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Retail Sales Rise 0.1% Retail sales rose just 0.1% in August after rising an upwardly revised 0.7% in July. It was the weakest showing for retail sales in six months and well below expectations. Only an increase in gasoline sales prevented retail sales from declining as sales excluding gasoline fell 0.1%. Receipts fell 0.8% at auto dealers, which account for about 20% of all retail spending. Online sales climbed 0.7%. Core retail sales, which exclude autos, gasoline, building materials and food sales, rose just 0.1% in August but July core sales were revised up from 0.5% to 0.7%. Sales at building material stores were unchanged in both July and August after rising 2.8% in June. Many economists are unsure about how the trade wars and new tariffs will impact retail sales. Holiday Retail Sales Forecast Holiday sales should rise 5% to 5.6% this holiday season and spending should exceed $1.1 trillion between November and January, according to the latest forecast from Deloitte, which excludes motor vehicles and gasoline. They expect ecommerce sales to increase 17% to 22%, reaching $128 billion to $134 billion. Deloitte analysts attribute the increase to disposable income growth, a strong labor market and high consumer confidence. Online Holiday Forecast Online holiday sales are expected to increase 15% this holiday season, up from 13% last year, according to retail search marketing company NetElixir. They also project that Amazon will account for 40% of online holiday sales this year, up from 35% in 2017. NetElixir based their optimistic forecast on a strong first half of 2018, during which sales increased 17% and revenue rose 15.5% compared to 2017. The three peaks they identified include the five-day period from Thanksgiving to Cyber Monday; a four-day period from December 9 to December 12 that includes Green Monday, December 10, typically the third largest shopping day of the holiday season; and a mobile shopping spike expected to happen December 18 - 21 as last-minute shoppers turn to internet retailers to help them finish their holiday shopping. The Home Depot From the Goldman Sachs Global Retailing Conference: Moderator Goldman Sachs analyst Matt Fassler said that THD is among the most productive and profitable retailers, as well as one of the most innovative. It was THD’s twenty-fifth appearance at the conference. THD was represented by CEO Craig Menear and CFO Carol Tome, who between them have nearly 40 years of experience with THD. THD decided to literally double their investment in the business over the next several years to $11 billion. They explained that they’re doing it because the retail environment and the way customers are engaging with them is changing very rapidly and blending the physical and digital world together. That’s why they are committed to creating the One Home Depot experience for the customer. About half of the investment will go into the stores to continue to enhance the physical environment and address key “pain points” for customers. They will also be creating a more seamless interconnected experience for their stores. The $1.2 billion that will go into the supply chain over the next five years will allow them to move to a same-day, next-day delivery network for about 95% of the US population. They now have the ability to personalize the consumer’s web experience and modify what each visitor to the website sees based on customer behavior and what THD believes they are looking for. They will also be focusing on personalization for customer segments, the first of which is the business-to-business (B2B) or Pro segment. They intend to roll out a full B2B website next fiscal year. They are hiring many more data scientists and engineers today than they did even five years ago, and everything they do is supported by technology, so they are adding a lot of IT capability and software development. They are hiring 1,500 people in IT this year alone. They have the first blockchain experience in the company going on, where they have a distributed ledger authorization between themselves and one of their suppliers, which will give them the ability to watch merchandise as it flows from the manufacturing plant to the stores and will also eliminate disputes with suppliers over goods shipped vs. goods received, etc. Pros have different needs than consumers. THD is trying to bring innovation to the marketplace that saves Pros time or money and in today’s labor market, innovations that make them more efficient or require less skilled labor. The majority of the investment in the supply chain is on the downstream side, moving products from stores and distribution centers to customers’ homes and job sites. They will eventually move a lot of the pallet staging and bulk distribution of products being delivered to job sites that now goes on in stores to distribution centers; that will work better for Pros and also create a better store environment for people shopping the store. They are also investing in automated lockers in the stores for pickup. Customers scan a barcode and then can grab their product from a locker and be on their way without having to engage with anyone. The shopping experience in most categories today starts in the digital world. Stores have finite amounts of space; the digital world is infinitely expandable. They see an average ticket online that’s almost three times the average ticket in store. The digital world also gives you the ability to test products with much less risk than in the physical world, so merchants can try things they might otherwise be hesitant to try. Often a customer might select part of what they need for a project in the digital world and part in the store itself. They are able to attract top people because they are regarded as a great place to work and a company that does things that people coming out of school today think are cool. They also have core values that are embraced by millennials, including giving back to communities. They hadn’t adjusted their labor model in more than a decade and realized they needed to do a better job of matching resources to customers’ needs and making sure enough people are available to help customers when needed. The relationship between housing turnover and comp sales has changed. The historical relationship between housing turnover and comp sales is very tight, but if you look at the relationship today, it’s very disconnected. Their research showed that when correlation was tight, there was generally a housing surplus. Today there is a housing shortage. So turnover is a driver of spend, but not a driver of growth. What’s been driving growth is home appreciation, with average equity values up 138% since 2011. They have had outsized gains in appliances and have been able to ramp up their presence in appliances thanks to the combination of the digital and physical worlds. Innovation is helping drive up average ticket as well. The advances in lithium technology are a good example. For instance, a lithium-powered lawnmower is typically in the $500 range, whereas a gasoline mower would more likely be in the $200 to $300 range. So trading up drives up average ticket. Advances in categories give customers a reason to invest in something they might already own because now a better version is available. They are in the process of building the capability to connect their services businesses to the digital world, which is part of the investment they are making. They have not yet “shouted out” their presence in services; right now they are running their first ever national ad for services. Already in certain parts of the country if you buy a garage door opener and want it installed you can click a button and they will install it for you. They are also dedicated to measuring the customer satisfaction with their services business, including doing quality control checks, upfront checks on providers, customer surveys afterwards and collecting ratings scores from customers for every category. The reason they have services is to sell more products. When asked about the impact of tariffs, they said their size and scale gives them an advantage and they do as much as they can to mitigate the impact by working with suppliers. Payroll is their largest investment and it leverages with sales growth. They believe they can put $11.1 billion in the business and deliver as high as $120 billion in sales by 2020 with an operating margin of 15%. They meet every week to track their investments against their objectives and see if there is anything they need to do differently. Other News: THD rolled out express same-day and next-day local delivery of more than 20,000 of their most popular items to 35 major metros across the US. Qualifying products include everything from power tools to garden and décor. Customers can use the service by selecting it on the website or app. THD is partnering with car and van providers like Roadie and Deliv to offer options for smaller items and is continuing to expand the supply chain to offer speedier delivery of large and bulky items. The five-year plan calls for more than 100 new distribution sites as well as additional direct fulfillment centers. THD is looking to lease between 500,000 and 700,000 square feet of additional industrial space in the Houston area. Homebuilders in Houston are busier than they have been in years, with some of that growth attributable to rebuilding after Hurricane Harvey. The THD Foundation is donating $3 million for disaster relief efforts and communities impacted by recent disasters, including Hurricanes Florence and Olivia, the California wildfires and flooding in the Midwest. The Home Depot employee assistance program, The Homer Fund, is also providing emergency assistance to affected associates. Lowe’s CEO Marvin Ellison told attendees at the 25th Annual Goldman Sachs Retailing Conference in New York that Lowe’s has some work to do. They need to become more efficient and get the best performance out of the capital invested. Ellison wants to focus more employee time on customers and make every square foot in the store more productive. He also wants to move the process of appliance deliveries from stores to consolidated fulfillment centers, the first of which opens this fall in Tennessee. Ellison also has a plan to reduce stocking time. He wants deliveries to stores from distribution centers to be divided up by where they go in the store, which will reduce stocking time by 60% to 70%. As CEO, Ellison will get a base annual salary of $750,000 with an opportunity to double that through the bonus program. New CFO David Denton will have a base salary of $925,000, with a $1 million signing bonus. Walmart Walmart is updating their Jet.com site, offering faster delivery, new merchandise, more personalization and other enhancements. Many of the upgrades are tailored to the specific needs of urban areas. The changes also include a bigger emphasis on localization that will start with New York City and roll out to other major cities over time. Most NYC customers will be able to arrange three-hour scheduled delivery windows for their groceries and other select merchandise and will be able to add customized delivery instructions at checkout. Delivery will be through Parcel, the same-day, last-mile delivery company Walmart acquired in 2017. Jet is also partnering with local brands and small businesses. In the coming months Jet plans to add more brands to the site, starting with Nike and Converse, which will be available in October. Walmart is expanding their digital marketplace in order to attract more millennials and higher-end shoppers. WM recently launched a curated online store on their website for outdoor brand Moosejaw, which Walmart acquired in February 2017. It’s the first time Walmart has created an online store on their flagship site for one of their acquired specialty retailers. Since being acquired, Moosejaw has been taking advantage of Walmart’s technology incubator, testing how virtual reality could enhance how shoppers engage with outdoor products. Moosejaw says that Walmart’s scale has allowed them to take their business to the next level and take advantage of technology that would not otherwise have been available to them. Sears Sears total revenue plunged by more than $1 billion to $3.18 billion in the second quarter and comp store sales fell 4% at Sears and 3.7% at Kmart. The quarterly decline was less severe than it has been in recent quarters, with execs stating that comp store sales in July and August were actually positive. Sears has closed 384 stores this year, and had a total of 866 stores as of early August. CEO Eddie Lampert acknowledged that the turnaround has taken far longer than they expected, and that Sears has been at a disadvantage due to pension obligations, which have totaled $4.5 billion since 2005, as well as the shift to online shopping that most retailers are dealing with. It was nearly 40 days after the end of the quarter before Sears released results, and when they did so, they waited until US markets were closed. True Value Apex Tool Group was named True Value’s Overall Supplier of the Year for 2017, and was featured in the company’s annual report. True Value has been an ATG customer since 1967, but this is the first time they’ve been Supplier of the Year. True Value credited ATG with ramping up their investment in innovation to continuously improve even their most basic tool lines. W.W. Grainger Crain’s Chicago Business ran a feature story on how Grainger dealt with “the Amazon effect.” Last summer, news that Amazon was beefing up their industrial supply business sent Grainger stock plummeting. But today Grainger shares are trading near an all-time high on surging sales and expanding profit margins. Well before Amazon went on the offensive Grainger’s business was suffering as customers found better deals online elsewhere. Grainger responded by slashing prices on a range of products last year, which sent sales soaring, especially with midsize companies that tend to shop around because they have less leverage with suppliers. Amazon’s business supply unit reportedly has about 300,000 customers and about $1 billion in sales. Analysts say Amazon caters mostly to smaller businesses looking for the lowest possible price, and cannot match Grainger’s business and sales model, which relies on sales reps. Amazon Amazon ordered 20,000 Sprinter vans from Mercedes-Benz, which is producing the vans at their new plant in North Charleston, South Carolina. The order is part of the company’s new Delivery Service Partner program, which allows small business owners to work with third-party fleet management companies to acquire customized vans and get special leases in order to keep startup costs low. Amazon’s second headquarters, known as HQ2, will be announced by the end of the year, according to CEO Jeff Bezos, who spoke at the Economic Club of Washington’s 32nd anniversary celebration. Bezos covered a wide variety of subjects and commented that Amazon “elbows for customers” in the real world, where they face serious competition. Amazon is reportedly ready to establish up to 3,000 Amazon Go stores within the next three years. Amazon has opened three Amazon Go stores in Seattle, and opened another one in late September in downtown Chicago. The model uses less than 2,000 square feet of space, so finding locations is relatively easy. Morgan Stanley estimates that Amazon could spend as much as $3 billion rolling out the stores. The original Amazon Go in downtown Seattle required more than $1 million in hardware alone, according to inside sources. Amazon thus far has focused on grab and go foods, including prepared foods and Amazon meal kits. Customers use the app to swipe a code on the way in. Cameras and sensors in the store track items and charge the credit card on file after the customer leaves. Amazon plans to sell and ship live Christmas trees this holiday season. Amazon says the trees, which include Douglas firs and Norfolk Island pines, will be shipped within 10 days of being cut down. Trees will be bound and shipped without water; some will be delivered free for Amazon Prime customers. You can buy a 7-foot tree from a North Carolina farm for $115. Amazon CEO Jeff Bezos is starting a $2 billion fund called the Bezos Day One Fund to support numerous charitable causes. Among causes he intends to support are helping homeless families and opening new preschools in low-income neighborhoods. Amazon is planning to introduce as many as eight new Alexa-powered smart home devices later this year, including a microwave oven, a set of higher-end home audio gear and some type of device designed to work in vehicles. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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