Walmart Playing Catch Up To A Harsher Reality

Walmart said Thursday that it plans to significantly slow its efforts to open new U.S. stores, a strategic shift by the world’s largest retailer as it works to claim more of the shopping dollars that are rapidly moving online.
At a meeting with investors, Walmart executives said the chain will open about 35 supercenters next year, sharply lower than the 60 it expects to open by the end of the current fiscal year. It aims to open just 20 of its smaller, grocery-oriented Neighborhood Markets, a pullback from the 70 it is to open this year.

Walmart finally playing catch up with other leading retailers who have killed all new stores and in some cases are shrinking their footprint with store closures. The revived focus on online sales is good to hear, but growth at the rate needed just isn't there yet:

 The goals executives laid out for its digital business were ambitious: They say they expect to deliver 20 to 30 percent annualized growth in a segment that lately has not shown nearly that level of momentum. For example, last quarter, Walmart’s global e-commerce sales were up 11.8 percent over the previous year. In the last full fiscal year, the company’s online sales were up 8 percent.

Investments in personal shoppers powering the buy online pick-up curbside is showing promise but will take quite a bit of time to roll-out to 4,600 stores and sounds almost department store like:

This is why the personal shoppers show customers items such as produce and eggs before packing them into the car. The idea is that if someone saw an avocado that wasn’t quite ripe or an egg that was cracked, a substitution could be made on the spot.
Personal shoppers also are supposed to get to know the preferences of repeat customers, so they might learn, for example, if someone likes their bananas a little on the green side. They might also slip your dog a biscuit or your child a lollipop.

Although I believe Walmart is headed in the right direction, I believe a harsher reality is on the horizon. Having a Walmart within 10 miles of 90% of the American population is a benefit that has stopped paying benefits and is now a liability. Store closures and smaller footprint stores is the only healthy way of setting the business up for success in the evolving online shopping world.

Source: https://www.washingtonpost.com/news/busine...

Amazon & Digital Ads: On & Off Site

Amazon may not be touting its efforts in public, but behind the scenes it has been trying to expand its footprint in the ad business, digital media executives say.
To date, Amazon’s ad business has mostly focused on driving online sales with targeted ads on sites across the web, leveraging its rich supply of shopping data culled from years of operating a massive e-commerce business. It can, for example, help an advertiser target people who have recently searched for men’s apparel products.

Externally they have been quiet, but driving sales internally on their own sites is massive. For those brands that sell on the platform, Sponsored Product ads as Amazon labels them are a major component to being successful. Not all brands have organic reach on the platform that provide instant traffic. Ads are just another service Amazon provides in the flywheel that drive further monetization on their platform for 3rd party sellers.

Source: http://www.wsj.com/articles/amazon-looms-q...

Membership Wars: Amazon Prime, Costco and Sam's Club

Costco and Sam's Club have historically been thought to be "Amazon proof" due to the size and quantity of products purchased by their loyal membership base. I have always argued otherwise as Amazon offers similar bulk purchase options and truly provides a thoughtless and frictionless service. Costco and Sam's have recognized that threat and worked to provide shipping via Google Express and buy online, pick-up in-store. Have their efforts paid off?

Yes and no. Cowen recently provided the graphic below that highlights how quickly the Amazon Prime membership base has grown as a percentage of households. The offering of free 2-day shipping is complimented by free streaming of music, TV, movies and books. 

When diving down into the overlap of memberships, it looks as though whilst Amazon has grown, the amount of households with memberships from 2 of the 3 (Amazon, Costco and Sam's) have also all grown. The Amazon/Costco combo grew 6.5% whilst the Amazon/Sam's combo grew 3.7%. 

So what does this all mean? 

  1. Households are now more willing to have a couple of memberships (24.4%) and in some cases 3 memberships (8.3%).
  2. Amazon's impact to Costco is thought to be minimal since Costco continues to steal market share from Sam's Club. With that said, no retailer is Amazon proof when you consider close to 50% of households will have Amazon Prime.
  3. Amazon Prime is the most popular retail membership in the US and provides many benefits outside of free 2nd day shipping.

 

 

August Retail Sales

August was down slightly to July and up 2.0% to August 2015. This was a slight miss and many of the recurring themes of growth and decline remained the same. 

The top 3 growth businesses were internet retailers, health stores and restaurants/bars:

  • Non-store/online retailers posted a record 10.9% gain over last year. While incredibly healthy, this was the lowest rate of growth in the last 3 months. 
  • Heath and personal care stores posted the second straight month with a 7.8% year over year monthly gain
  • Restaurants picking up a 5.0% gain and the 3rd spot. This is surprising as many Restaurants have posted disappointing comps recently.

On the downside, the bottom 3 (excluding gasoline) remained the same:

  • Department Stores multi-decade decline continued with a return to monthly declines of 5.0% or more
  • The Electronics vacuum of sales to online continues with a decline of 3.1%. No surprise here as Non-store's gain is usually electronics' loss.
  • Misc stores and Clothing & Clothing accessories stores saw a decline of 0.4% and 0.3% respectively

The Non-store (online) continues to steal the show and shows no signs of slowing with grocery now picking up the move to online. Additionally, Grocer growth has been outpaced by restaurant and bar spending for the 10th consecutive month.

July Retail Sales can be found here. 

June Retail Sales can be found here.

May Retail Sales can be found here.

April Retail Sales can be found here.

March Retail Sales can be found here.

February Retail Sales can be found here.

January Retail Sales can be found here.

December Retail Sales can be found here.

Q2 Retail Comp Sales Recap: Department Stores vs Off-Price & Dollar Stores

Majority of the results are in. Quarterly results are best told in charts. Department stores struggled with only JC Penney posting a positive year over year result:

Off-price retailers posted at least a 4% increase year over year with Burlington and Nordstrom Rack posting the best results of 5.4% and 5.3% respectively. Dollar stores remained positive but have definitely slowed in the past few quarters:

The latest round of results continues to highlight the shift happening specifically within brick & mortar from traditional department stores to off-price and dollar stores. Here is a chart depicting that shift over the last four quarters:

July Retail Sales

July was flat to May and up 2.3% to July 2015. This was a miss to expectations. With that said, there were some major bright spots:

The top 3 growth businesses remained the same:

  • Non-store/online retailers posted a record 14.1% gain over last year. This is about even to May which posted a 14.2% gain and April posting a 12.2% year over year gain. Safe to assume the Prime Day bonanza contributed to this strong number. 
  • Heath and personal care stores posted the 3nd largest year over year increase for June with a 7.8% gain
  • Building material & garden equipment slowed from the 7.6% gain last month with Restaurants picking up a 5.0% gain and the 3rd spot. This is surprising as many Restaurants have posted disappointing comps recently.

On the downside, the bottom 3 (excluding gasoline) remained the same:

  • Department Stores multi-decade decline continued with a decline of 4.0% year over year which is actually slightly better than the 5%+ drop two months ago.
  • The Electronics vacuum of sales to online continues with a decline of 3.8%. No surprise here as Non-store's gain is usually electronics' loss.
  • Clothing & Clothing accessories stores saw a decline of 1.2% year over year

Last month we mentioned Non-store (online) being in a steep inflection point. This continues as the assault on grocers has picked up steam recently. The continued weakness in Electronics and Department Stores with combined weakness in Clothing Stores highlights why Non-store (online) is doing so well. Many of the same recurring themes here. 

June Retail Sales can be found here.

May Retail Sales can be found here.

April Retail Sales can be found here.

March Retail Sales can be found here.

February Retail Sales can be found here.

January Retail Sales can be found here.

December Retail Sales can be found here.

Department Store Q2 Comp Themes

Q2 comp sales reporting has begun. Most retailers saw an improvement over last quarter but JC Penney was the only traditional retailer to post a positive year over year quarterly sales increase. A couple of themes:

  1. Closing Stores is Healthy - Macy's on an owned and owned & license basis saw the second worst reading in the past 6 quarters. I applaud the Macy's management in announcing the closure of a symbolic 100 stores. This is a focus on profitability to assist in funding the transition to digital. I would anticipate further store closures.
  2. Shift to Off-Price Continues - Nordstrom full line stores improved over last quarter while the off-price Nordstrom Rack posted an impressive quarter year over year. 

Earnings on-tap: TJX on 8/16 and Ross on 8/18.

Amazon Wasn't First to Launch Prime In India

Amazon recently launched Amazon Prime via Amazon.in. The shipping benefits are very similar to other markets:

Why pay Rs.100 for One-Day Delivery every time you need an item quickly? As a Prime member, get unlimited FREE One-Day and Two-Day Delivery to over a hundred cities in India. Choose from eligible items in the country’s largest online store, no minimum order size needed. 
Prime members also enjoy discounted Same-Day, Morning and Scheduled Delivery to pin-codes in Delhi, Mumbai, Bangalore, Hyderabad and more cities across India. 

Video benefits are still to come:

You will enjoy a wide selection of Bollywood and regional movies, US TV shows, and more. And you will also be able to access Prime Video anywhere: on the go or in the comfort of your living room. We will continue adding new and exclusive content, including new original Indian TV shows. Stay tuned for more.

Amazon is providing a 60 day trial vs. the typical 30 day trial they have used in the US and Canada. The price is currently listed at ₹999 (approximately $15 USD) with a introductory price of ₹499 (approximately $7.50 USD).

Flipkart, a key Amazon competitor in the Indian market provides a service called Flipkart First promising free next day delivery and discounted same day delivery. The cost of that service is also ₹499. The service first launched in 2014 and provides no video streaming benefits. 

Bezos and Amazon haven't been shy about their belief in the long term viability of success within the Indian market. I wouldn't anticipate the ₹499 price moving higher anytime soon.

Facebook Largely Remains US & Canada Story

Facebook now has 1.7 billion users accessing the platform every month worldwide.

Of those 1.7 billion users, 66% access the platform daily.

Revenue growth worldwide year over year was 33%.

That growth was driven largely by the US & Canada that is now earning $14.34 per user for a 54% increase year over year vs. 49% last quarter. The US & Canada average revenue is now 3x that of the next closest market Europe. By comparison, Europe grew 40% on a much smaller base. 

Facebook largely remains a US & Canada story. The acceleration in the latest quarter shows no slowing for the top market but Europe and Asia must show acceleration to ensure Facebook further diversifies. 

Amazon's Blowout Quarter In Chart

Amazon reported earnings this past week that showed acceleration in almost all areas. First point to note was the strongest year over year quarterly net sales for both product and services in the past 5 years. The second quarter saw growth of 31% with product sales and service sales up 23% and 53% respectively.

International sales posted the strongest year over year quarterly net sales whilst AWS cloud services slowed from the torrential growth rates of previous quarters. This is likely due to the expanded Prime Now rollouts in the UK and further traction within India.

Third party sellers have been gaining about 1% per quarter since Q1 2015 as total units sold by 3rd parties made up 49% of units sold. Combined with increased revenue from AWS, services now account for 31% of total revenue. 

This was a gangbuster growth quarter for Amazon. This quarter was especially impressive as the law of big numbers has yet to set in. The guidance range for next quarter was an increase in revenue of 22-30%. There is no slowing down Amazon with these types of numbers.

Top Grossing iOS App Traits

Incredibly informative and thorough piece by MacStores on the top grossing iOS apps. Some takeaways that you might have assumed:

1. Free apps rule all

2. Given top apps are free, they monetize through in-app purchases

3. Top apps typically have 10+ in-app purchase opportunities that are <$9.99

4. Games rule all

5. Top app shops include King, EA, Big Fish, Zynga, SGN. All games.

Source: https://www.macstories.net/stories/explori...

PayPal & Visa: Who Got the Better Deal?

This past week PayPal and Visa announced a partnership in which Visa will allow users to use PayPal as a funding source when checking out in stores using Visa Checkout. So which party got the better end of the deal?

PayPal

  1. PayPal users will be able to use the PayPal app to to pay for items where Visa tap-and-pay is accepted. Positive.
  2. PayPal will also be provided volume incentives aka cash payments when exceeding payment volumes thresholds. Slightly positive.
  3. PayPal will receive "greater long-term Visa fee certainty." Meaningless.

Visa

  1. Assurance that PayPal will stop intentionally steering customers to directly link bank accounts to PayPal and instead seek payment through Visa. Game changer.

So which party got the better end of the deal? PayPal will certainly see increased revenue opportunities with ties to Visa tap-and-pay but will the incremental revenue and incentives outweigh the higher cost of processing customer transactions via Visa in place of checking accounts? Doubtful in my opinion. PayPal's largest driver of profits was is ability to have customers pay using checking accounts. Processing payments via checking accounts is a fraction of the cost of processing fees from Visa. I believe Visa played its' heavier hand in this negotiation and came out better. There are two main pipes with volume: Visa and Mastercard. With this "partnership," PayPal increased its' reliance on the Visa pipes to run their increasing volume of transactions. 

Source: http://www.recode.net/2016/7/21/12251552/p...

Off-Price Un-Amazonable?

“Off-price retailers are resonating with fashion and cost-conscious consumers alike, and are stealing department store business for good reason,” said Marshal Cohen, chief industry analyst for The NPD Group, in a statement. “Off-price is second only to the online channel in terms of growth rate.”

This is true within apparel. Off-price continues to thrive as long as they have the inventory to choose from. The excess inventories of department stores has fueled the off-price players.

No doubt Amazon’s “explosive growth” and online shopping are eating into sales and margins at both brick-and-mortar stores and malls, said Oliver Chen, retail analyst with Cowen & Co., in a July research note. But stores such as T.J. Maxx, Burlington Coat Factory and Ross Stores ROST +0.26% are “un-Amazonable,” he said.

I don't believe this to be true. The off-price players have plenty of runway with the current state of retail disarray but they will inevitably need an ecommerce strategy at some point. I would also argue that they would be growing considerably faster now if Amazon and subsidiaries wasn't in the picture. 

Source: http://www.forbes.com/sites/barbarathau/20...

June Retail Sales

Strong report for the month of June with sales up 0.6% from May to June and up 2.7% versus June 2015. On the downside, May was revised down to 0.2% versus the 0.5% previously reported. 

The top 3 growth businesses remained the same:

  • Non-store/online retailers posted a record 14.2% gain over last year. Keep in mind that last month was already a stellar 12.2% year over year gain. Also keep in mind that July should be healthy based on the Prime Day reports already surfacing. 
  • Heath and personal care stores posted the 2nd largest year over year increase for June with a 8.4% gain
  • Building material & garden equipment picked up on the growth pace prior to last month posting a 7.6% year over year gain 

On the downside, the bottom 3 (excluding gasoline) remained the same:

  • The Electronics vacuum of sales to online continues with a decline of 4.7%. No surprise here as Non-store's gain is usually electronics' loss.
  • Department Stores multi-decade decline continued with a decline of 3.7% year over year which is actually slightly better than the 5%+ drop last month
  • Clothing & Clothing accessories stores saw a decline of 0.9% year over year

Non-store (online) is truly at an even steeper inflection point while health, building and restaurants remain hot. The continued weakness in Electronics and Department Stores with combined weakness in Clothing Stores highlights why Non-store (online) is doing so well.

May Retail Sales can be found here.

April Retail Sales can be found here.

March Retail Sales can be found here.

February Retail Sales can be found here.

January Retail Sales can be found here.

December Retail Sales can be found here.

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

Airbnb Gains Coveted Business Customer

The company said today (July 12) that it’s partnering with three travel management companies—American Express Global Business Travel, BCD Travel, and Carlson Wagonlit Travel—to give their clients a chance to book on Airbnb.
AmEx GBT, whose clients include IBM, McKinsey, and Microsoft, reported $30 billion in 2015 sales. It is adding Airbnb as a “preferred supplier,” meaning Airbnb will be able to offer negotiated rates and business expenditure tracking. Carlson Wagonlit Travel handled $24.2 billion in sales in 2015, with 92% coming from corporate bookings. BCD did $23.8 billion.

The coveted business customer is within reach for Airbnb. Note that Airbnb is already offering more room nights than any other legacy hotel provider (including the combined Marriott and SPG corporation).

Source: http://qz.com/729878/its-time-for-hotels-t...

Apparel Inventories At Historic Highs

Apparel inventories were released by the Census with Mish updating the various charts. One point to note is that apparel inventories to sales continue to sit at historic highs. What does this mean for apparel retailers and brands? 

  1. Huge markdowns and sales for the holidays to clear inventories
  2. Off price and discount apparel players will have their pick of the litter from wholesale brands and licensees. Everyone from TJX to Ross to Burlington will have large inventories to pick from.

Looks like this will be another holiday with low margins for traditional retail and huge discounts for shoppers. The world is awash in apparel.

Reduce Your Apparel Footprint

Urban Outfitters recently unveiled Rework, a new in-house line made from “limited runs of remnant fabric,” a.k.a. reused and recycled materials. (Racked)
So next time you think of buying a new piece of clothing, take a moment to consider how much you’ll wear it, how much you already own, and how long you think it will last. It may give you a new perspective on the price tag. (Quartz)

 

Low cost fast fashion continues to drive "one and done" outfits ensuring millennials don't post the same outfit to Instagram twice. Might the move to recycled clothing and incentive to buy based on number of wears be upon us? Doubtful. Low cost throw away apparel provides just the right fix for most of today's current customers.