Federation reports that 174 million people shopped instore and online during last year’s five-day Thanksgiving weekend, which officially concludes on Cyber Monday. Last year, a BestBlackFriday.com survey found that 57% of Americans responding were against Thanksgiving openings, with only 16% favoring them. However, this year nearly 25% of respondents said they were OK with stores opening on Thanksgiving.
About 60 retailers have already confirmed that their stores will remain closed on Thanksgiving Day in order to give employees time to spend the holiday with their families. Stores that will be closed include The Home Depot, Lowe’s, Sam’s Club, Costco, Ace Hardware and Menards.
The 2018 Online Holiday Shopping Forecast by CPC Strategy shows that 80% of holiday shoppers will start their hunt for gifts on Amazon this year, with many consumers noting they will start shopping before Thanksgiving. Last year 72% of shoppers reported that they would start their holiday shopping search on Amazon. Several retailers also fared well, with 57% of shoppers expecting to shop on Walmart.com. Gender and age influenced patterns, with 70% of women between the ages of 45 and 50 planning to shop at Walmart; the survey showed that the likelihood of shopping at Walmart increased along with the age of the shopper. Other key findings include the fact that 46% of shoppers plan to shop both online and in stores, 43% plan to do their shopping on a mobile device and 40% plan to buy their gifts before Thanksgiving. In addition, despite high consumer confidence and a strong economy, 20% of people plan to spend less than they did last year.
Digital Holiday Advertising
Retailers plan to spend more of their digital advertising budget on Black Friday than on any other day during the holiday season, including Cyber Monday. Nanigans surveyed 100 senior digital advertising execs from companies with a minimum of $100 million in annual online sales who indicated that a quarter of their annual ad budget is used to target shoppers during the Black Friday/Cyber Monday holiday weekend. Total US digital ad spend by retailers is expected to exceed $23 billion this year, so that would mean retailers plan to spend nearly $6 billion dollars in media over the four-day weekend. Google Search and Display and Facebook dominated planned channels, with Amazon running third. Just 5% target last-minute shoppers, which may be a missed opportunity.
The Home Depot
THD announced the winners of their most innovative products for 2018. The overall winner was Makita’s Sub Compact program with 18v battery system. Milwaukee Tools was named their Supplier Partner of the Year for tools.
Lowe’s pledged $2 million for Hurricane Michael relief efforts. That pledge brings Lowe’s total relief support to $4 million for Hurricanes Florence and Michael, which both made landfall within a 30-day period. In addition to deploying needed supplies to stores in areas affected before the storms, Lowe’s also mobilized Employee Relief Teams who volunteer to be deployed to the hardest-hit areas so that Lowe’s associates who were personally affected can focus on their families’ needs. Lowe’s has also doubled their commitment to the Lowe’s Employee Relief Fund, which has so far delivered $35 million in financial aid to more than 30,000 employees since it was established in 1999.
Walmart lowered their earnings forecast for the year and said ecommerce growth next year would be slower than in the current fiscal year, which ends in January. Earnings next year will be negatively impacted by Walmart’s $16 billion acquisition of Indian ecommerce firm Flipkart Walmart now expects comp store sales in the US to grow 2.5% to 3% in fiscal 2020 following expected growth of 3% this year, which will be the fastest growth in a decade. WM expects sales growth in fiscal 2020 to be negatively impacted by the deconsolidation of operations in Brazil and the planned reduction of tobacco sales at Sam’s Club. Online sales growth in fiscal 2020 is expected to slow to 35% from 40% this year. Walmart will open fewer than 10 stores in the US in fiscal 2020 but will unveil more than 300 units in Mexico and China.
Walmart is offering free 2-day shipping on millions more items by partnering with hundreds of the top sellers on Walmart.com’s third-party marketplace. Free two-day shipping is already available on eligible orders of Walmart merchandise of $35 or more. Walmart is also improving the return policy for orders from third-party sellers. Walmart will soon allow customers to print return slips from their website to send items back to sellers, and in mid-November Walmart will allow people to drop off returns at Service desks in any Walmart store.
Walmart entered into a strategic joint venture with Eko, a developer of interactive video technology. Through the project, dubbed W*E Interactive Ventures, the two companies plan to develop original, interactive content that will enable Walmart to connect with customers in new ways. Content could include everything from cooking shows to interactive toy catalogs. It will also allow viewers to participate in and shape stories as they develop. Analysts say that the deal positions WM to compete with on-demand video subscriptions like Netflix and Amazon Prime’s video service.
As widely expected, Sears filed for Chapter 11 bankruptcy and announced they would be closing 142 stores before the end of the year. CEO Eddie Lampert is stepping down; employees got the news via email. Many analysts say that Lampert’s decision to cut costs while competitors updated their stores and built up their digital business doomed Sears to failure. Sears has not turned a profit since 2010, but in its heyday Sears was both America’s largest retailer and largest employer. In fact, many journalists noted that Sears was the Amazon of its day, bringing the world to people through their famous Sears catalog. Over the past 13 years, Sears closed 2,800 Sears and Kmart stores, sold off properties and slashed investment in the remaining stores.
Apex Tool Group has a $6.6 million unsecured claim against Sears and Stanley Black & Decker has a $5.9 million unsecured claim. Apex is a privately held supplier of hand tools and power tools owned by Boston private equity giant Bain Capital. Unsecured creditors are the last ones to be paid; secured creditors like banks will be taken care of first. Sears listed $6.9 billion in assets and $11.3 billion in liabilities in their bankruptcy filing.
Analysts believe Walmart will be the biggest beneficiary from Sears’ death spiral, as data shows that 92% of Sears’ shoppers also shop at Walmart and there is a lot of demographic overlap. Data also reveals that TJMaxx and sister store Marshalls have more stores closer to Sears’ current locations. According to Cowen data, 740 Walmart stores, 583 Targets and 1,381 TJX stores are within five miles of a Sears. The biggest players in the appliance arena, including Lowe’s, Home Depot and Best Buy, stand to gain share and scale.
Ace’s new chief marketing officer (CMO) Kim Lefko and ad agency of record O’Keefe, Reinhard & Paul Chicago (OKRP) have developed what American City Business Journal calls a smart and differentiating campaign to separate Ace from Amazon and big box retailers. Ace’s new tagline, “the home convenience store,” positions Ace as the easy fix, replace and repair solution and builds on Ace’s heritage of helping customers with both convenience and high-touch service. It also is meant to point out that Ace is not the place for huge home renovation projects, with a copy line that trades on big box customers’ frustration with finding what they are looking for and finding someone to help: “If it’s not a huge project, why turn it into one?” A positioning TV campaign will be complemented by an array of social and digital media that will also help put the Ace brand in front of more new millennial homeowners.
Grainger’s Q3 sales rose 7.4% to $2.6 billion. Sales were driven by a 7% increase from volume and 1% from price, partially offset by a 1% decline from foreign exchange and the impact of hurricanes. Sales adjusted for foreign exchange and the impact of hurricanes were up 8.2% compared to the third quarter of 2017. Grainger lapped their 2017 pricing changes during the quarter, but still saw continued strong momentum and share gains from large and medium customers. Adjusted for the new revenue recognition standard, gross profit margin in the US was up modestly.
Revenue rose 29% to $56.6 billion, missing forecasts of $57.1 billion. Amazon posted their second consecutive quarter of record profitability but warned that growth could slow in the current quarter. Amazon projected sales for the current quarter, which includes the holiday season, of $66.5 to $72.5 billion, below estimates of $73.89 billion. Amazon is still projecting a strong holiday season but said that holiday sales for them come in a tight window and are extremely difficult to accurately forecast.
Amazon Web Services (AWS) saw sales jump 46% from 2017 to $6.7 billion. Amazon’s other reporting segment, which is largely made up of their advertising business, saw sales more than double to $2.5 billion.
Amazon now accounts for nearly half of all US ecommerce sales, with annual growth to date of 29%, well ahead of 16% for ecommerce sales overall in the US. Third-party marketplace sellers are driving both Amazon’s sales and ad revenues.
Amazon added 37,600 employees over the quarter, and now has 613,300 employees, a big jump from the 382,400 employees they had during the same quarter last year. Part of that big jump is due to their acquisition of Whole Foods. Amazon is also expected to create 50,000 jobs at their $5 billion second headquarters, the location of which has yet to be announced.
Amazon raised the minimum wage to $15 per hour for all employees, including full-time, part-time, temporary, seasonal and contract employees. The November 1 increase will benefit more than 250,000 current employees as well as the 100,000 seasonal employees the company plans to hire for the holidays. Amazon CEO Jeff Bezos said they listened to their critics, and decided they wanted to do something for employees that would lead the way. Bezos also said Amazon’s public policy team will begin advocating for an increase in the federal minimum wage, currently $7.25 an hour. Target increased their minimum wage to $12 this past spring, with a goal of $15 by 2020. Walmart
lags $1 behind, having raised their minimum wage to $11 an hour in January.
Amazon launched a new menu of Amazon Business Prime benefits available to companies of all sizes in the US, Germany and Japan. In addition to several operational benefits, Amazon is now offering companies the opportunity to request extended terms for payment and is expanding shipping options for US members. In addition to offering free two-day shipping on more than 100 million items, US Business Prime members can now get free same-day delivery or free one-day shipping on more than one million items on eligible orders over $35 in more than 8,000 cities and towns. They are also eligible for consolidated shipping on some bulk orders. In addition, Amazon partnered with American Express to offer the Amazon Business American Express Card, with no annual fee and an enhanced checkout experience on Amazon Business and Amazon. The cost of Business Prime is based on the number of users and starts at $179 per year for up to three users.
Amazon will open their fourth Amazon Go location in Chicago early next year in the Illinois Center Complex. This will be the first Amazon Go close to North Michigan Avenue, a heavy tourist and shopping district. Amazon also opened their first Amazon Go in San Francisco.
Amazon CEO Jeff Bezos took over the top spot on the Forbes 400 for the first time this year, as his net worth, now valued at $160 billion, knocked Microsoft’s Bill Gates ($97 billion) off as the leader just one year short of a quarter-century on top. The lowest net worth of the top 400 is $2.1 billion. There were more than 200 American billionaires who did not make the 400 this year.
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