Distribution October 2016
RETAIL SALES FALL 0.3%
Retail sales fell 0.3% in August after being upwardly revised to a 0.1% increase from essentially flat in July and were up 1.9% year-over-year. Online retail sales fell 0.3% in August after rising 1.3% in July but were up 10.9% from August 2015. Core retail sales, which exclude automobiles, gasoline, building materials and food services, fell 0.1% after a downwardly revised 0.1% drop in July. Core retail sales correspond most closely with the consumer spending component of GDP. Sales fell in 8 out of 13 categories, including building materials. Results were well below analysts’ expectations, and indicate that consumer spending could moderate in the third quarter. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
HOLIDAY SHOPPING OUTLOOK
Nearly one-third of consumers and nearly half of those who are parents, began their holiday shopping before Labor Day, according to the second annual Holiday Consumer Pulse Poll from Rubicon Project. According to the survey of U.S. shoppers, Americans plan to spend an average of $1,175 this holiday season, a 12% jump from last year. Consumers are slightly more likely to buy several smaller items rather than one big ticket gift. The survey found that 73% plan to shop online and more than one in three plan to shop on a mobile device. A surprising 22% of shoppers and 28% of millennials do not plan to shop in stores at all this year. The online and mobile-only shoppers are predominately millennial males who will most likely shop for gift cards (64%), apparel/accessories (57%), toys (46%) and technology (37%). More respondents (47%) plan to shop on Cyber Monday compared to 42% planning to shop on Black Friday. As of August 22% of respondents had started researching Cyber Monday deals, up 10% from last year.
HOLIDAY SALES FORECAST
Total holiday sales will rise between 3.6% and 4% to more than $1 trillion this holiday season (November through January) according to Deloitte’s annual retail holiday sales forecast. Ecommerce sales are expected to increase between 17% and 19%, reaching $96 billion to $98 billion. Deloitte says that big retailers will face increased competition from small and medium-sized niche companies that are proving popular with consumers. Deloitte forecast that digital interactions will influence 67%, or $661 billion, of in-store sales this holiday season, due to shoppers’ growing use of digital devices, including tablets and smartphones. Deloitte says that large ecommerce players and digital platforms such as Pinterest and Facebook are shaping what people regard as a great shopping experience—a fast, highly-selected assortment with instant access to visuals, information and buying sources. Deloitte does not think the November presidential election will have a negative impact on sales, and retailers may benefit from a pickup in postelection consumer spending.
ONLINE SALES FORECAST
According to eMarketer’s holiday sales preview forecast, ecommerce will rise 17% this year and surpass 10% of total U.S. holiday sales for the first time. They forecast holiday retail ecommerce sales will reach $94.71 billion, accounting for 10.7% of total holiday retail sales. Mobile commerce sales in the U.S. will increase 43.2% to $115.92 billion, accounting for 29.1% of total ecommerce sales and 2.4% of total retail sales. By 2020 eMarketer expects retail mobile commerce to account for nearly half of all retail online sales. Most mobile growth is coming from smartphones; this year mobile sales on smartphones will exceed tablets for the first time, totaling $67.23 billion for the entire year. Analysts say the increase is due to bigger screens, better mobile design and simpler payment options. Improving app search and payment systems should keep mobile growing steadily. Retail sales on tablets are also growing, but not at the pace of overall ecommerce sales.
THE HOME DEPOT
From the Goldman Sachs Global Retail Conference:
They have not seen much impact from lower oil prices and the pull back in exploration. They saw some weakness at the end of the second quarter in North Dakota, and actually took down a pop up store they had in Williston. Major markets like Texas have not been affected.
The Interline acquisition gives them an opportunity in the $50 billion MRO market, of which they currently own less than 5%. They had a 42% vendor overlap with Interline. Right now they are in a pilot test enabling Interline products at the Pro Desk in Home Depot stores. Later in 2017 they will work on their capability to let customers order from both Home Depot and Interline and have everything delivered in one shipment. Some of the segments Interline is strong in, including multifamily, institutional and hospitality, have the need to be able to order daily; there is also periodic scheduled maintenance, and eventually periodic capital upgrades that involve major projects.
The Interline acquisition also allowed them to immediately acquire a very professional outside sales force; they are using Interline to help define what the future of outside sales and services will look like at The Home Depot.
They are defining their marketing to Pro customers and beginning to take advantage of the digital capabilities that they have. It is much more targeted and personalized marketing. Some of the new features they are offering, such as the ability to look up inventory in the store, really appeal to busy Pros.
THD identified specific categories that they felt at risk to move to the digital world several years ago, and began to build very specific strategies that extend some of the exclusive relationships they have in the physical channel to the digital one. They want their customers to shop with them whichever way is easiest for the customer.
The video content they’ve added about products has proved to be very popular with customers and helps drive conversions. They released a new updated app in September that offers more information and better views of the product.
Their ecommerce business has been growing more than $200 million each quarter, and they are a top 10 ecommerce site based on U.S. dollar volume.
Today the do-it-for-me business represents about 4.5% of their total sales, but they see it as a growth opportunity. CEO Craig Menear said that the aging population, among which he included himself, is choosing to have people do work for them that they used to do themselves.
The three elements of the housing market that they watch closely are home volume appreciation, housing turnover and new household formation, all of which continue to provide a tailwind for the business.
Private label products represent less than 20% of their total sales, but offer increased margins and opportunities for innovation. They are and will always be a “brand house.”
They have quite a lot of data about their Pro customers, but other than digital marketing, have not done a lot of individual marketing. They do market to groups of people, for example, customers who appear to be remodeling their kitchen or working on their garden.
They believe their research shows that millennials will follow the same patterns as generations before them, but will do it about six years later.
Argus Research says that Lowe’s is outpacing The Home Depot in appliances because Lowe’s stores are organized thematically, making it easy for the consumer to buy an entire concept. Argus also states that Lowe’s puts more emphasis on appliances than Home Depot does because appliances are a slightly below average margin category at Home Depot, but are average or above at Lowe’s, and the fact that they are generally a high ticket item makes promoting them worthwhile.
Walmart is cutting about 7,000 back-office store jobs as they centralize invoicing and accounting. WM says that most of the displaced workers should find new jobs that involve direct contact with shoppers, and the change was not a downsizing move, but rather part of their commitment to get more bodies out onto the selling floor. WM tested the program in 500 stores earlier this year.
Walmart paid more than $201 million in second-quarter bonuses to hourly store staff as 99% of stores met targets for cleanliness, faster checkout and better service. A total of 932,000 store employees received quarterly bonuses this year, up from 880,000 in the second quarter of 2016 and 687,000 in fiscal 2015. Walmart has made a number of moves of late to get more bodies out onto the selling floor and focus more on customer service.
Sears reportedly put the Craftsman brand up for sale and is now entertaining bids from companies said to include Stanley Black & Decker, Techtronic Industries, Apex Tool Group and Husqvarna. Bids are due the end of October. Analysts say Craftsman could bring about $2 billion. Cash-strapped Sears is reportedly also exploring options for Kenmore, DieHard and the Sears Home Services businesses.
Sears announced they will begin selling paint again after roughly four years out of the market. Sears also announced plans to bring Craftsman brand into the paint category for the first time. The initial test will be in 23 Sears stores. In June, Sears unveiled plans to put their DieHard brand on automobile tires, the brand’s first major expansion in more than a decade.
Q2 revenues rose 0.6% to a record $1.4 billion. New store growth was the primary driver of the increased revenue. For the first six months of 2016, same-store sales increased 2.4%, primarily as a result of a 2.2% increase in average ticket. Wholesale revenues rose 0.5% to $1.3 billion. Retail revenues from Ace Retail Holdings, which is essentially sales from Westlake Ace Hardware, were up 2.3% to $87.4 million. Comp store sales increased 1.6%, with the largest increase in outdoor living and lawn and garden.
Ace added 42 new domestic stores in the second quarter and cancelled 29 stores, which left Ace with a total domestic store count of 4,315, an increase of 59 stores from the second quarter of 2015.
Grainger's daily sales increased 4% in August compared to August 2015 after increasing 3% in July. Growth included 3% from Cromwell Group (Holdings) Limited, acquired September 1, 2015, and a 1% increase from acquisitions and foreign exchange. Organic sales were flat, with a 1% increase from sales of seasonal products offset by a 1% decline in price. Sales in the U.S. were up 1%, sales in Canada were down 14% in U.S. dollars and 16% in local currency.
Amazon plans to open up to 100 pop-up stores in U.S. shopping malls over the next year, according to Business Insider. The miniature retail storefronts are a separate effort from the physical bookstore that Amazon opened in Seattle last year and are designed to showcase and sell Amazon’s hardware devices, particularly the growingly popular Echo home speaker with digital voice Alexa. At the end of August Amazon had 16 pop-up stores in the U.S. Amazon is recruiting, and job posts say that pop-up stores are out of the test phase and their goal is to expand and grow.
Amazon Prime subscribers spend $1,200 annually compared to non-subscribers, who spend about $500, according to researcher Statista. The estimated 63 million Amazon Prime members represent about $75.6 billion in annual purchasing power; Amazon’s revenue last year was $107 billion. The fact that Amazon is now offering monthly membership programs for $10.99 a month is expected to add to the member base; the annual program costs $99.
Amazon is trying out a 30-hour work week that will offer workers benefits, something most retailers avoid with less than full time schedules. Amazon says they are trying to tap into a more diverse workforce of qualified employees who just don’t have time for a full-time job, especially mothers. Employees will be paid at 75% of the full-time rate.
Amazon and Wells Fargo ended a partnership to make private student loans just six weeks after it was announced. Spokeswomen for both companies announced that the partnership, which had been more than a year in the making, was abruptly being ended, but no reason was given. Wells Fargo is the second largest private student lender. The program was designed to give members of Amazon’s Prime Student program a break on loan rates.
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