Retail Sales Rise 0.6%
Retail sales rose 0.6% in August after rising a downwardly revised 0.5% in July, according to the Commerce Department. It was the fifth consecutive monthly increase and above expectations of a 0.2% rise. The overall increase was primarily due to rising gas prices. Excluding automobiles, gasoline, building materials and food services, retail sales inched up 0.1% after rising a downwardly revised 0.7% in July. Core retail sales, which are mostly goods and not adjusted for inflation, correspond most closely with the consumer spending component of GDP. The retail sales report covers about a third of overall consumer spending and doesn't include services, such as travel and entertainment.
The Home Depot
Goldman Sachs Global Retailing Conference:
CEO Ted Decker tipped his hat to the Fed for avoiding what most saw at the beginning of the year as a certain recession and said the general consensus now is less than a 15% chance, and a soft landing if there is a recession.
He called this year “one of moderation” and said while they don’t love it, the modest correction after three years of pandemic driven outsized growth is understandable.
Their medium and long-term outlook for the housing industry and their sector could not be more positive. Homes have increased in value more than 40%, which translates to $13 trillion of wealth, a disproportionate increase in value from 2019.
There is a chronic shortage of housing, with estimates ranging from two million to four million units. That's why home values are holding up even with higher interest rates and fewer transactions.
They’ve never been more bullish on the aisle-by-aisle innovation going on in their stores. They see both Pro and DIY customers reacting very favorably to innovation.
They are having to build capabilities to handle the unique needs of large Pros, who expect to be billed when purchases ship, not when they buy them, and expect to be credited promptly. The large Pro is a very large and lucrative market so worth investing in.
They realize that outsized growth and the migration of people out of cities to smaller markets has put a lot of pressure on stores. Not every customer loves to come to a Home Depot on a Saturday afternoon and park 200 yards away. So, this year they are planning on opening up 13 new stores, nine during the second half of the year. That will help take pressure off some of the busiest stores doing $2 million+ annually.
They don’t anticipate a deflationary environment despite deflation in some key categories such as lumber.
Their inventory is down $3 billion year over year. Their in-stock situation is much improved but not yet back to their normal 98% in stock.
Consumer demand is still strong, even though they’ve seen some pull pack in seasonal categories and a definite switch to more consumer spending on services.
The EPA awarded THD their Green Power Leadership Award for their commitment to using renewable energy and advancing the country’s green power market. Green power is electricity generated from environmentally preferable renewable resources, including wind, solar, geothermal and biogas. The Home Depot is currently using nearly 409 million kilowatt-hours (kWh) of green power annually, which is enough to meet 15% of the organization's overall electricity use.
Goldman Sachs Global Retailing Conference:
CEO Marvin Ellison noted that they are on track to improve sales by roughly $25 billion over the years he’s been the CEO of Lowe's.
A big percentage of their customers who own homes and have mortgages have very low interest rates and are reluctant to give them up just to buy a new home, so are often focusing on fixing up the one they already own instead. They are also seeing Boomers investing in their homes, so they age in place rather than move to a retirement community or downsize.
The work-from-home phenomena that developed during the pandemic has given way to a hybrid model; Ellison does not think we will ever see the return of a standard five-days in the office workweek being the norm again. That means more people need or want permanent office space at home.
Ellison is very proud of the senior leadership team he’s been able to assemble since he took over. He noted that merchandising, store operations, supply chain and information technology were all areas where they did not have leaders with the depth of experience needed to help Lowe’s grow; now they do.
Lowe's used to be very store centric, everything from shipping to systems and technology were built around serving customers from their store first. When their customers decided that they wanted curbside and lockers and the ability to order online and pick up in store, Lowe’s had to learn how to do it. And now they’ve created a flexible agile model that allows them to easily pivot to the changing needs of the consumer.
Previously anything that was delivered to a consumer had to be delivered from a store. Methods for a store getting credit for a sale were very outdated. Ellison gave an example of someone ordering an appliance in one town for their home in another; the only way the store where the item was purchased could get credit was to ship it to the store closest to the customer, which was very inefficient for customers, but happened all the time.
They are in the process of building out a market delivery model, starting with appliances, so when the customer makes a purchase either online or in the store the delivery happens to the closest market delivery point to the consumer's home, which is the modern way to do it. That was really difficult to implement for a company Lowe’s size dealing with a technology system hardwired to be store-centric, so they had to redesign their technology platform.
They plan to have market delivery rolled out to every geographic area of the company, not only to support appliances, but to support anything big and bulky, by the end of next year.
They are also building a network that will enable them to deliver products directly to the job site for the Pro. They have been testing many options from Pro Fulfillment Centers in Charlotte including same day, next day delivery options for their Pro customers.
Today roughly 75% of their sales revenue is derived from the DIY customer, 25% from Pros; while that might not seem like a lot, in 2018 it was just 19%.
Now they are working on reasons for the Pro customer to bypass a competitor in order to shop at Lowe's, something Ellison refers to as creating “stickiness,” which means Pros will keep coming back.
To that end, they rolled out and enhanced CRM platform and a new loyalty program, MVP Pro Rewards, which allows Pros to spend more, accumulate points and it gives them a reason to come back regularly.
Customers engaged in their loyalty and credit programs spend three times more per year than customers who are not. It’s exceeding their expectations and driving additional trips and new customers.
Ellison ran the Pro business for over six years at THD and learned that you have to get the core Pro experience right first before you try to extend your business to the larger Pro because servicing larger customers is more demanding.
Instead of overreaching or getting in over their “SKUs”, they’re going to focus intensely on the small and medium Pro, because they can serve them through their stores and their current supply chain infrastructure.
Ellison believes they are one of the only large retailers in America that can actually say that inventory units are down versus last year mid-single digits. That took an incredible amount of work and an equal amount of collaboration between the merchandising team, supply chain and finance.
They have developed robust processes, systems and dedicated teams to manage cost, price and supplier relationships.
When he took over, they had very limited visibility into what was happening in the marketplace. When they got a cost increase, they couldn’t determine what it was driven by, which made it really challenging to determine if the increase was justified or not. Now they’ve created a robust processing system that allows them to literally break down component costs for most of their categories and understand specifically if a cost increase is justified or not.
Customers have changed how they define value. It’s no longer about price alone, it’s more about new capabilities and innovations. One of their best-selling outdoor power equipment SKUs was an EGO battery-operated mower that retails for more than $700 that they could barely keep in-stock.
Home improvement has historically been a very rational promotional environment, and they think that will persist into next year. If the market suddenly becomes more promotional, it won’t be driven by Lowe’s.
Lowe’s is forming a strategic partnership with Toro and will carry Toro zero-turn riding mowers, walk mowers, portable power equipment and snow blowers in both the gas and rapidly expanding battery categories.
Walmart held their first Walmart Marketplace Seller Summit for two days in Las Vegas. The event drew more than 1,500 people from businesses that sell apparel, party supplies, jewelry and more on Walmart’s marketplace.
Walmart is extending Walmart fulfillment services (WFS) to sellers who list big and bulky items such as canoes and trampolines and items that come in multiple boxes such as patio sets. Walmart is also enabling third-party sellers with a physical storefront to use Walmart’s technology to power curbside pickup or gain access to the company’s network of delivery drivers to drop online purchases at customers’ doorsteps.
Walmart’s expansion of WFS continually draws comparisons to Amazon’s Fulfillment by Amazon (FBA) service, which enables sellers to store their products in Amazon warehouses, where company employees pick, pack and ship the goods. Products under FBA are also Prime-eligible, which gives consumers access to free two-day shipping and ultimately benefits the merchant.
WFS already had no inventory minimums or maximums, but by eliminating weight limits for bulky products, Walmart gives itself a more even playing field with FBA, which had no weight or product dimension limits.
Walmart also offers WFS without requiring recurring monthly fees for sellers, instead exclusively charging for the product sold via fulfillment and storage fees.
Walmart’s marketplace has become a lucrative endeavor that’s expected to account for $8.57 billion in sales this year, up 12.6% over last year, according to a June forecast from eMarketer. Last year, the marketplace made up an estimated 10.7% of Walmart’s overall retail ecommerce sales.
Walmart is expanding AI efforts with a new AI "assistant." It's one of many generative AI tools they are employing. It includes a "My Assistant" feature, that will summarize documents and speed up creating and drafting projects. WM says the goal is to free employees from monotonous, repetitive tasks. WM employees also have an “Ask Sam” digital assistant that will help them locate products on shelves. WM is reportedly hiring a senior manager for their conversational AI products.
Ace partnered with Omaha Steaks on a Labor Day promotion that lasted throughout September. Customers who bought a new grill in September received an online code that can be redeemed for a BBQ package from Omaha Steaks valued at more than $60; customers just have to pay shipping.
The Federal Trade Commission (FTC) and 17 states are suing Amazon, alleging Amazon uses their market power to inflate prices and overcharge merchants, essentially creating a monopoly. The antitrust lawsuit comes after a multi-year investigation. The suit alleges that Amazon uses a series of unfair strategies to maintain monopoly power, including strategies that punish retailers for offering lower prices than on Amazon. Amazon also requires sellers to use Amazon Fulfillment Services in order to benefit from all-important Prime service. News sources reported that this was the most serious threat Amazon has faced to their market dominance.
Amazon Prime Days will be October 10 and 11 and will kick off the holiday shopping season with deals for Prime members. Amazon promised holiday deals on Amazon devices and many high-demand consumer electronics, gadgets, small appliances, fashion and much more.
Amazon will hire 250,000 workers in the US for the holiday shopping season, 67% more than in 2022, and will increase average pay for logistics staff to around $20.50 per hour, as they try to recruit and retain staff amid a labor shortage. Hires will include full-time, part-time and seasonal workers, with wages ranging from $17 to $28 per hour, depending on location. Some new hires will be eligible for bonuses ranging from $1,000 to $3,000.
Amazon is increasing the minimum purchase for free shipping from $25 to $35 for non-Prime customers in some markets. The Amazon Prime subscription is now $139 annually but includes free shipping regardless of order size.
Amazon will invest $440 million over the next year to increase pay rates for drivers. They did not disclose how much the bump will be, but said they expect US drivers to earn an average of $20.50 per hour.
Amazon will also invest an additional $400 million in other benefits for drivers. They will help provide childcare support and expand educational opportunities for employees who want to take courses at accredited institutions. Among other things, a spokesperson for the company said that they will also invest in safety and training.
Amazon introduced a new set of generative AI tools for Amazon sellers they say will make it easier for sellers to create more thorough and better product descriptions that include all the necessary details customers are looking for before they buy. The new capabilities use large language models, a type of machine learning model specifically trained on large amounts of data that can recognize and summarize key points.
Amazon opened their new tech hub in New York City, transforming the iconic Lord & Taylor building on 5th Avenue into a state-of-the-art tech center that will house more than 2,000 employees. The first floor will provide more than 35,000 square feet of dedicated retail space as well as space for restaurants and other businesses.
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