Distribution September 2021
Retail Sales Fall 1.1%
Retail sales fell 1.1% in July after rising an upwardly revised 0.7% in June. Sales were well below expectations. Retail sales were up 15.8% from July 2020 when pandemic restrictions impacted sales. It was the second drop in retail sales in three months, which may indicate that pent-up demand has passed its peak. Spending on services may once again have been curtailed by CV19 cases climbing among the unvaccinated. The rapid spread of the Delta variant has caused many restrictions to be reimposed. Falling vehicle sales due to shortages of both new and used vehicles contributed 0.9% to the overall decline. Online sales fell 3.9% in July after rising 1.2% month over month in June. Sales at building material stores fell 1.2% in July, the fourth consecutive month sales in this category have declined. Total sales at building materials stores are still 8% ahead of last year’s $35+billion but lag the 16% year-over-year growth for overall retail sales. 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
Q2 sales rose 8.1% to $41.1 billion and comp sales were up 4.5%. Comp sales in the US rose 3.4%.
Q2 Conference Call with Analysts:
Over the last six quarters they have grown their business by more than $34 billion, a level unmatched in their market. Fifteen of their 19 US regions posted positive comps compared to Q2 2020, and on a two-year stack basis, all regions had double-digit comp growth.
Canada posted comps that were essentially flat in local currency despite significant restrictions due to CV19.
THD saw consumer patterns begin to change in the second quarter as the economy reopened and people began to travel, eat out and enjoy other away-from-home activities that had been curtailed during the pandemic.
Weekday sales have strengthened and consumers are more comfortable taking on larger projects.
Pro sales outpaced DIY sales for the second consecutive quarter as consumers became more comfortable taking on larger projects.
They are managing demand despite significant industry disruptions in supply chains thanks to their leverage and strong partnerships with vendors. Their in-stocks are not where they would like them to be but have improved significantly from a year ago.
They are focusing on trying to build depth in their best-selling SKUs and in job-lot quantities for Pros, which means a heavy focus on building materials.
Inventory at the end of the quarter was up $5.4 billion to $18.9 billion and inventory turns were 5.7x compared to 6.1x during Q2 last year. They are trying to build inventory.
Raw material shortages, production constraints and pressures across all modes of transportation are creating a very challenging environment. Their supply chain teams recently arranged for exclusive use of several container vessels.
Their goal is to grow faster than the market in any environment and strengthen their position as the low-cost provider in home improvement.
Ten of 14 merchandise departments posted positive comps. They saw single-digit negative comps in paint, hardware and garden, all categories that out-performed during the second quarter of 2020. On a two-year stacked basis all departments posted healthy double-digits comps.
It was a historic quarter for lumber volatility, with prices for framing and panel lumber reaching all-time highs before quickly falling from their peaks. For example, framing lumber peaked at $1,500 per 1,000 board feet and then fell to $500 per 1,000 board feet and is currently at about $450. Regardless, average price during the quarter was significantly higher than during Q2 2020.
Big ticket comp transactions over $1,000 rose 24% with strength across many Pro-heavy categories.
Growth with larger Pros outpaced smaller Pros, and larger Pros report their backlogs are long and growing. They saw that reflected in the strength of many kitchen and bath categories.
Pros account for about 5% of their customer base and 45% of sales. They are pleased with the growth of their Pro Extra loyalty program. All Pros who belong can now access their B2B Pro online experience. The B2B Pro website offers a wealth of member-exclusive benefits specifically designed for Pros, including the ability to track jobs, build and track quotes, reorder, track receipts and get preferred pricing in some instances.
They are entering a new channel exclusive relationship with LP Building Solutions, a top provider of OSB panel boards. This is similar to the partnership they forged with electrical boxes supplier Carlon. These partnerships are all about taking good care of their Pro customers.
Digital sales were essentially flat as they lapped digital sales growth of about 100% during Q2 2020. They are very pleased with their customers’ digital engagement and know that the majority of customers engage across all channels. More than 55% of their online orders were fulfilled through the stores.
They see a supportive environment for home improvement over the next several years, although there is still a significant amount of near-term uncertainty related to the evolution of CV19 and the spreading variants.
Long-term they feel confident that home improvement activity will continue to grow. Home values in the US are up more than 20% over the past two years. When values rise, people are more inclined to spend money on improvements.
They are very pleased with their MRO business and their acquisition of HD Supply. The acquisition will give them the opportunity to serve the 50 million households in the multifamily market.
They believe seasonal activity will be strong; they did a sneak peek at Halloween and sold out almost immediately. They will set holiday décor in October.
They are seeing the trend to trading up continue, with people happy to pay more for better features. Lack of availability is somewhat curtailing the ability to trade up.
Customers are now much more willing to substitute if they can’t find what they originally wanted; that trend is definitely being driven by the pandemic.
Millennials are now actively engaged in housing. Many undertook their first projects during pandemic restrictions that limited other activities. Now that they feel more confident many are taking on larger projects themselves. They are also turning to Pros as they become more comfortable having people in their homes.
Q2 sales rose 21% to $27.6 billion. Comp sales fell 1.6% overall and 2.2% in the US. Online sales grew 7%.
Q2 Conference Call with Analysts:
While comp sales declined from Q2 last year, on a two-year stacked basis comp sales were up 32% overall and in the US. The pivot in consumer behavior after Memorial Day resulted in negative comps for seasonal categories for the quarter. Comp transactions dropped 12.9% due to falling sales of smaller ticket items to DIY customers.
Their Lowe’s Total Home strategy is driving growth with Pros and DIY customers in-store, online and for their Installation Services business.
As expected, DIY demand declined compared to Q2 last year as many families transitioned back to pre-pandemic purchase patterns and activities. They’ve seen a drop in DIY traffic on the weekends while weekday traffic has remained strong.
Pro business grew 21% in Q2 and was up 49% on a two-year basis. That level of growth would not have been possible without intense focus on Pro customers.
In order to better serve Pros, they reset all US stores last year to create a more intuitive store layout so Pros can quickly and easily locate all the products they need for their jobs. Their core Pro customer is a small-to-medium-sized business owner who shops frequently across the store. They are continuing to capture more of their spending.
They continue to add new services, brands and products for Pros, and launched their exclusive FLEX cordless power tools with an in-store demo station. They also have strong programs with Simpson Strong-Tie, Bosch, DeWalt, Spyder and many more.
They are improving their Pro Loyalty program and have just completed the migration of Lowe’s for Pros to the cloud. Pros can now use rapid reorder for frequently purchased items.
They expect Installation Services to continue to play an important role in their Total Home strategy. They are utilizing their ecommerce platform and revamped their business model to deliver a better customer experience. Installation Services was up 10% for the quarter.
Lowes.com sales grew 7% on top of 135% growth in Q2 2020, which they believe translates to a 9% sales penetration of ecommerce sales and a 2-year comp of 151%. Enhanced ecommerce appeals to customers who expect total flexibility in shopping however, whenever and wherever they choose.
Approximately 60% of online orders are picked up in a store, either at the front desk, in their popular pickup lockers or curbside.
Tickets over $500 grew 17%, driven in large part by kitchen and bath flooring, appliances and décor.
They are pleased with their Canadian business, which delivered comp growth in line with the US despite several CV19-related operating restrictions.
They completed the transition to a market-based delivery model for large and bulky items in Florida. Product now flows from bulk distribution centers to cross-stock terminals and directly to customers’ homes, bypassing the store altogether. The old process of storing and delivering items from the stores was highly inefficient. The new model is already driving higher appliance sales, better profitability, lower inventory, higher on-time delivery rates and better customer satisfaction. They will roll it out into other markets this year.
Approximately two-thirds of their sales come from repair and maintenance activity, and their research shows that it will take years for the supply of homes to meet projected demand. That is a very positive indicator for the home improvement segment.
In early August they reinstated mask requirements for all associates regardless of vaccination status due to the surge in the Delta variant.
They’ve installed their home-grown self-checkout capability in 500 stores to date and it is already driving higher customer adoption rates and allowing them to reduce labor.
The merchant team is continuing to look at how they test new brands and new products and working with their brand advocates to make sure they are offering the customer the right products.
At the end of the quarter inventory was down $1.1 billion to $17.3 billion from Q1 and up $3.5 billion from Q2 2020 when inventory was pressured by pandemic demand.
They expect the home improvement market to moderate in the second half and expect sales of $92 billion for the year, representing two-year comp growth of 30%.
They expect to offset some of the pressure from dropping lumber prices by shifting to a more everyday low prices and value proposition and away from heavy promotional pricing.
Lowe’s has created the #FallTogether Collective, a group of 10 creators who will work with select customers on outdoor fall projects. Members of MyLowe’s loyalty program can register to win one of 50 chances to work with the creators. Each person chosen receives a virtual consultation, customized project plan and a $500 Lowe’s gift card to help purchase necessary supplies. Entrants complete a lifestyle questionnaire that helps match them to a recommended influencer.
Q2 sales rose 2.4% to $141.05 billion and US comp sales rose 5.2% excluding fuel. Results were well ahead of expectations. Sales were boosted by stimulus checks and advance childcare credits. The pace of online sales growth slowed to 6% compared to the first quarter when revenue rose 37%. WM now expects fiscal 2022 comp sales to rise 5% to 6%, up significantly from the low single-digit growth initially forecast.
Walmart will launch a new program designed to use their existing delivery networks to pick up and deliver goods from other retailers. Walmart GoLocal will dispatch workers from their Spark delivery network to merchants' stores to pick up items and then deliver them to customers. Over the past year Walmart has doubled Spark's coverage to more than 500 cities. Walmart declined to reveal many details about the program but has reportedly already established several contractual agreements with national and enterprise retail accounts.
Q2 revenue rose 8.2% to $187.8 million. US retail comp sales reported by the approximately 3,400 Ace retailers who share daily retail sales data rose 1.2%, due to a 7.1% increase in average ticket that was partially offset by a 5.5% decrease in same-store transactions.
Ace added 55 new domestic stores in the second quarter of 2021 and cancelled 6 stores. Ace has already opened 110 new stores this year and is planning to open at least an additional 60 stores by the end of the year. The Company's total domestic store count was 4,729 at the end of the second quarter, an increase of 165 stores from the second quarter of 2020. Inventories increased $231.0 million from the second quarter of 2020 due to the intentional build-up of inventory to support increased demand and to act as a hedge against supplier shortages.
Amazon introduced Max Your Vax, a lottery that offers cash prizes of up to $500,000 as well as cars and vacation packages to vaccinated employees. The price of a ticket is proof you are vaccinated against CV19. Amazon had previously offered frontline workers as much as $80 to get vaccinated. There will be 18 prizes in all, including two $500,000 cash awards, six $100,000 awards, five new vehicles and five vacation packages. Amazon has hosted more than 1,100 on-site vaccination events to help make getting vaccinated as easy as possible for employees and their household members.
Customers injured by goods purchased from a third-party seller could get up to $1,000 from Amazon. The offer came about a month after the US Consumer Product Safety Commission sued Amazon for failing to accept liability for damages or injury caused by third-party goods because Amazon is not the actual retailer. Amazon told the USCPSC that 80% of claims were under $1,000. Amazon is also helping their sellers purchase liability insurance by using the Amazon Insurance Accelerator.
The National Security Agency (NSA) quietly awarded a contract worth up to $10 billion to Amazon Web Services (AWS), which set off another high-stakes fight between Amazon, Microsoft and other tech giants. The award came after a protracted and bitter court battle over an equally massive JEDI Pentagon contract initially awarded to Microsoft and then withdrew after Amazon protested. Eventually the Pentagon withdrew the contract, stating that Microsoft no longer met all their needs. The Pentagon then opened procurement bids to both companies. NSA is highly secretive, so it is very difficult for the media to determine exactly what the contract covers.
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