5 Black Friday Cyber Monday Retail Takeaways

Although various outlets proclaimed Black Friday dead, there were a number of key takeaways:

  1. Black Friday is Far From Dead - Initial traffic reports were rosy and some are predicting this week (including Cyber Monday) to one day be larger than Christmas week.
  2. Online Sales Grew Double Digits - Thanksgiving was up 18.3%. Black Friday grew 16.1%. Cyber Monday was up 16.8%.
  3. Store Experiments Maintained the Frenzy - Walmart, JC Penney and Best Buy were a few retailers that provided lower prices in-store while Kohl's reported their unique returns and in-store partnership with Amazon has been nothing but positive.  
  4. Small & Medium Size Merchants Broke Records - Shopify reported a peak of $1 million in sales running through their platform versus $555 thousand last year. Roughly 66% of sales were via mobile/tablet vs. 58% last year. Similar to Alibaba, Shopify runs a live dashboard of sales on BFCM which you can find here
  5. Amazon Continues to Dominate - Various outlets are reporting 45-50% of Thanksgiving and Black Friday online sales has remained within the Prime coated Amazon walls.

Stay tuned for more news and takeaways as the 4 day shopping frenzy evolves.

Q3 2017 Retail Comps: Lowered Expectations Met For Many

Earnings season kicked off with the department stores bringing more of the same news on much lower expectations which resulted in some significant moves in stock prices. As the department store releases passed, we moved onto big box and off price. There are few remaining retailers with Hudson's Bay (Saks, Saks Off Fifth) and Burlington to report later this week.

  • Dillards posted a negative comp of 1.0% with margin worse and inventories up. Difficult, difficult quarter.
  • JC Penney posted a positive comp of 1.7%, the first positive in over a year. With that said, 139 stores closed and the margin was considerably worse. JCP bought this quarter.
  • Kohls posted a positive comp of 0.1%. Gross margin dipped below 37% for the first time this year and likely helped eke out that positive comp. Definitely the best performance of the department stores thus far.
  • Difficulty continues for Macys with store comps -4.0% for owned and -3.6% in owned and licensed. Margin was healthy year over year as they further tightened inventory. 
  • Nordstrom posted -1.9% for full line and +0.8% for off-price. Not a good result for either group although Nordstrom posted relatively flat margins. Nordstrom.com posted its' lowest growth rate ever of 7% whilst Nordstromrack.com/Hautelook posted a 33% growth rate.
  • Ross arguably posted the highest comp increase married with profits at 4.0%
  • Sears declines in sales comps are accelerating, posting a -15.3%. Not much to say here. 
  • Walmart & Sam's Club blew away expectations with higher traffic and a comp above 4% and 2% respectively. This significant increase resulted in severe margin erosion with promotional pricing and triple the number of SKUs selling online. 

Q3 2017 Retail Comps: Department Stores

Earnings season is off to a difficult start with department stores first to report. One recurring theme thus far is retailers either protected their margin and took the negative sales hit OR bought the quarter. Will update results as they funnel in.

  • Dillards posted a negative comp of 1.0% with margin worse and inventories up. Difficult, difficult quarter.
  • JC Penney posted a positive comp of 1.7%, the first positive in over a year. With that said, 139 stores closed and the margin was considerably worse. JCP bought this quarter.
  • Kohls posted a positive comp of 0.1%. Gross margin dipped below 37% for the first time this year and likely helped eke out that positive comp. Definitely the best performance of the department stores thus far.
  • Difficulty continues for Macys with store comps -4.0% for owned and -3.6% in owned and licensed. Margin was healthy year over year as they further tightened inventory. 
  • Nordstrom posted -1.9% for full line and +0.8% for off-price. Not a good result for either group although Nordstrom posted relatively flat margins. Nordstrom.com posted its' lowest growth rate ever of 7% whilst Nordstromrack.com/Hautelook posted a 33% growth rate.
  • Sears declines in sales comps are accelerating, posting a -15.3%. Not much to say here. 

 

Tech Infused Retail Takes: November 6

Caught up on all things retail over the weekend:

  • Amazon pulling Amazon Fresh out of a few markets...would assume because the density just isn't there. Link
  • Bloomberg complains about Alibaba not making enough money in other pursuits. Sound familiar? Google? Amazon? Link
  • Alexa really isn't used for shopping...maybe Oprah can change that? Link
  • Starbucks butchers earnings...10% of orders are now driven by mobile order ahead. Link
  • Facebook's WhatsApp experiences a local competitor in India. Link
  • We have become accustomed to a low cost of fuel that inevitably has given consumers more to spend at retail. Fuel is now at a 2 year high. Link
  • Fabric that stores data. Link
  • One in four US adults now get news from social media. Link
  • Uber grew 15% and Lyft grew 33% in latest analysis. Link

Tech Infused Retail Takes: October 31

Enjoy Halloween and the quick reads below:

  • HBC raising cash. First it was NYC Lord & Taylor flagship, now its Vancouver. Link
  • GameStop woke up and realized that digital downloads have been stealing share for years. This solution of rentals will ease a bit of the pain. Stores must be closed. Link
  • Sears Canada CEO believes his plan was working. Link
  • REI avoids door buster deals by closing on Black Friday. Link
  • Understanding Amazon as a advertising platform. Link
  • Amazon drops selling fee for 3rd party sellers in grocery from 15% to 8% for the next year. Definitely no secrets to how badly Amazon wants your grocery spend. Link
  • Renting in the US has never been more unaffordable. Link
  • What The Economist learned in its' first year on Snapchat Discover. Link

Harsh Realities of Department Store Grooming

The chickens have come home to roost. Last week brought the news of my former employer, Lord & Taylor selling their landmark 5th Avenue store to WeWork. Plans call for WeWork to leave Lord & Taylor with just 3 floors of selling floor space. 

The sale of this property is long overdue. The decline in store sales due to new market entrants, new retail models and online sales has been taking place for well over a decade. This has left department stores with the harsh reality of grooming their store footprint and delivery model. Stores cannot remain open or at current scale with the declining sales per square foot. 

While sad to see this type of news, we still have a considerable amount of grooming to go through within retail. The new retail models and entrants are the refreshing and needed change this industry needs to regain health. 

Amazon Earnings: International Growth & Physical Stores

Amazon released earnings this evening. A huge beat on the earnings front unlike last quarter. I have updated the various slides and note 3 main themes:

  1. Revenue growth rates accelerated from last quarter in all categories but AWS which maintained a 42% growth rate
  2. Physical stores are now reported and account for 3% of overall sales
  3. International is kicking in posting a 29% growth rate (second highest)

Whilst last quarter was weak, Amazon smoked the profit forecasts of Wall Street this quarter. The stock is trading up 7% as of press time. All portions of the business continue to grow and I believe the investments in international markets like India are starting to materialize. With that said, the massive investments are having an impact on cash flow...but not nearly enough to warrant any worries.

Tech Infused Retail Takes: October 23

  • US online retail sales to exceed $1 trillion by 2027. Link
  • A sneaker head show that averages 1.9 million viewers per 10 minute episode. Link
  • Facebook currently has 54 versions of their mobile app being A/B tested. Link
  • Lyft is accelerating, has completed 500 million rides. Link
  • These are the businesses still immune to Amazon. Link
  • Impressed by this Amazon product page? Brands are paying $500,000 annually for the luxury. 
  • Bon-Ton suppliers start to pull back shipments. This might be the first 2018 retail bankruptcy. Link
  • The Fate of Wikipedia. Link
  • Most popular workplace apps. Link
  • Eddie Lampert responds to Globe and Mail on Sears Canada. Link

Tech Infused Retail Takes: October 19

What I'm reading on this loooooong Thursday:

  • Lord & Taylor (of Hudson's Bay Company) to launch web store on Walmart.com. Surprised by L&T's choice of Walmart but the bigger takeaway is Walmart's pivot to the Alibaba Tmall model. Link
  • 140,000 brands will take part in Alibaba's 11.11 Singles Day. Link
  • JD.com partners with Tencent and Walmart for Singles Day. Link
  • Stich Fix files for IPO. Link
  • Amazon and major Apartment landlords strike deals for in building lockers. Link
  • Amazon needs to get serious about Brazil. Link
  • Happy Diwali! India now fastest growing Amazon Prime market. Link

Google's Ecommerce Flywheel

Google continues to quietly build their US Ecommerce flywheel to compete with Amazon. An example of the three pillars:

Same Day and Next Delivery for all of the following stores (note the majors):

Ads (except for top news stories and one result) cover the entire first page of a search:

Voice purchasing for the majors including Target and Walmart.

We tend to focus on the Walmart vs Amazon battle but Google has quite the flywheel of their own.

 

Best Buy's True Secret to Thriving

This recent NY Times piece highlighted prices, human focus, brick & mortar showcase/fulfillment, cost cuts and luck as the reasons Best Buy has succeeded against Amazon. 

I'd argue Best Buy continues to see success for the following reasons: 1) accelerating out of sales of media (CD's) and pushing into larger ticket items like appliances; 2) focus on services (Geek Squad, installation, premium home theater, mobile); 3) strong store in store concepts with major players like Samsung, Apple, Lenovo; 4) loyalty program; 5) market/competitive factors.

Number 5 is the most important to focus on. Best Buy eventually gained the scale necessary to force Circuit City and other regional electronics players out of business. Although the spend within consumer electronics space hasn't seen growth recently, Best Buy is the only major national player making it much easier to capture customer's spend. The electronics space is nothing like department store space that has a number of national players all fighting for a piece of the pie. Best Buy's most strategic move was focus on weeding out the one national player and several regional players. Nothing to do with Amazon.

Source: https://www.nytimes.com/2017/09/18/busines...

Kohl's: A Deal With The Devil?

Just last week, Kohl's announced a partnership with Amazon to open 10 "smart home experiences" in the LA and Chicago area. Initial responses from the media and industry pundits ranged from, "why deal with the devil" to "Kohls is giving away the store on this deal." These types of headlines and views, remind me of all the retailers that have taken the "enemy" stance with Amazon. Some have succeeded. Whilst not completely attributable to Amazon, some have failed. Fast forward to today and  Kohl's announced they will accept Amazon returns at 82 of their stores. Acceptance of returns includes taking possession of the item(s), packing the item(s) and shipping the return back to Amazon. Kohl's even plans to setup designated parking spaces.

Now that we understand the extent of the full partnership, is this a deal with the devil? Absolutely not. 

As Amazon announces partnerships with key brands like Nike, buys retailers like Whole Foods and posts solid year over year sales growth each quarter, Amazon's momentum and allure only grows. With legacy retailers facing overinflated store bases, declining comp sales and online sales that are expensive to attain, it was only a matter of time before one tied up with Amazon. By partnering with Amazon, Kohl's gains that first mover advantage as the first brick & mortar retailer in the apparel space to partner with what is soon to be the largest apparel retailer. What does Kohl's really have to lose? Just think of the potential upside to these types of deals:

  • Foot traffic to stores (despite returning Amazon product)
  • On-trend electronics sales within voice space
  • Inclusion within the Amazon flywheel

Don't be surprised to see a success story out of this partnership that includes rollout to additional stores or a branded web store on Amazon.com. Call it unconventional, call it crazy, but Kohl's is setting itself up for a partnership that will lead to many more opportunities than threats. Let's not forget that at one point Amazon ran Borders.com, Toysrus.com and Target.com. 

Source: http://www.businesswire.com/news/home/2017...

August Retail Sales: A Surprising Twist

Retail sales results have been generally quite consistent. The categories of building materials (Home Depot, Lowes) and internet non-store retailers (Amazon) have been strong whilst department stores (Kohls, Nordstrom) and electronics have struggled. 

That trend stayed intact for the most part, but there was one surprising twist. Internet non-store retailers posted an 8.4% gain over last year which is the lowest in well over 3 years. We are used to double digit gains with year to date currently showing as 10.5%. Secondly, department stores saw a bit of relief as the group was only down 0.8% versus a year to date figure of down 3.3%.

I don't believe this changes the long term trend, but was quite surprised to see this twist. Could it have been Amazon Prime Day hangover? Maybe department stores "bought" sales in the month of August with higher markdowns?

Source: https://www.census.gov/retail/marts/www/ma...

God Bless the USPS

The Postal Service has a legal monopoly to deliver first-class mail and non-urgent letters. It is the only entity that can put something into a mailbox or through a mail slot. It is legally obliged to provide the service at the same level and price nationwide. That means, even with mail volume down 40 percent since 2006, the Postal Service still must visit 155 million mailboxes every day.

Since 2007, the Postal Service has been required to allocate 5.5 percent of its fixed costs to package delivery and to incorporate that into its pricing. That figure made sense then, but today, 25 percent of the Postal Service’s business is package delivery. And thanks to features of the Amazon deal – such as Sunday delivery, grocery delivery, even delivery from fish markets to local restaurants – the expenses have climbed.

In fact, they’ve climbed so much, according to a recent analysis by Citigroup, that the Postal Service should be charging Amazon $1.46 more per package than the $2 or so it does now. “Amazon now enjoys low rates unavailable to its competitors,” the Journal story said. “It’s as if Amazon gets a subsidized space on every mail truck.”

It’s not just the free ride in the truck. It’s the $200 million three years ago to furnish carriers with 270,000 Internet-connected handheld scanners needed for real-time package tracking. It’s the $5 billion or more to replace the Postal Service’s 190,000 delivery vehicles with new ones better equipped to handle packages.

Let's get this straight. If the Postal Service could stop delivering to a portion of American households, they would. No carrier can profitably deliver to EVERY household in America. Complain about their service, complain about their losses, but without the USPS, FedEx and UPS wouldn't have final mile delivery and ecommerce wouldn't see the current and planned growth rates we all enjoy. Thank you USPS.  

Source: http://www.washingtonexaminer.com/for-ever...

Distribution As a Differentiator In Retail

Amazon's distribution/fulfillment centers exceed the combined number of distribution centers within retail. Please note that a number of the big box retailers are missing but the numbers don't lie. Amazon has nearly 2x more than the entire retail industry. Some may argue this is excessive whilst others may say this sets up Amazon for the next several decades of multi-channel fulfillment.

When taking stores into consideration as fulfillment centers, Amazon falls to the middle. With that said, this is a bit of a stretch in comparison. The economics and throughput of stores pales in comparison to distribution centers. The scale, reach and automated nature of Amazon fulfillment centers clearly sets Amazon up to leverage distribution as a differentiator for decades to come.

Source: http://feedproxy.google.com/~r/zerohedge/f...

Amazon Private Label vs Brick & Mortar Private Label

Everyone is well aware of Amazon's private label but brands within electronics. Not everyone is aware of their offerings within apparel and fashion. If 1010data's findings are showing initial traction. Note the Pinzon (home/bedding), Lark & Ro (women's apparel) and Buttoned Down (men's dress shirts) in the chart below. 

Whilst the growth numbers are impressive for the aforementioned apparel brands, keep the scale in mind. Building scale with an etail/.com only offering takes a significant amount of time. Secondly, Amazon's offering of other brands and 3rd party seller brands is so vast that sales are dispersed across an incredibly long tail. Contrast that scale with the scale of Target's private label kids brand Cat and Jack. You can argue the offering of Cat and Jack is much broader than Amazon's apparel brands, but one can't be amazed at the concentration of sales in brick & mortar stores. Cat and Jack did $2 billion in sales in its' first year thru July. 

Source: https://www.licensing.org/inside-licensing...

Department Store & Off Price Retail Earnings Commentary: Macys, Kohls, TJ Maxx, Nordstrom

Another quarter has passed with Q2 earnings providing a preview on where retailers believe the important and critical quarters of Q3 and Q4 will end up. All reports are now complete (excluding Costco) and the exaggerations of the death of retail have subsided but there are obvious pockets of strength and weakness. Nordstrom and Saks full line stores surprised to the upside, Off Price continued its' march and Dollar Stores showed the best comp sales increase in several years. Bottom line: Q2 was better than expected, there seems to be optimism for Q3 and Q4 within Off Price, Dollar Stores and one Department Store.

JC Penney

  • Posted the 4th consecutive quarter of negative same store sales growth of -1.3%
  • Margin improved from last year's quarter
  • Focus on additional rollouts in big ticket areas like appliances and home continue along with expanded Sephora store in concepts
  • Bottom line: JC Penney will continue to close stores and limp along as malls continue to weaken and their digital offering remains average

Kohls

  • Posted the 6th consecutive quarter of negative same store sales growth of -0.4%
  • Margin declined slightly from last year's quarter
  • Kohls still remains as one of the few large scale department stores that has publicly stated no plans of store closures
  • Bottom line: While the same store sales decline was marginal, I remain skeptical that all of the pain is behind them

Macys

  • Same store sales came in down 3.6%, the 10th consecutive quarter of negative growth
  • Margin declined slightly from last year's quarter
  • Full year guidance was confirmed
  • Bottom line: Pain will continue with further store closings and pressure on the existing stores, Backstage and Blue Mercury aren't enough to reverse the course.

Nordstrom & Nordstrom Rack

  • Same store sales came in positive for both groups with Nordstrom at 1.4% and 3.1% for Nordstrom Rack
  • Strong online results in Nordstrom.com and Nordstromrack.com/Hautelook offset the store results of down 4.4% for Nordstrom and Rack down 1.0%
  • Margin was lower than last year as the company was a bit more promotional to offset the store weakness
  • Guidance was essentially unchanged with same store sales to remain flat
  • Bottom line: Nordstrom remains the best of breed department store with an adequate mix of full price and off-price

Ross

  • Posted another strong quarter with 4.0% same store sales growth
  • Guidance for Q3 is 1.0-2.0% growth versus a 7.0% increase in Q3 of 2016
  • Bottom line: Ross continues to do well and should continue to gain share with their flagship Ross banner and dd's Discount stores despite a non-existent ecommerce offering

TJX

  • The TJ Maxx & Marshalls duo posted a 2.0% same store sales growth; up from 0.0% last quarter
  • The overall same store sales increase was 3.0% driven by the HomeGoods increase of 7.0%
  • Guidance was raised for the full year
  • Bottom line: TJX continues to see growth in their existing store base and is aggressively opening new stores. Once the store growth slows, look for TJX to truly get into ecommerce and further focus on international growth.

Other Points to Note

  • Dollar Stores both posted the best same store sales figures in years
  • Saks posted one of their best quarters in several years

 

Q1 Earnings Commentary: Department Stores

Q1 Earnings Commentary: Off Price

Disney Still Loves Netflix

With this one statement about Netflix, Disney's revered CEO Bob Iger set the world ablaze on the debate as to whether Netflix can survive without Disney:

With this strategic shift, we’ll end our distribution agreement with Netflix for subscription streaming of new releases beginning with the 2019 calendar-year theatrical slate. These announcements marked the beginning of what will be an entirely new growth strategy for the company, one that takes advantage of the opportunities the changing media and technology industries provide us to leverage the strength of our great brands.

This was a strategic move that in no way ends the Disney Netflix relationship:

  1. Bob is setting the stage for the next round of negotiations. Bob realizes Disney content is worth more than the current Netflix deal. 
  2. Bob realizes that HBO, Showtime and many others are interested in Disney content.
  3. Bob realizes he has a captive audience in the Disney ecosystem requiring Disney to provide their own streaming service.

Bottom line: Disney is not ending their relationship with Netflix. Disney is resetting their relationship and will ultimately provide the content to the highest bidder or group of consumers paying the most. Netflix has become a necessary evil with deep pockets that Disney will forcefully play with for decades to come.

Source: https://seekingalpha.com/article/4096625-w...

Your Social Rating is Your Worth

More scores that rate your trustworthiness are coming to China’s internet—which is great for a quick discount, but concerning for civil liberties.

Tech giant Tencent is gradually testing and and expanding its “social credit” system that will give users a numeric rating based on their spending habits and social connections, two years after rival Alibaba launched its own social credit system. A source familiar with the matter this week confirmed that Tencent expanded its pool of “beta test” users for Tencent Credit, the name of its social credit system. The beta test users were given access to the service on QQ, a Chinese chat app.

According to media reports (link in Chinese), users must input their real names and Chinese ID numbers to reveal their scores, which ranges between 300 and 850. The company breaks down that score into five sub-categories: social connections, consumption behavior, security, wealth, and compliance.

Incredible. This has to be right out of the Black Mirror episode using social media as the ranking system by which the main character bases her worth. Which of the majors (Google, Facebook, Apple) will try some version of this first? 

Source: https://qz.com/1049669/chinas-tencent-hkg-...