Retail Sales Rise 0.6%
Retail sales rose 0.6% in July after falling 0.2% in June. Sales were up 4.6% from July 2016. Nonstore retail sales, which include internet and catalog sales, were up 1.3% for the month and 11.0% compared to July 2016. Building materials and garden equipment sales rose 1.2% for the month and were up 8.3% from last year. Core retail sales, which exclude auto sales, gas and building materials, and factor into GDP, rose 0.5% in July after falling 0.1% in June. Retail sales account for one-third of all consumer spending, with services making up the other two-thirds.
FedEx Won’t Charge a Holiday Premium
FedEx announced that it will not be adding any additional charges for residential deliveries during the holiday season except for packages that are oversized, unauthorized or require additional handling. UPS announced in June that they would be charging extra delivery fees for the holidays to offset additional costs of delivery.
UPS Packaging Innovation Center
UPS opened a gigantic supply chain warehouse near Louisville International Airport dubbed the packaging innovation center. UPS partnered with Sealed Air to create the showroom to test and present innovations in packaging. The center includes machines that help automate packaging and cut down on packaging materials. One of the machines can create different sized custom boxes based on whatever is going inside. Also included were items designed to appeal to the end consumer, like bubble wrap shaped like dog bones and colorfully designed insides of boxes that do a better job of presenting products.
Fuel Cell Wars
Both Walmart and Amazon are doing deals with Plug Power that allow both companies to roll out Plug Power’s fuel-cell-powered forklifts and warehouse vehicles to distribution centers. Walmart is currently Plug Power’s biggest customer, but Amazon has agreed to spend $70 million on Plug Power vehicles in return for the right to buy 55.3 million shares in the company, a 19% stake. Walmart will now receive warrants to purchase the exact same number of shares, but at a higher price because Plug Power’s stock price has gone up 63% since announcing the Amazon deal. The warrants vest based on how much each retailer spends; they’d need to spend $600 million each for all of the warrants to vest. Plug Power also sells fuel-cell-powered vehicles to Home Depot. They had 2016 revenue of $85.9 million.
The Home Depot
Q2 sales rose 6.2% to $28.1 billion. Comp sales rose 6.3%, and U.S. stores had a comp sales increase of 6.6%. All three divisions, 19 regions and top 40 markets posted positive comps as well. Mexico and Canada posted positive comps in local currency. A stronger U.S. dollar negatively impacted total sales growth by approximately $64 million or 0.5%.
From their Q2 Conference Call with Analysts:
Their online business grew 23% in the quarter and represented 6.4% of sales. They remain focused on improving the interconnected experience both in store and online. They believe the power of interconnected retail is behind improving customer satisfaction scores and sales.
They increased their guidance for the year and now expect sales growth of 5.3% and a 5.5% increase in comp sales. They gained approximately 20 basis points of market share in the quarter.
All merchandising departments posted positive comps, with Tools, Flooring, Lumber and Electrical posting double-digit comps for the quarter. Total comp transaction for the quarter grew 2.6% and comp average ticket increased 3.6%. Commodity price inflation in lumber, building materials and copper positively impacted average ticket growth by 68 basis points.
Transactions over $900, which currently represent about 22% of U.S. sales, rose 12.4%. Some drivers were appliances, flooring and certain Pro heavy categories. Transactions for tickets under $50, which now account for 16% of U.S. sales, grew 1.5% in the quarter.
Pro sales outpaced the company average and grew more than twice as fast as DIY sales. Pro sales were driven by both high-and low-spend pros. There were strong comps in several categories, including power tools.
They opened four new stores in the second quarter, including three in the U.S. and one in Mexico.
Inventory rose $545 million to $12.9 billion and inventory turns were 5.3 times, up one tenth from last year.
Their delivery business grew every week in the quarter; they now offer two and four hour window options from all stores.
They spent more on digital advertising in the second quarter than they did on TV and radio combined. Their overall advertising spending is up in the low single digits, and digital advertising and marketing now accounts for more than half of their marketing budget.
In the second quarter there were about 424,000 first-time homebuyers, accounting for 38% of all homebuyers. That was an increase of 11% from second quarter last year. First-time homebuyers are good for business, as they often buy homes that need repairs and remodeling. Homes built before 1980 produce an annual spend of $3,500. Homes built after 2000 produce an annual spend of $1,500. John Burns Real Estate Consulting group says that for every percentage point improvement in real wages there is a 1% increase in repair and remodeling spending. Real wages after inflation are up 2.2% so far this year.
This year marked the 20th anniversary of Home Depot’s in-store kids workshops, which are held the first Saturday of every month. They believe the workshops help foster the next generation of do-it-yourselfers. Some early participants are now Home Depot associates.
They are working on improving the customer/associate experience in their high-volume stores, where the growth they’ve been experiencing puts extra pressure on those stores. They will need to invest in solving that situation.
Interline is now live in 1,958 stores. They have 1,500 stores that have next-day access to Interline’s products and 458 stores that can offer two-day delivery. They are seeing great activity on a broad base of goods primarily servicing the trades, including plumbing, electrical, hardware and HVAC.
They hired more than 90,000 seasonal associates this year and enhanced their application process through an improved mobile experience, which actually doubled their applicant pool.
500 stores will get updates this year, including signage, lighting, rest rooms, etc.
THD has chosen GE Current and Tesla to install solar systems on 50 stores and then sell the power output to THD. Financial terms were not disclosed. THD says the project will reduce electricity grid demand by 30% to 35% annually at each store, the equivalent of powering 2,300 average U.S. homes for a year. THD has a goal of utilizing 135 MW of alternative and renewable energy by 2020. The solar addition will bring their alternative energy footprint to more than 130 MW.
Q2 sales rose 6.8% to $19.5 billion, short of expectations. Comp store sales rose 4.5%, ahead of expectations of a 4.3% increase. They expect total sales to grow 5% this year, with comp sales growing 3.5% and the RONA acquisition driving about 2% growth. In addition, they plan to open 25 stores, which accounts for about 1% sales growth. Total sales growth is reduced by about 1.5% because of the comparison of 52 weeks in 2017 to 53 weeks in 2016.
From their Q2 Conference Call with Analysts:
They achieved positive comps in 13 of 14 regions and in all product categories. Appliances led product category growth with high single digit comps. They were pleased with their comp growth throughout the quarter, but were disappointed in some aspects of their performance.
Total customer transactions grew 3.1% and average ticket grew 3.5% to $71.40.
RONA sales were approximately $1 billion or 3% of sales growth. Comp sales rose 4.5% for the quarter with average comp ticket improving 3.6% and transactions growing 0.9%.
They are making great progress integrating RONA and completed the conversion of their first RONA big box store to a Lowe’s branded store, which combines the best elements of RONA’s strong Pro offerings and the best of Lowe’s customer and store experience. They expect the RONA acquisition to culminate in more than $1 billion in revenue and cost opportunities.
Comp growth in the second quarter was constrained because of disruptions caused by changes to their store staffing model earlier in the year, which became more apparent because improved messaging and an optimized promotional strategy drove more traffic. They reduced the number of assistant store managers and eliminated the department manager role earlier in the year and created service and support managers, and are confident that it is the right model for long-term growth.
They are working to respond to these challenges and plan to invest in incremental customer-facing hours to make sure they are providing an excellent customer experience. They will achieve much of that by retaining some of the seasonal help hired for the busy spring season.
Lowes.com saw 43% growth in comp sales during the quarter. They upgraded their online shopping experience a year ago, and were awarded Web Redesign of the Year by Internet Retailer.
During the quarter they made progress enhancing the products and services they offer Pros.
Comp sales were balanced between indoor and outdoor categories, with above average comps in appliances, lawn & garden, lumber & building materials and rough plumbing and electrical.
They are continuing to invest in in-store and online in order to enhance the omnichannel customer experience. They are focused on helping DIY and DIFM customers throughout their project journey. They had 43% comp sales growth on lowes.com during the quarter.
They are also leveraging their MyLowe’s platform to drive brand loyalty. They’ve simplified their military recognition program that allows active duty and veterans to register through MyLowe’s and receive a 10% discount every day. They are also offering free parcel shipping exclusively for MyLowe’s members.
They are working on centralizing the process for providing installation quotes, and will be rolling out that capability over the course of the year, with all U.S. markets online by Q1 2018.
They opened four new stores in the U.S. during the quarter. They plan to open a total of 25 new stores this year, down slightly from original estimates of 35 new stores. Most of the reduction comes from pushing some of the RONA and Orchard Supply stores planned for this year into next year.
They are working hard to improve their competitiveness on both in-stock and online items and improve their value perception, which has put some pressure on gross margins. They are working closely with their vendors to make sure they are improving cost as well as pricing tactics.
Improving productivity is not just about cutting costs it’s also about investing back into areas that matter most to the customer. There was definitely some disruption from implementing their new management model with people settling into new roles, but it is actually progressing faster than they first expected. They are also investing in improving conversion both in store and online.
They believe Pro sales represent about 50% of the home improvement market but only 30% of their sales, so there is an opportunity to grow that business.
Lowe’s is cutting an undisclosed number of store-level delivery jobs and going to third-party services. This is the fourth round of layoffs Lowe’s has announced since last October, including 2,400 jobs at the store level, 100 corporate technology jobs and 125 IT workers.
Walmart’s Q2 revenue rose 2.1% to $123.4 billion and comp sales for U.S. stores, excluding fuel, rose 1.7%, with 1.2% growth at Sam’s Club and 1.8% growth at Walmart stores. Customer traffic was up 1.3%.
Online sales soared 60%, with much of the growth in food. Walmart now offers online grocery in more than 900 U.S. locations, with food sales making up more than 50% of their revenue. Walmart has invested in acquisitions like Jet.com, but says that organic growth will be the primary driver of online sales.
Walmart is testing Scan & Go in more than a dozen stores in Texas, Florida, South Dakota, Arkansas, Georgia and Kentucky. Customers use handheld scanners and then choose how to pay for their items. They get a digital receipt to show greeters as they leave the store, which theoretically will reduce shoplifting. Walmart dabbled in Scan & Go three years ago with little success.
Walmart filed a patent in the U.S. for an airship-style aircraft to rival Amazon’s “airborne fulfillment center,” for which a patent was filed last year. The aircraft would travel at heights between 500 ft. and 1,000 ft. and be operated remotely. Walmart had previously filed a patent for in-store drones to stock shelves.
Walmart is piloting grocery delivery via Uber in four test markets, including Tampa Bay, Orlando, Dallas and Phoenix. The Uber deliveries require a $30 minimum order and there is a $9.95 delivery charge.
Walmart is reportedly near a pilot deal to offer customers installment loans through financing firm Affirm, which is run by PayPal co-founder Max Levchin. The loans would be geared to large items like tires and other purchases over $200. Installment loans are designed to appeal to shoppers who want to spread out their payments over time, with interest rates that can range from 10% to 30%. Walmart’s credit card is issued by Synchrony Financial; the credit card business is becoming intensely competitive.
Walmart is working with Google to offer hundreds of thousands of items for voice shopping through Google Assistant. They plan to start offering the option in late September. It’s Google’s biggest retail partnership, as both Google and Walmart attempt to compete with Amazon’s Alexa. Apple reportedly has a voice activated device coming out this year. Walmart will be integrating their Easy Reorder feature, which has data on both store and online purchases, into Google Express; shoppers just have to link their Walmart account to Google Express. Personalization typically takes time while the digital assistant learns the shopper’s preferences, so linking to Walmart should make voice-activated shopping more attractive to customers. Shoppers will even be able to tell Google Assistant they want to pick up their order in store.
Q2 revenue fell 23% to $4.37 billion. Comp sales fell 11.5%, with sales at Kmart falling 9.4% and sales at Sears stores falling 13.2%. Sears has closed 180 stores thus far this year, and had already planned to close another 150. Now they will close an additional 28 Kmart stores. In March Sears said there was “substantial doubt” they could continue as a viable concern, with intense pressure coming from Walmart, Target and Amazon. Sears has used about $605 million of their $1.5 billion revolving credit facility that’s due in 2020.
Sears has signed licensing deals for Kenmore home appliances with Cleva North America and for DieHard batteries with Dorcy International in order to expand distribution of the brands outside the U.S. The licensing deal comes on the heals of Sears recent agreement to sell Kenmore products on Amazon and integrate the brand’s smart gadgets with Alexa.
Q2 revenues rose 4.6% to $1.5 billion. Comp store sales increased 3.2% as reported by the approximately 3,000 Ace retailers who share daily retail sales data. The increase was primarily the result of the combination of more favorable weather and strong retail execution.
Increases were noted across most departments with the largest gains in tools, outdoor living, housewares and impulse. Ace added 27 new domestic stores in the second quarter and cancelled 28 stores, bringing the total number of domestic stores to 4,357.
The Ace Hardware Fall Convention was dedicated to hammering home Ace’s message of service, convenience and quality, areas where the co-op believes independents have the upper hand. Brian Wiborg, the new VP of marketing, says Ace intends to exploit core strengths in their messaging for 2018. They plan to invest heavily in what they are calling the “Famous Four” categories: holiday gifts, paint, backyard and bbq and home preservation. Wiborg says they are determined to own those categories. They will spend $83 million in measured media in 2018 as part of a plan to reach the $100 million level in advertising by 2020, a big step up from their $30 million spend in 2013.
They are testing “impulse queues,” sophisticated trails of heavy-impulse, high-margin products that lead customers to the cash register. They say so far the test is showing “awesome” results with the one hundred stores that have been early adopters.
Ace offered customers a limited edition 5-gallon bucket for making a donation of $5 or more to the Children’s Miracle Network Hospitals over the first weekend in August. Ace has been a CMN partner since 1991, and has raised more than $80 million for the network.
Joe Jeffries has been promoted to President and COO for Westlake Ace Hardware from his current position as COO and Andrew Schmitt has been promoted to VP Operations from his current position of Director of Retail Operations for Ace’s Western Division. Westlake currently has 100 locations.
Revenue fell 1.9% to $430.4 million. Wholesale sales, on a gross billings basis, rose 0.1%. Comp store sales rose 0.9% and Destination True Value comp store sales rose 1.8%. DTV sales were up 1.1% year to date. True Value stores that remodeled to DTV stores last year saw revenue growth of 5.9% for the first six months of the year. Sales were up in seven of twelve regions and in six of the company’s nine product categories. Visits to truevalue.com rose 22% over the quarter with a 19% increase in online sales.
DG Macpherson, Grainger's CEO, will assume the additional role of Chairman of the Board October 1, 2017 when Jim Ryan retires as planned. Macpherson's appointment to Chairman is part of the succession plan highlighted in August of last year, when Macpherson was named CEO. Jim Ryan has been with Grainger for nearly 37 years, including the past eight as CEO. Macpherson, who holds a bachelor's degree from Stanford University and an MBA from Northwestern's Kellogg Graduate School of Management, joined Grainger in 2008 after working on behalf of Grainger for six years as a partner and managing director at Boston Consulting Group.
Amazon Web Services had sales of $4.1 billion for the second quarter, up 42% year over year. AWS’s estimated market share is 34%, compared to 11% for Microsoft Azure and 5% for Google. AWS is very profitable, with profits up 28% to $916 million.
L.L. Bean bested Amazon in the latest Prosper Insights & Analytics annual review of service excellence among retailers, coming in at number one for the third consecutive year. Amazon was number two. Lands’ End, Fingerhut and Kohl’s rounded out the top five. Others in the top 25 include Lowe’s and Walmart.
Amazon Prime membership could surpass half of all U.S. households by the end of the year. A recent survey showed that about 49% of households were Amazon Prime members in July, which adds up to about 54 million subscriptions, up from 46 million a year ago.
Amazon had more than 100,000 robots working in their warehouses and fulfillment centers in July, up from 80,000 in May. Amazon currently employs more than 125,000 full-time fulfillment associates in the U.S. and recently held a huge job fair in hopes of adding another 50,000 associates to the fulfillment network.
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