The Big Story
The Pay-Off of Mobile Payments
Matthew Wilk and Bo Berluti
An interesting irony about the retail world today is that one of the most cutting-edge technological advancements taking place isn’t happening online, it is happening in stores. This new technology enables more streamlined transactions, it appeals to young people, it can be used to engender customer loyalty, and increasing numbers of companies are investing in it. Mobile payment options are changing how people shop, and the retail world is taking notice.
Mobile payment options such as Apple Pay, Google Wallet, customer loyalty apps, and Paypal enable customers to use their phones to complete transactions instead of producing a credit card or cash. Apps are usually linked to a preexisting credit card or debit account, and customers can either scan their phones or use near-field-communication between their phones and the cash register to pay. Mobile payment options appeal to consumers because they are convenient, and to retailers because they can be used to deepen customer loyalty and drive revenue.
One convenience of mobile payment options, and an advantage over credit cards, is speed. Credit cards with chips take an average of eight to 12 seconds just for processing, according to JDA Software Group. This does not include the time it takes a shopper to pull out his or her wallet and find their card. Mobile payments, on the other hand, take just seconds. This may not seem like an important amount of time, but for increasingly demanding modern shoppers, these second can be the difference between a positive and negative shopping experience. Certain mobile payment apps offer additional conveniences. For instance, customer loyalty apps can offer mobile ordering, cataloged order history and useful information, and banking-geared apps such as Venmo can simplify sharing or splitting payments among friends and eliminate the need for checks and cash.
Mobile payment options are useful to companies as well. Loyalty apps can influence how customers shop and drive incremental revenue for businesses. For example, Starbucks and Dunkin Donuts have developed apps through which customers preload a balance and scan their phones at checkout. The app enables users to make mobile orders and receive promotional offers. Dunkin Donuts offers a free coffee after roughly $40 in purchases. Assuming an average retail price of $2, this equates to a 5% discount. This is an additional cost for Dunkin, but likely results in increased customer loyalty and incremental orders.
Mobile payment solutions can also provide companies with new ways to drive sales. One such revenue driver is pre-paid balances. For example, Starbucks and Dunkin require customers to preload a balance on their apps, meaning shoppers have to pay up front, usually in increments that are larger than one typical transaction. These pre-loaded balances allow the companies to generate revenue in larger chunks, as they prompt customers to front-load multiple transactions worth of funds at a time.
Amazon is using its digital payment solution, Amazon Pay, to generate revenue in another way. Amazon Pay, which Fung Global estimates has more than 33 million users, allows customers to use their Amazon account information to check out with certain online vendors. For processing the transaction, Amazon charges the vendors $0.30 plus a processing fee of 2.9%. In this way, Amazon is inserting itself into transactions and making a fee, much like a credit card company. Amazon is currently developing a mobile version of Amazon Pay, Amazon Pay Places, which will allow customers to use their account information for checkout in physical stores.
Many observers blame the current dislocation in brick and mortar retailing on advances in technology. While there is an element of truth to that argument, mobile payment solutions show that not all technologies are bad for stores, and select innovations may help retailers do a better job of giving customers what they want. Certain retailers may view new forms of technology with caution, but we can really only think of one kind of store that should fear the mobile payment revolution: those that sell wallets.
Headlines of the Week
Walmart is deploying technology that allows shoppers to purchase items in-store without waiting in line or paying at a register, in a reminder to Amazon that competing with the giant retailer on its brick-and-mortar turf will be no easy feat. Walmart’s “Scan & Go” app allows shoppers to scan barcodes of items they want to purchase and then click a button to pay using their smartphones. They simply have to show a digital receipt to a Walmart greeter on their way out. Shoppers without smartphones can use hand-held scanners provided in-store. Shoppers who don’t want to link their credit cards to the app can still use it to scan items. When they’re done, they can show a barcode to a cashier and pay without going through the full checkout process.
Payless ShoeSource has emerged from bankruptcy — with a slimmed down U.S. portfolio and a cleaner balance sheet. The company announced that, following the completion of its restructuring, Paul Jones will retire as CEO. The board will begin a search to identify a new chief executive and in the interim, Payless will be led by a newly appointed executive committee comprised of company’s CFO, Michael Schwindle, and COO, Mike Vitelli, and Martin R. Wade, III, chairman of Payless’ post-emergence board and interim CEO. Payless, which filed for Chapter 11 in April, has closed approximately 700 stores during bankruptcy and now has about 3,500 stores around the globe. It also eliminated in excess of $435 million, roughly half, of its funded debt.
Apparel & Footwear
Taiwan-listed Roo Hsing pocketed JD United, which has 25 manufacturing facilities across Asia and Africa. Following the deal, textile company Roo Hsing will have revenues of more than $500m and becomes one of the world’s largest denim manufacturers. JD United will be the first exit by private equity firm EmergeVest, which also owns UK pallet distributor Palletforce and logistics group NFT Distribution. The Hong Kong-based firm, which focuses on complex businesses or situations, has made around two-times its money invested on the sale of JD United. The business also designs and creates garments, as well as suppling materials.
The classic clog was credited for “solid growth” in the second quarter of 2017 at Crocs Inc., but the Niwot shoemaker said today its revenues were down compared to this time last year. Crocs was able to cut its expenses to $140.4 million, down from this time last year when expenses were $149 million, down 5.8 percent. Expenses were down because the company has closed stores with plans to close a total of 158 over the next two years — which is equal to about 25 percent of the company’s stores. “The right sizing of our store fleet, operational efficiencies, and a disciplined approach to expense management, coupled with some timing and approximately $1 million in recovery of bad debt previously reserved for in China, contributed to this improvement,” the report says.
Athletic & Sporting Goods
Founded in 2009, Strideline has built a robust business that sells high-quality sports socks with unique designs featuring city skylines, 250-plus NCAA team logos, and more. But now the company, started by University of Washington fraternity brothers and lifelong friends Riley Goodman and Jake Director, is taking it up another notch. Strideline just inked a licensing deal with the NFL Players Association, allowing the startup to create socks with NFL player names and photos.
It was a frantic week for the uni-verse, as the NBA’s changeover from Adidas to Nike led a slew of teams to unveil their new uniforms — sometimes with a few days’ notice, sometimes with none — all of which resulted in a frenzy as fans tried to keep up with the latest news. Last Thursday alone, three teams unveiled new uniform sets. We’re going to take a look at the new designs, including new advertisement patches, here.
Cosmetics & Health
CVS Health has reported its second quarter results, reporting $45.7 billion in net revenues — a 4.5% increase for the quarter ended June 30, driven largely by strong business in its pharmacy services segment, which includes its mail-order and specialty pharmacy services under its CVS Caremark pharmacy benefits manager. The company’s retail/long-term care segment performed in-line with its expectations. Net revenues in the company’s retail/LTC segment hit $19.6 billion in Q2 — a decrease of 2.2% over the same quarter last year. The company attributes the revenue decline to a 2.6% decrease in comparable-store sales, increased generic dispensing and reimbursement pressure.
Diplomat Pharmacy is transitioning into new leadership as it moves into the last half of its fiscal year. Alongside its Q2 earnings report, the company on Monday appointed Joel Saban president, effective Aug. 7, as Paul Urick departs the company to pursue other interests. Urick will stay on as president emeritus during a 90-day transition period. Saban will be tasked with navigating the company’s roadmap and driving growth — which continues steadily, according to Diplomat’s second quarter earnings. For the quarter ended June 30, Diplomat increased its revenue 3.5% to $1.13 billion.
Discounters & Department Stores
Target is getting more pet-friendly as it extends its partnering initiatives with popular online retail brands. Starting August 13, Target will sell toys and treats online and in its stores from Bark, the company that operates subscription-based online pet supplies retailer BarkBox. It’s the first time Bark products will be available in retail stores. Based in New York City, Bark launched in 2012 and has shipped over 50 million products to date. The brand, which reached profitability in the first quarter of 2017 and will surpass $150 million in revenue by the end of the year, is known for its fun and quirky toy and all-natural treat lines.
Major US department stores from Macy’s to Kohl’s mostly delivered better-than-expected Q2 results last Thursday, but results of a single quarter can’t mask the challenges still facing the sector. While topping expectations, Macy’s same-store sales fell 2.8%, the 10th straight quarterly drop. At Kohl’s, they dipped 0.4%, following drops in at least each of the past five quarters. While Nordstrom delivered a surprise positive same-store sales gain of 1.7%, led by the 3.1% increase in its discount Nordstrom Rack chain, the increase also followed declines in at least four of the past five preceding quarters. The one notable disappointment, Dillard’s, swung to a surprise loss after the company had to increase profit-eroding discounts.
Grocery & Restaurants
Sprouts Farmers Market might be the most viable acquisition target among publicly traded food retailers, as one analyst recently wrote, but there is just one problem: Who would buy the company?
Garden Fresh Restaurant Corp. has been acquired by two private-equity groups just seven months after the parent to the Souplantation and Sweet Tomatoes brands was sold out of bankruptcy, the companies said Monday. The 97-unit San Diego, Calif.-based salad chain was acquired by Washington, D.C.-based Perpetual Capital Partners and CR3 Capital LLC, an investment affiliate of Dallas-based CR3 Partners LLC. Terms of the deal were not disclosed. In January, Cerberus Capital Management LP acquired Garden Fresh out of bankruptcy. Cerberus was among several lenders to which Garden Fresh owed more than $175 million, according to bankruptcy filings.
Landry’s Inc. won the bankruptcy court auction Monday for Ignite Restaurant Group Inc., CEO Tilman Fertitta told NRN. A judge must approve the sale in a bankruptcy court hearing, which is scheduled for Aug. 17 in Houston. The Houston-based parent to the Joe’s Crab Shack and Brick House Tavern + Tap chains filed for bankruptcy protection June 6 with a $50 million “stalking horse” deal in place with Kelly Investment Group, which bought Champps and Fox & Hound out of bankruptcy last year. However, Fertitta’s company, Houston-based Landry’s, later made a $55 million bid for Ignite’s assets in U.S. Bankruptcy Court for the Southern District of Texas.
Fidelity National Financial Inc. said its private-equity subsidiary, Fidelity National Financial Ventures LLC, parent of the 106-unit casual-dining chain Ninety Nine Restaurant & Pub, would merge that company with J. Alexander’s Holdings Inc. J. Alexander’s Holdings operates 19 J. Alexander’s locations, 12 Redlands Grills, 12 Stony Rivers and the single-unit Lyndhurst Grill, all of which are upscale casual-dining restaurants. The Nashville-based company operates restaurants mostly in the Southeast and Midwest.
Home & Road
With the number of active consumers up more than 40% year over year, Wayfair reported strong sales growth for the second quarter. For the period ended June 30, total net revenue was $1.1 billion, up 42.7% from the comparable quarter the previous year. Net loss for the quarter was $38.9 million, down from a net loss of $48.3 million in the second quarter of 2016. The company reported that the number of active customers in its direct retail business reached 9.5 million as of June 30, an increase of 43.1% year over year. Repeat customers placed 61.3% of total orders in the quarter, up 3.7% from the second quarter of 2016.
Looking for a bright spot in those largely negative figures recently released by the International Sleep Products Assn.? Check out the average unit prices, which are up.
The second quarter unit and dollar shipment figures recently released by ISPA are mostly in negative sales territory. But there were two bright spots: The average unit price for mattresses jumped 4.4% in the second quarter, to $387.69. That was more than strong enough to offset a 16% decline in the average unit price for foundations, lifting the industry sample to an overall average unit price increase of 1.3%, to $246.18.
Jewelry & Luxury
It’s beginning to sound like a broken record for this retailer. Fossil Group shares plunged after the watchmaker reported a sharp loss last Tuesday, and announced the departure of Chief Financial Officer Dennis Secor. Shares fell 26 percent in early trading Wednesday, following steep sell-offs in the past two quarters as business continued to deteriorate. Fossil reported that it swung to a second-quarter loss of $344.7 million, or $7.11 a share, from a profit of $6 million, or 12 cents a share, a year earlier.
Women are buying themselves more jewelry, the team at Lyst, the world’s largest fashion search platform, has found. Whether it’s the result of increased female agency, greater economic empowerment, or the ease and temptations of online shopping and social media, “the percentage of women compared to men on Lyst who purchase women’s jewelry has increased 14% from 2016 to 2017,” Sarah Tanner, Lyst’s US Public Relations Director, says. “I’ve started calling it the ‘treat yo-self’ trend,” she jokes.
The Investigative Committee of the Russian Federation has launched a criminal probe into last Friday’s flood at an Alrosa diamond mine, where eight workers are still missing. The federal authority is looking into whether there were violations of safety rules at the Mir mine in the Yakutia region, according to a Russian-language statement the committee issued Monday. The accident happened when water rushed into the underground mine after a sharp deterioration in mining and geological conditions, Alrosa reported on Friday. Rescue teams have lifted 143 miners to safety, out of 151 who were inside the deposit at the time of the flood. As of last Tuesday morning, more than 330 rescuers were still hunting for the remaining eight staff members, the miner said.
Office & Leisure
At the end of last year, when longstanding Lego chief executive Jorgen Vig Knudstorp vacated the position to head up the new Lego Brand Group umbrella company, chief operations officer Bali Padda was installed in the toy company’s CEO space. Now Padda, a 61-year-old British businessman who was the first non-Dane to lead Lego in its 85-year history, is himself being replaced. After just eight months in the position, Padda is stepping aside to let 51-year-old Niels Christiansen take over. Christiansen was until this year the CEO of Danish industrial manufacturer Danfoss, which he led for nine years.
A million square feet here and a million square feet there, and pretty soon you’re talking about — Hobby Lobby, which just started yet another nearly 1 million-square-foot warehouse near its corporate headquarters. When the new distribution center at 6701 SW 44 is finished a year from now, Hobby Lobby Stores Inc. will own nearly 10.5 million square feet of warehouse space, including a small percentage of office space in each structure, in industrial southwest Oklahoma City. That’s 241 acres, indoors, enough for 185 football fields. Hobby Lobby ended 2016 with nearly 750 stores in 47 states, well on its way to a long-term goal of 1,000. Creditintell said the privately held company, which is affiliated with the Mardel Christian & Education and Hemispheres chains, had estimated revenue of $4.3 billion for 2016, an 8 percent increase compared with the previous year.
Technology & Internet
When you go to Amazon.com, what are you looking for? Products from the brands you recognize, or perhaps just the cheapest ones—assuming the ratings aren’t terrible? After decades of selling products—and knowing exactly what people are buying, and when they are buying it—Amazon has started cutting out the middle-man by selling self-produced items.
Chinese gadget-maker Eufy announced the Genie on Wednesday, a copycat of the Amazon Echo Dot that will ship with Amazon’s smart Alexa assistant and will cost even less than the Dot. Stranger still — Amazon fully supports the company, which is a sub-brand of the more familiar “Anker,” best known for portable battery packs. This is Amazon’s strategy to expand Alexa into more gadgets and places than other smart home assistants, such as Siri and Google Assistant, in the race to bring AI into the home. The more partners selling devices, the more folks are using Alexa. It just goes to show that, despite the popularity of Amazon’s Echo products, hardware isn’t always Amazon’s focus — services are.
Finance & Economy
The dollar shook off early weakness to rise to more than a one-week high last Tuesday, after data showing U.S. job openings surging to a record in June reinforced the previous Friday’s robust payrolls data. The Labor Department said on Tuesday that job openings, a measure of labor demand, increased 461,000 to a seasonally adjusted 6.2 million, the highest since the series started in December 2000.
The productivity of U.S. workers accelerated a bit in the second quarter as economic growth accelerated, though it remains well below historical average. Productivity — or how many goods and services U.S. workers produce per hour — rose at an annual rate of 0.9% in the second quarter from the prior three months, the Labor Department said Wednesday. This is up from a 0.1% rate in the first quarter.