Google holds 5 of the top 10, Facebook holds 3 of the top 10 and Amazon was the fastest growing on a percentage basis. Who is missing? Snapchat. 2017's IPO darling.
Never Say Never
Mr. Outwater is among the 17% of U.S. primary household shoppers who say they never shop on Amazon, according to data from Kantar Retail ShopperScape. While the percentage has steadily declined over the past five years, roughly 22 million American households didn’t use the retailer this year.
Some 80% of U.S. adults had either a smartphone or a home broadband subscription in 2015, according to Pew Research. Lack of access to web-enabled devices, or living in places where it is difficult to receive packages, are key reasons people avoid e-commerce, said Stefan Weitz, chief strategy officer at retail technology provider Radial.
“There’s still a decent amount of fear and mistrust with the web,” Mr. Weitz said. “And 80% of consumers still want to go to browse and shop in-store.”
Misleading headline and subtitle from the WSJ. Of course there will always be segments of the population unwilling to shop one way or with a specific retailer. The article should have focused on the declining portion of that survey population.
How Americans Spent Their Money in the Last 75 Years
Notable points, housing has always reigned supreme with health care growing considerably with food and clothing in multi-decade declines.
It's a bird, it's a plane, it's...Amazon
In a patent awarded earlier this year and discovered by analyst Zoe Leavitt this week, Amazon describes its invention, which it refers to as an "airborne fulfillment center." The chief benefit over warehouses on the ground is the ability to be redirected to areas where Amazon is experiencing high order volumes.
The floating warehouse could even hover over an event like a football game, the patent filing explains, dispatching drones to deliver food or souvenirs. Some drones could be pre-loaded with high-demand items, reducing delivery times even further.
A Rational View on Amazon Go Stores
Now that the hype of the Amazon's press release of laborless stores has slowed, time for a few thoughts:
- Amazon uses press releases, videos and 60 Minutes to fuel the fire that Amazon is focused on innovation and frictionless/thoughtless commerce
- Amazon stores, drones, robot distribution centers and laborless stores are all incredibly exciting and impressive. Before any small release, long periods of testing and refining are needed.
- Any large scale release of laborless stores and drones is years away. Small tests will be available in certain markets like the Pacific Northwest, but rolling out hundreds of stores can take many years.
- This should be a "call to arms" to any store based retailer. Amazon is explicitly calling your attention to their planned model. Nothing new from the "virtual store" many have shown but Amazon seems to be the first to actually put one together.
- Amazon knows Grocery and consumables is where the lion's share of customer spend is and that is their #1 focus area. Amazon's Prime Pantry and Amazon Fresh offers via delivery will continue to be their focus over the next few years as they test and learn various store models.
Bottom line: The outlook remains rosy but realize that Amazon Go stores are years away from being in your neighborhood.
Amazon's Reviews Problem
Not all is rosy at Amazon. Not everyone loves the endless scroll of the everything store and wish for a more curated view. Others criticize reviews and Amazon now realizes the extent of the issue. Reviews are incredibly compelling in driving purchases. Everyday customers are willing to believe in the credentials and testimonials of complete strangers. In fact, 60-70% of customers based on several surveys have indicated a positive review will drive a purchase. Amazon sellers realize this fact and understand a minimum 4 star rating is the standard to be successful in most product categories.
Although Amazon seems to take the issue seriously by the headlines and quotes below, there is quite a bit of work left to do. Reviews are like fingernails. You must continually groom and clip regularly.
Amazon sues sellers who purchase fake reviews:
Since the beginning of last year, Amazon has sued more than 1,000 defendants who offered to post fake reviews on its site in exchange for compensation. It has gone after those who sold their fake review services on the website Fiverr.com, the operators of websites who engage in this practice and the sellers who buy the fake reviews.
Amazon bans incentivized reviews:
Amazon is making a significant change to its Community Guidelines, announced today, which will eliminate any incentivized reviews, except for those that emerge from within its own Amazon Vine program. This program allows Amazon – not the seller or vendor – to identify trusted reviewers, and has a number of controls in place in order to keep bias out of the review process.
Amazon puts limits on customer reviews:
Amazon will start capping the number of product reviews any customer can submit in a given week, limiting each person to five/week except for products that have been verified by the company as purchased by the reviewer. Books, music and video are exempt from the limit, but the new cap applies to the rest of Amazon’s vast online selection of products.
Amazon deletes over 500,000 sketchy reviews:
ReviewMeta found that over 500,000 reviews have been deleted, with an average rating of 4.75/5. 71 percent of those reviews were flagged as having been incentivized. The overall average for all reviews dipped by about one-tenth of a star when Amazon’s ban went into effect.
Q3 Retail Sales Comp Recap: Off Price ON FIRE
Q3 retail earnings are now complete. Highlights include:
- Off price is aggressively stealing share, Ross up 7.0%, TJ Maxx up 5.0%, Nordstrom Rack up 3.9%
- Nordstrom is the only full line department store to post a positive year over year comp.
- JC Penney's rebound looks troubled as the Plano based retailer posted a negative comp.
- Off-Price has been mixed with Dollar Tree up 1.7% and Dollar General down 0.1%.
Q2 Retail Earnings Recap can be found here.
Q3 Retail Comp Sales Initial Takeaways: JCP Stumbles, Nordstrom Relatively Strong
Q3 retail earnings are underway. Initial takeaways:
- JC Penney's rebound looks troubled as the Plano based retailer posted a negative comp.
- Nordstrom is the only full line department store to post a positive year over year comp.
- Nordstrom's off-price offering Rack remains strong with TJ Maxx, Ross and Burlington up next for earnings.
Q2 Retail Earnings Recap can be found here.
Early Holiday 2016 Retail Ecommerce Winners & Losers (Mobile & Desktop)
Early winners on a percentage basis for mobile and desktop include Home Depot and Walmart on a year over year basis:
Early losers on a percentage basis for mobile and desktop include Gamestop due to a shift to digital downloads and K-Mart due to store closures on a year over year basis.:
When pulling all the traffic into a consolidated bar chart, context completely changes...Amazon lost on a percentage basis yet added 61% of Walmart visits in 1 year:
Anything To Worry About at Facebook?
After releasing earnings earlier this evening, Facebook is trading down approximately 8%. Let's take a closer look as to why that might be happening. Average revenue per user was up roughly 26% year over year which is strong yet a bit slower than last quarter at 33%:
The largest driver of average revenue per user, the US & Canada also remains strong with year over year growth of 49% but that is a slight deceleration from last quarter's 54%:
Whilst revenue per users did see lower growth rates than the previous quarter, overall users grew close to 16% compared to 14% on average the last several quarters. Although this may seem like marginal user growth and with increased capital spending on the horizon, there is no denying the size, scale and impact of Facebook, Instagram and WhatsApp on the advertising world. I see nothing to be worried about after Q3's numbers and would be a buyer on weakness.
Previous coverage here.
Disclosure: I am not a Facebook shareholder on the date of this post.
Restaurant Pain
Bloomberg recently posted a few charts that show the weakness restaurants have felt over the past few months due to less trips, lower cost groceries, more at-home meal kits and new supply exceeding population growth:
Sales growth at North American restaurants in the second quarter was the slowest since 2009
Grocery prices have declined for 10 straight months while restaurant prices increased
Restaurant growth has been outpacing US population growth
Amazon Quarter Was Anything But Weak
Despite headlines about poor profitability from Amazon, the underlying sales numbers continued to grow aggressively. Third quarter sales growth was up 29% with product sales and service sales up 21% and 50% respectively. The total net is slightly down to last quarter but the 2nd best quarter of growth over the past several years.
North America specific sales was slightly down to last quarter's growth rate with 26% whilst International total sales grew 28%, the second highest growth rate in several years.
Most noteworthy is third party sellers now account for roughly half of all unit sales on Amazon. This is incredibly important as third party sales are extremely profitable for Amazon, further fuel the product selection and require no inventory investment from Amazon. Take note that 32% of total net sales for Amazon are now driven in services.
This past quarter reminds of several years ago when Amazon reinvested all profits into further fueling the buildout of distribution centers and international expansion. As the stock has appreciated in the profitable quarters of the past two years, Amazon has ratcheted up the investments once again. That investment has led to a miss in profits in the short term with the hope for significant improvements over the longer term. Will those investment eventually payoff? I wouldn't bet against Amazon when you focus on the underlying sales strength of this past quarter.
Previous quarter recap can be found here.
Jimmy Kimmel on Amazon Stores
H/T: @whunterthomas
Surface Has Yet To Surface
Microsoft's recent renaissance has been impressive. With that said, their hardware sales still pale in comparison to bigger hardware rival Apple. Context is everything (via Jackdaw):
Online Grocery Shopping Growth
Kantar Worldpanel recently released their online grocery findings. The report included a breakdown of current online grocery shopping by country. South Korea is considerably ahead with close to 17% and the United States is under 2% as a percentage of total grocery shopping. Worldwide figures are ~4.4% with a projected rise to 9% by 2025. I personally believe that while that seems like a rapid ascent in just 9 short years, it will likely exceed 9% much sooner. With investment from the likes of Amazon and Ocado paired with offerings such as Blue Apron...Grocery is already starting to feel the effects.
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.
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.
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?
- Households are now more willing to have a couple of memberships (24.4%) and in some cases 3 memberships (8.3%).
- 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.
- 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.
Amazon's 2nd Bookstore Placement
The second Amazon bookstore is upon us. Placement within the mall sounds prime:
The San Diego shop premiered with little fanfare on Sept. 7, and is now open daily during regular mall hours. The 3,500 square-foot venue is located in the Sears wing of the upscale mall, next to the Tesla store and across from the Apple store.