Distribution October 2021
Retail Sales Rise 0.7%
Retail sales rose 0.7% in August, well ahead of expectations for a 1.1% decline. The unexpected rise was led by a robust 5.3% increase in sales for non-store retailers, a category that includes online and catalog sales. The decline in sales for July was revised to 1.7%, greater than the 1.1% first reported. Retail sales were up 15% from August 2020 when pandemic restrictions impacted sales. Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 2.5% last month after a downwardly revised 1.9% decline in July. These core retail sales correspond most closely with the consumer spending component of GDP. Building materials and garden supply stores were up 0.9% over July and up 8.8% year over year, and home store and furniture store sales were up 3.7% in August. Both increases are an indication that people are still spending money on their homes even though spending on services have increased since pandemic restrictions have eased. Seasonally adjusted US retail ecommerce sales for the second quarter rose 3.3% to $222.5 billion. The National Retail Federation forecast that 2021 retail sales will rise between 6.5% and 8.2%, which would beat the previous record growth rate of 6.3% in 2004.
The Home Depot
Goldman Sachs Global Retailing Conference:
Their business has grown $34 billion dollars over the past 6 quarters, a good indication that the customer has been very engaged with the industry. And the big picture for housing is very supportive of continued growth, with strong home price appreciation, aging housing stock and low mortgage rates. Consumers say they have long lists of projects and Pros report big backlogs.
The pandemic accelerated the millennial generation’s engagement with the home and home improvement. Their research shows that as millennials take on and successfully complete projects they gain confidence and want to do even more.
They are committed to making investments that will allow them to continue to grow their share at an accelerated rate. They ended the second quarter at $660 in sales per square foot of sales space.
They are planning on their supply chain build-out being completed by the end of 2022. That will be the equivalent of adding approximately 200 stores to their network as far as driving sales goes. They will be able to serve 90% of the US population with any type of product, including big and bulky, either same-day or next day.
In the markets where the build-out is mature they are seeing higher tickets, greater share of spend and deeper engagement with Pros. They are able to supply Pros with products they don’t carry in the stores, such as 20-foot pieces of lumber as well as job-lot quantities of things they do sell in the stores.
Larger Pros tend to be concentrated in urban environments where many pandemic restrictions were in place and people were very concerned about having anyone in their homes. Over the past four quarters business from Large Pros has improved as people became more comfortable. For the last two quarters Pro has outpaced DIY growth.
They are deeply involved with innovation and development by their key supplier partners. Innovation helps drive demand and encourages people to trade up for better features.
Technological advances, from cordless tools to cordless outdoor equipment to incredible new technology in appliances all contribute to growth. There are also innovations in building materials, including mold-resistant drywall, lighter drywall, insulation that adds higher R Values at less cost, faster-setting concrete at higher PSI levels and innovative floorings that look better and cost less.
In-stock levels are not what they would like them to be, but they have improved and are continuing to improve. Supplier fill rates fell way below where they need them to be but are improving now. Their suppliers have worked incredibly hard to satisfy demand.
They’ve grown inventory about $4 billion from last year’s lows and their fill rate and in-stocks are improving. In a normal environment they would expect inventory to grow more slowly than sales, but they do not think that will be the case for quite some time. Last year they had 6+ inventory turns, which is unprecedented, and this year it is at 5+. But they believe it is headed back to a more normal level.
They’ve just concluded negotiations for capacity for domestic and ocean transportation. They were successful at securing higher capacity and were able to increase the percentage of goods that will be under a fixed rate. They expect constraints and challenges will probably continue through 2022.
They are definitely dealing with a different inflationary environment than they’ve had for the past several years that includes product costs, supply chain and wages.
They evaluate how they are positioned against the market on a weekly basis against multiple competitors to make sure they really deliver the best value.
THD won’t predict what the future will bring because there are many variables beyond their control. They believe their job is to make sure they stay flexible and able to deal with whatever happens.
They do not talk about digital penetration per se because they believe their job is to engage the customer over whatever platforms they choose. During the height of the pandemic their digital penetration peaked in the 20s; by the end of last year it was back down to about 14.5%, where it’s been for the first half of 2021. When it’s all said and done, the pandemic probably accelerated their digital growth by a year or two.
They have been working to pull back on the number and breadth of events and promotions and focus more on being the everyday best value. That was something they were actually focusing on pre-pandemic. When they do promotions they will have a more narrow focus, deliver deeper value and involve fewer SKUs over a shorter time span.
Lowe’s is bringing holiday products into stores and warehouses earlier than originally planned as supply chain bottlenecks threaten to leave US stores with empty shelves during the holidays. US retailers have been scrambling to have enough inventory of key items and CV19 factory closures in Vietnam and port congestion have delayed products moving through the supply chain. Lowe’s says they placed bigger
orders for high-demand items with their suppliers and are in better shape now than they were six months ago
Walmart is hiring 20,000 workers for their supply-chain operations ahead of the holidays. The new hires will be permanent positions, an indication of the growing role of distribution and delivery in Walmart’s growth plans. Average wages for these workers will be more than $20 per hour. Walmart noted their warehouse workers make at least $15 an hour.
Walmart is planning to hire about 150,000 new US store workers in preparation for the busy holiday season ahead. Most of them are permanent and full-time positions. WM is also offering extra hours to current employees.
Ace Hardware, the largest retailer-owned hardware cooperative in the world, has opened 110 new stores in 2021 and is planning to open at least 60 more stores by the end of the year. Ace operates more than 5,500 locally owned hardware stores in all 50 states and 70 countries, with global sales topping $20 billion.
More than 10,000 people attended Ace’s 2021 Fall Convention, held in-person in Orlando, Florida. The convention included 800,000 square feet indoors and another 150,000 square feet outdoors for grilling and outdoor power equipment. The outdoor space was twice the size of the one used at the last in-person convention in 2019. More than 3,300 Ace stores from all 50 states were represented. Ace reported that retailers were very excited to be able to network and be together in person. Show highlights included more than 15,000 new items, 1,200 vendor exhibits and 8,000 vendor deals, 50 live and virtual training sessions and many new programs. More than 5,500 attendees participated in a private Ace night at Universal Studios. Ace noted that the convention was on track to deliver record sales.
Amazon wants to hire 55,000 people globally for tech and corporate roles. More than 40,000 of the open positions are at 220 locations in the US. Amazon reported that more than 500,000 people in the US and another 500,000 people around the world applied for jobs during their virtual Career Day event in mid-September.
Amazon increased their starting wages for warehouse workers to at least $18 per hour and announced they want to hire more than 125,000 warehouse and transportation workers in the US. In some locations they are paying signing bonuses up to $3,000 and wages as high as $22.50 per hour.
Amazon will mandate masks for all of their 900,000 warehouse workers in the US, regardless of vaccination status. Amazon said rising infections linked to the Delta variant were behind the mandate. Thus far Amazon has not required vaccinations but has made getting them easy and given workers bonuses for getting vaccinated.
Amazon corporate staffers will not return to the office until January 3. Amazon had originally planned to start bringing people back in early September. The return timeline will also vary by location and country.
Amazon is trying to help their delivery partners attract more drivers by advising the mom and pops that operate the Amazon blue vans to prominently advertise that they don’t screen applicants for marijuana use. Amazon says screening for marijuana cuts the prospective worker pool by up to 30%. Now they will only test for drugs like opiates and amphetamines.
Amazon is partnering with Affirm, a payment system that allows consumers to choose a payment schedule up front and only charges simple interest, with no late fees or penalties. The service is viewed as an alternative to credit cards. Affirm is the power behind Shopify’s Shop Pay installment plan.
Amazon has reportedly banned 600 Chinese brands across 3,000 seller accounts known for repeatedly and knowingly violating Amazon’s policies and paying for fake reviews to boost sales. Amazon banned incentivized reviews in 2016, but many marketers have learned how to disguise their fake reviews as VIP testing programs.
Amazon is working on a new type of point-of-sale (POS) system that it would compete with US giants PayPal and Square and Canada’s Shopify. The system, nicknamed Project Santos, would be marketed and sold to third-party sellers. The new POS system would deal with in-store and online transactions, add the Amazon checkout features and provide businesses with analytics, according to insiders who reviewed internal documents. A Buy Online, Pickup in Store (BOPIS) feature and a system that includes palm-scanning technology and cashierless transaction may also be included.
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