Distribution October 2020

Retail Sales Rise 0.6%
Retail sales rose 0.6% in August after rising 0.9% in July and were up 2.6% from August 2019. Analysts had expected sales to rise 1.0% in August. Core retail sales, which exclude automobiles, gasoline and sales at building and supply stores and factor into calculations for GDP, fell 0.1% in August after rising 1.4% in July. Building and supply store sales rose 2.0%. The slowdown in spending was likely due to a combination of factors. Pent-up demand that had sent sales soaring in June and July has been satisfied and incomes have declined for a significant share of the population. More than 25 million unemployed people were receiving an additional $600 each week from payments provided by the CARES Act; those payments stopped in late July.
 
The Home Depot
Promotions at THD:
 
Ted Decker was promoted to president and COO, effective October 5, 2020. Decker has served as EVP, merchandising since 2014. He will assume additional responsibility for global store operations, global supply chain, and outside sales and service.
 
Ann-Marie Campbell was named EVP, U.S. stores and international operations and will add oversight for Canada and Mexico to her responsibilities. She is a 35-year veteran of THD.
 
Jeff Kinnaird was promoted to EVP, merchandising; he was most recently merchandising VP, Canada.
 
Michael Rowe has been promoted to president of The Home Depot Canada
 
Goldman Sachs Global Retail Conference:
 
They would like to be in a better in-stock position than they are currently in; keeping up with all of the incremental volume generated by pandemic demand has put a lot of demands on the supply chain including their vendor partners and raw materials.
 
They shifted a market delivery center in Chicago to a direct fulfillment center in the matter of a couple of weeks to help keep up with the triple-digit growth coming from digital orders.
 
They never lose sight of the fact that they typically have about $60 billion in DIY sales annually; that has gone up substantially with the new emphasis on home improvement and maintenance brought on by several pandemic-related factors.
 
Today their mix is about 55% DIY and 45% Pro, and regardless of how much of the behavior developed during the pandemic continues, they want to grow both the DIY and the Pro business; they do not want to be dominated by Pro business.
 
In Q2 they had double-digit growth in 13 of 14 departments, with Bath the only department falling slightly short of double digits. Now Bath is starting to come back as people are becoming more comfortable having Pros in their homes.
 
Their new tagline, “How Doers Get More Done,” is meant to convey that today they have many more ways to help everyone working on projects, from planning tools to buy online, pick up in store. The newest DIYers are millennials and they are starting to see the same behavior from them they saw from Baby Boomers 30 and 40 years ago. As they start getting comfortable with THD, their spending goes up and THD gets a larger share of wallet.
 
Independents still own all the categories in which THD is a major player, which means there is plenty of opportunity for them to grow their share.
 
They are working with their supplier partners to focus on key items and make larger and deeper buys that can get them even better values on key product. They are leveraging their end caps and reducing the number of SKUs in order to enable them to handle traffic while at the same time promote social distancing and safety.
 
They will still have events, but they will last longer and the features will be available across their platforms so that they don’t overwhelm stores with foot traffic.
 
Some operational costs that impacted the second quarter will come down over time, such as their investment in masks. CEO Craig Menear stated he could foresee a time when everyone in the country just carried a mask with them as a matter of course.
 
The flatbed delivery network they are building out will remove the pressure of delivering products to Pros from the stores. Currently products going out to jobs are staged in aisles, which makes it tough for Pros who are the stores early shopping in person. A few flatbed centers are up and running now; they are trying to be sure they have all the correct elements in place. There will be more coming later this year and they will be expanding the network next year.
 
They are excited about the capabilities they have to connect Pros to the digital world and grow their Pro business from fill-in purchases to more large-scale planned shopping, an area that they have not really penetrated strongly.
 
They do not see themselves focusing on homebuilders, because they are not really set up for new construction; for instance, they could not really pull together a lumber package. They don’t have space and that’s just not what they do. They do have homebuilders that shop at THD, but not to buy their construction packages.
 
Their focus will remain on customers, not competitors. They believe it is important for them to understand and be aware of what is happening in the competitive landscape, but they will grow their business by better understanding the needs of both DIYers and Pros and doing a better job of meeting those needs.
 
They will probably open a few new stores in the US in 2021; they are working on fill-in opportunities.
 
Other News:
 
THD is hosting a series of livestream workshops so they can share tips and how-tos with children and adults without having to host workshops in stores. The first workshop began streaming September 14 and focused on storm preparations for hurricane, tornado and flood-prone areas. During the class, a Home Depot associate shows viewers how to put together an emergency supply kit, take proper safety precautions, track storm trajectories, minimize home damage, safely use a generator, access resources from relief organizations, and provides information for potential repairs and recovery after an emergency or disaster. THD is also posting workshops and how-to videos on their website.
 
Lowe’s
Lowe’s will roll out self-service lockers to more of their 1,700 US stores after a successful trial in the New York, Charlotte and Philadelphia areas. Most metro areas should have the lockers that allow customers to pick up online and phone orders installed before Thanksgiving, with the remainder of stores having pickup lockers by March. That’s roughly a year ahead of Lowe’s original plans for the program. Lowe’s is testing different locker configurations for high-volume and low-volume locations as well as considering options for Pros, who often order items that do not fit in a typical locker. The Home Depot and Amazon already offer these types of options. Lowe’s says more than 60% of orders placed online are picked up in stores.
 
Walmart
After many delays, Walmart debuted Walmart+ in mid-September with a 15-day free trial period. For $98 annually, members will receive unlimited free deliveries on orders from any of 4,700 Walmart stores and save up to five cents a gallon on gas at Walmart, Murphy USA and Murphy Express. They’ll also be able to use a Scan & Go feature on the app to bypass checkout lines and shop using Walmart Pay, their mobile payment option. Analysts say that while Amazon offers many more items for free delivery to Prime members, Amazon has struggled in the groceries and essentials categories, something at which Walmart excels. Amazon Prime costs $119 annually and offers free one-day delivery on more than 10 million items, as well as on-demand movies and television shows, a music streaming service and video gaming platform.
 
Walmart is targeting each of their audience segments with the most relevant advertising message about their new Walmart+ service, according to CMO William White. Ads will appear on broadcast and cable television channels such as HGTV and Food Network as well as OTT services such as Hulu. They’ll also be using a performance marketing program with ads on platforms like Facebook, Instagram and Pinterest. In 2019, Walmart spent $630 million on media, according to Kantar. In order to create a variety of ad options, Walmart gave early access to Walmart+ to 22 families and then filmed them using the membership program.
 
Walmart will hire more than 20,000 workers ahead of the holidays in order to be prepared for the expected surge in online shopping driven by the pandemic. It’s Walmart’s first large seasonal hiring in more than five years. Hourly wages reportedly range from $15.75 to $23.75. Walmart has already hired more than 500,000 employees since March across their stores and supply chain. Walmart noted they are also increasing the availability of gifts that have become popular due to social distancing, including loungewear, pajamas, grills, bicycles, pet peds and gear for outdoor activities.
 
Amazon
Amazon confirmed that Prime Day will be October 13 and 14, with more than one million deals being offered across all categories. With Prime Day, which is usually in July, so late in the season, it may well be seen as a kickoff to the holiday shopping season. Walmart and Target have already stated they will also host big online savings events in conjunction with Prime Day.
 
Amazon is also investing an additional $100 million in special Prime Day and holiday promotional programs for small businesses, including a $10 credit for customers to use on Prime Day for Prime members who spend $10 on items sold by select small and medium-sized businesses (SMBs) on the Amazon marketplace. Amazon will also be spotlighting deals from small businesses and give customers the opportunity to hear directly from business owners during a recurring Amazon Live segment called Small Business Showcase. Third-party sellers on Amazon’s platform typically pay a referral fee of 6% to 20%; other sellers pay a flat fee of less than $40 per month. In the 12 months ending in May, third-party sellers sold more than 3.4 billion products on Amazon’s platform and averaged $160,000 in sales, up from 2.7 billion products and $100,000 in sales the previous year.
 
Amazon plans to bring an additional 100,000 small businesses onto their platform as new sellers over the next year. Since the pandemic began, Amazon has been building out their logistics networks and positioning the Amazon marketplace as a way for small businesses to earn revenues during tough economic times. Amazon plans to increase their warehouse space by 50% this year and has added about 125,000 new logistics employees since the pandemic began.
 
Amazon is restricting advertising from companies that manufacture devices that compete with Amazon’s smart products such as speakers, video doorbells and other devices. Amazon typically allows companies to buy ads that appear inside search results, including searches for competing products. Amazon said this is a typical retail strategy; for instance, Walmart refuses to sell Amazon’s Kindle ereaders, Fire TV and Tablets and Echo smart speakers.
 
Amazon is opening a fulfillment center near Stone Mountain, Georgia that will be the first robotics fulfillment center in the state, which is already home to seven other Amazon fulfilment centers.
Amazon is hiring 100,000 new employees in the US and Canada and will be paying signing bonuses of up to $1,000 in some cities. The new jobs will pay at least $15 an hour and will include benefits. Amazon will hire about 33,000 people for corporate and tech roles over the next few months through a virtual career fair that was held in mid-September. Amazon said 1,000 recruiters and HR professionals provided 20,000 one-on-one career coaching sessions for job seekers. Last year Amazon received more than 200,000 applications for 30,000 jobs and held in-person career fairs in six US cities. Amazon is now the second-largest employer in the US, behind Walmart.
 
Amazon will reportedly establish a fleet of 1,000 delivery hubs in suburbs and cities across the US as part of their effort to get closer to their customers and eliminate the advantage that a massive network of physical stores gives rival Walmart. Amazon eventually plans to have about 1,500 warehouses like the one recently opened in Holyoke, Massachusetts, just a short drive from more than 600,000 people.
 
Amazon introduced Luxury Stores in mid-September, an invitation-only online shopping portal for well-heeled Prime members. The first partner in the new online Luxury Stores is Oscar de la Renta, which will feature their 2020 collections. Amazon says Prime members want the ability to shop their favorite luxury brands on Amazon. 

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