September 11, 2017 Consensus

The Weekly Consensus – September 11, 2017 (Volume 9, Number 34)

The Big Story
RetailWire Discussion: ‘Okay Google, I want to order from Home Depot’
George Anderson, RetailWire

Google is on a retail roll. Home Depot announced it will join Google Express this fall, which will enable people to order products from Home Depot’s inventory using Google’s Home speaker device or mobile app. This announcement comes just a couple of weeks after a similar announcement of a Google Home tie in with Walmart.

With two of the largest retail chains in the world moving into voice orders with Google, the question becomes more a matter of “when” than “if” others will begin selling on the platform. Other retailers on Google Express include Bed Bath & Beyond, Costco, Kohl’s, Payless, Pier 1, Toys “R” Us, Ulta, and Walgreens.

Discussion Questions: Do you expect to see many more retailers on Google Express to follow Walmart and Home Depot when it comes to ordering via voice with Google Assistant? Will major retailers working with Google affect Amazon Echo’s current market share lead in voice-activated speakers?

Comments from the RetailWire BrainTrust:

Yes, I expect more retailers to follow Home Depot and Walmart’s lead on Google Express and this will eventually give Echo some healthy competition. When it comes to retailer partnerships, Google has a significant advantage over Amazon — it doesn’t compete directly with retailers.
Mark Ryski, Founder, CEO & Author, HeadCount Corporation

The Home Depot announcement is a real boon for Google as category variety and scale will be key to Google’s relevance. The backlash against Amazon is real in the retail world and retailers have viable non-Amazon options when it comes to platform partnerships. I expect that Amazon’s announcement that it is shopping for a site, and city, to call home for its latest mega distribution center is egging on the defections and alternative-exercising.
Carol Spieckerman, President, Spieckerman Retail

 

Funny how the idea of sitting at a computer and placing an e-commerce order seems old school in 2017. We are barely seeing the tip of the iceberg in terms of commerce platforms and the move to such platforms. I think Google will see many more retailers jumping on board, and I think text and chat-based commerce is also set to see big gains.
Jon Polin, Cofounder and President, StorePower

 

I think you view this as a new channel of doing business. In the same way that customers are buying from Amazon, eBay, Walmart.com and any other site, retailers need to be on these sites to ensure distribution is covered.

I think the real battle begins when marketing dollars start flowing towards voice ordering. At that point, retailers may need to choose Echo or Google, but for the time being it makes no sense not to work with Google and Amazon.

The other thing to think about is developing a stance on voice ordering. Jumping in with either Amazon or Google helps to build market inertia. Having said that, the questions are still: is voice ordering beneficial to all brands or retailers? Or is it niche to certain products?
Phil Chang, Retail Influencer, Hubba

 

I think this move signifies something interesting: namely that the battle of the platforms between the big technology players will create a lot of opportunities for retailers and will help them fight back against Amazon. In this respect, it is inevitable that more retailers will sign up.

The advantage for Google is that its Express service is more like a mall that provides a selling environment which does not really compete with the retailers. Amazon is more of a department store: a retailer can sell things there, but it has to compete with a lot of Amazon’s own stuff and possibly has to accept that it is not going to get prime position or billing.
Neil Saunders, Managing Director, GlobalData

 

Read the entire RetailWire discussion here:

Headlines of the Week

Walmart and Affirm: A match Amazon will find hard to beat

Over the last two weeks, retail has seen many big announcements. Amazon lowered prices on staple products at Whole Foods Market, and Walmart and Google unveiled their newest partnership surrounding Google Home and Google Express. While both announcements were huge in the retail world, neither one was the most important retail announcement. The most important revelation, in fact, was about a small startup called Affirm. At the end of August, news flashed across the wire that Walmart and Affirm were close to finalizing a pilot deal with each other. This is a game changer for three critical reasons: 1. Affirm was started by PayPal wunderkind Max Levchin, 2. Walmart is involved, and 3. Affirm and Walmart are a match made in heaven for budget conscious America.

Amazon is looking for a 2nd headquarter city, a ‘full equal to Seattle’

Amazon has made a name for itself as a giant in e-commerce, logistics and cloud services both for businesses and consumers. Now it’s embarking on a big move to expand its corporate presence, too. Today the company announced that it is opening a search for a city in North America to make its second headquarters, envisioned as a “full equal” to Amazon’s existing home in Seattle, Washington. At full-capacity, the site would be expected to be of similar, or even bigger, size to the Seattle operation, which today is a major cornerstone of Seattle’s business life, employing 40,000 people, covering 8.1 million square feet with 33 buildings including 24 restaurants. HQ2, as Amazon is calling the new headquarters, is expected to employ 50,000 and will get $5 billion in investment, the company said.

 

 

Apparel & Footwear

Gap Inc Is Closing 200 Stores but Opening 270 New Ones

Gap Inc. wants to be a growth company again so it’s shifting its focus to the bright spots in an otherwise challenged company. The company said on Wednesday it would close about 200 Gap and Banana Republic stores, just the latest paring of what was once a sprawling retail footprint. But in a sign of its shifting priorities, the company will also open 270 Old Navy and Athleta stores to expand of the chains within the portfolio that are excelling. Ahead of an investor update, Gap Inc said it expects Old Navy sales to hit $10 billion in the next few years and for Athleta, its fast growing activewear chain to hit $1 billion. Old Navy, which generates about 50% of company sales, hit $6 billion last fiscal year, making the sales target ambitious, while Athleta’s financial results have never been broken out.

Destination Maternity CEO out; Q2 sales slide

Destination Maternity is looking for a new chief executive. The struggling maternity apparel retailer said that Anthony M. Romano is stepping down as president, CEO and board member as part of a mutual agreement, effective Sept. 7. Romano has served in the role since 2014, and, prior to that, was president and CEO of Charming Shoppes. His departure follows the recent termination of an agreement for Destination Maternity to be acquired by France’s Orchestra-Prémaman. Allen Weinstein, an independent director of Destination Maternity, will serve as interim CEO until a permanent replacement is found.

 

Athletic & Sporting Goods

Nike Sets More Layoffs

After laying off 255 employees in Oregon in July, Nike Inc. told the state it is scheduled to lay off an additional 490 by the end of September.  The state Office of Workforce Investments/Higher Education Coordinating Commission received a notice on September 1 from Nike regarding the layoffs of workers that are not represented by a union, according to the Beaverton Valley Times.  The move is part of a “mass layoff that began with the separation of approximately 255 workers in July,” the company said in the document.  In June, Nike revealed it would cut 2 percent of its global workforce, estimated at about 1,400 employees as it undergoes a corporate restructure to get products to customers faster and selling to them directly.

 

Bass Pro purchase of Cabela’s clears its likely final hurdle as Fed approves bank buy

Cabela’s looks to have less than a month left as a stand-alone, Nebraska-based company.  The Federal Reserve cleared the way for a Georgia bank to acquire Cabela’s credit card operation, removing the last hurdle for a Bass Pro Shops takeover of the homegrown outdoors retailer.  Bass Pro is set to buy Cabela’s retail business for $5 billion. The Fed’s approval cut it close: Oct. 3 was the merger deadline, after which all parties could have walked away from the deal or renegotiated the terms.

Cosmetics & Pharmacy

Vitamin World Says It Will File for Bankruptcy Protection

Vitamin World, a seller of vitamins and nutritional supplements, plans to file for Chapter 11 bankruptcy, hoping to end costly lease agreements for some of its stores, the company’s chief executive officer said.  Long Island, New York-based Vitamin World plans to file bankruptcy in order to exit real estate leases that were negotiated by its previous owners.

The vitamin seller, which has about 345 stores, plans to file bankruptcy as soon as this month, people familiar with the plans said. Private equity firm Centre Lane Partners acquired Vitamin World from global vitamin maker NBTY Inc last year for about $25 million. NBTY sold the business because it had shifted to investing in its core brands, such as Nature’s Bounty and Sundown Naturals, found in major retailers across the U.S.

Fred’s Posts Net Loss in Q2, Names New Chairman

Fred’s Pharmacy posted its financial results for its second quarter and the six-month period, both of which ended July 29 and saw the company posting net losses, as well as a dip in net sales. The company also appointed a new chairman, naming Heath Freeman to the position as Tom Tashjian retires, effective immediately. For the second quarter, Fred’s saw a net loss of $29.5 million, which included a total of $30.1 million in charges after tax.

 

Discounters & Department Stores

Hudson’s Bay eyeing possible buyout: activist investor

Hudson’s Bay Co.’s board of directors has hired – or is hiring – J.P. Morgan to advise it on strategic options including going private, a U.S. activist investor in the retailer suggests.

And Toronto-based HBC’s management has hired Bank of America to look into a possible buyout and privatization of the retailer, investor Land & Buildings Investment Management LLC believes. In a statement responding to HBC’s weak second-quarter results, the activist investor lashes out at HBC for its “lack of urgency in addressing deep undervaluation.”

Macy’s, Target Unleash New Fashion Campaigns

While fall fashion campaigns are an inevitable part of many retailers’ playbooks, new campaigns from both Macy’s and Target are playing with much higher stakes this year. Macy’s needs to snap its long-running sales slump, and Target is out to prove that new private-label lines are recapturing its old magic. With Macy’s Presents The Edit, the struggling department store highlights just how different the ritual of getting ready is for each person. The video for the season’s looks draws on the It List compiled by the retailer’s fashion pros, with an emphasis on bold patterns, luxe fabrics and fierce makeup. Many of the featured fashions are from Macy’s private-label lines.

 

Department store operator Bon-Ton turns to turnaround advisers -sources

U.S. department store chain Bon-Ton Stores Inc. is hiring advisers to help it turn around its business and slash its debtload, as it struggles to cope with the sector’s downturn, according to people familiar with the matter. The move underscores the woes of the bricks-and-mortar retail sector, which has been plagued by numerous bankruptcies this year as consumers increasingly move their spending to e-commerce companies such as Amazon.com Inc. Bon-Ton has tapped advisory firm AlixPartners LLP to provide operational advice on its turnaround efforts, and is also interviewing banks to appoint an advisor to review strategic options including debt restructuring, the sources said.

 

Grocery & Restaurants

Fatburger owner kicks off ‘mini-IPO,’ uses funds to buy Ponderosa

FAT Brands Inc., the owner of Fatburger and Buffalo’s Café, has agreed to buy the owner of Ponderosa and Bonanza steakhouse brands for $10.5 million, the company said on Wednesday. The announcement came on the day the company kicked off what’s known as a “mini-IPO,” pricing its newly minted stock at $12 per share in a bid to raise $24 million. The proceeds will be used to fund the acquisition of Homestyle Dining LLC.

 

Starbucks sued over Teavana closures

Starbucks Corp. has agreed to delay the closure of at least 78 of its Teavana locations after a big mall developer sued the coffee company over the planned shutdown. Simon Property Group, L.P., earlier this month filed a lawsuit against Starbucks, seeking to prevent the closure of the locations.

 

Kroger rides out a storm, competitive and meteorological

Intense competition at all grocers dragged on profits for Kroger during the second quarter and investors appeared nervous about the company’s outlook, which did not account for hurricanes pounding states along the U.S. coastline. Shares, already down nearly 30 percent over the past 12 months, slumped 6 percent in early trading Friday. The company has been slashing prices to compete with Target and Wal-Mart, and the situation recently grew potentially more precarious. Amazon.com Inc., a major disruptor in any sector it enters, acquired Whole Foods in June and cut prices on a number of items, like avocados, almost immediately.

Home & Road

At Home Beats Q2 Estimates; Raises Sales Outlook

At Home Group is on a roll — and then some. The fast-growing, value home decor retailer reported its 14th consecutive quarter of same-store sales increases and 13th consecutive quarter of over 20% net sales growth.  In the second quarter ended July 29, At Home’s net sales increased 23.2% to $232.1 million, from $188.4 million in the year-ago period.  Same-store sales rose 7.8%.  Net income totaled $9.5 million, compared to $6.3 million in the second quarter of fiscal 2017. “Customers continue to respond positively to our trend-relevant assortment of home décor at a compelling value, driving growth in both new and existing stores across a wide range of geographies, price points, everyday and seasonal merchandise,” said Lee Bird, chairman and CEO of At Home Group.

Conn’s Swings to a 2Q Profit, But Sales Slump

Conn’s moved to a profit in its fiscal second quarter, but sales continued to slump due in part to “softness in consumer spending,” and tighter lending standards. And with Hurricane Harvey cutting into sales and collections starting in late August and uncertainty over the storm’s impact continuing, the company said it will not provide third quarter financial guidance but would resume the practice when its announces third quart results in December. The 116-store furniture, electronics and appliance retailer posted net income of $4.3 million, or 14 cents per share, for the quarter ended July 31, up from a net loss of $11.9 million, or 39 cents per share, for a same period a year ago.

Restoration Hardware Crushes Earnings and Raises Guidance

Restoration Hardware announced a forecast for third-quarter and full year adjusted earnings that flew past its previous expectations, sending its shares sharply higher in extended trading.  The high-end furniture retailer said it saw third-quarter earnings in a range of $0.68 to $0.80, beating the forecast for $0.38 according to Bloomberg. For the full-year, RH said it sees earnings of $2.43 to $2.67, handily beating its previous estimate of $1.67 to $1.94. “While we continue to expect strong revenue growth, expanding operating margins, and significant free cash flow in the second half of fiscal 2017, we are taking a cautiously optimistic approach to our outlook given the uncertain macro environment in addition to the many initiatives and investments we are undertaking,” Gary Friedman, RH chairman and CEO said in the earnings statement.

Jewelry & Luxury

Most Retailers Won’t Sell Synthetics Anytime Soon

More than half of retailers will not sell synthetic diamonds in the coming year, according to the results of a survey by the Diamond Producers Association (DPA). Some 61% of retailers who took part in the survey said they would “absolutely not” sell synthetics over the next 12 months, the DPA said. “There’s growing awareness [in the industry] that you need to be careful before you embrace the synthetic-diamond category — that you do it in a way that will not impact your high-value natural-diamond business,” said Jean-Marc Lieberherr, CEO of the diamond marketing organization.

Silicon Valley is on a quest to grow the perfect diamond

For centuries, people have gone to great lengths and extraordinary costs – from the baked Namib Desert to the ice-locked Canadian tundra – to pull diamonds out of the Earth, endlessly searching for the dead volcanoes that thrust those transmuted carbon relics from the planet’s core and into a special place in our imaginations. But one no longer has to go so far, or get very dirty, to find diamond. In a bright, well-lit, key-carded clean room not far from San Francisco International Airport, on a non-descript street of low-rise logistics and light-industrial warehouses, a diamond is being created before my eyes. Well, not quite before my eyes – the light would be too intense – but inside a reactor.

 

Office & Leisure

Staples finalizes its sale, beginning a new chapter

The end of a 28-year run as one of the premier public companies in Massachusetts came quietly for Staples Inc., in a perfunctory vote approving its nearly $7 billion sale to a private equity firm. For shareholders who’ve endured a decade of diminishing returns, their approval Wednesday seemed like a concession that a new owner can, without the prying eyes of Wall Street, reclaim the glory of what was once among the business world’s dominant companies. Business specialists said Staples basically had few options: Facing competition from Amazon and unable to acquire a longstanding rival, Staples management needed the freedom that a private owner can provide to think long term. Chief executive Shira Goodman’s current strategy is to further streamline Staples’ retail operations and concentrate instead on business customers by bulking up its sales force.

 

Lego to cut 1,400 staff as decade-long sales boom ends

Lego said it would lay off 8 percent of its staff and revamp its business after reporting its first fall in sales in more than a decade. The Danish toymaker announced a 5-percent decline in mid-year revenue a month after abruptly removing its chief executive, suggesting it is facing its biggest test since flirting with bankruptcy in the early 2000s. Lego said it could not promise a return to growth in the next two years, a jolting acknowledgement for a group widely admired for embracing the digital era and tying up lucrative franchises from Harry Potter to Minecraft. “We have now pressed the reset-button for the entire group,” executive chairman Jorgen Vig Knudstorp said, acknowledging the business had grown too complicated.

Barnes & Noble Is Falling Further Behind Amazon

It was hard to find much to cheer about in Barnes & Noble’s latest batch of financial results. The bookstore chain reported yet another decline in comparable sales at its stores, said fewer people are coming to stores and forecast soft business for the coming quarter. Total comparable sales fell 4.9% during the period. Activist investor, Sandell Asset Management, has urged the retailer to do more to turn itself around and consider putting itself up for sale. On one key retail metric after another, Barnes & Noble continued to fare poorly: online sales, shopper traffic, comparable sales of books and comparable sales of non-books. This bleak picture comes at a time Barnes & Noble is contending with arch-rival Amazon’s growing physical footprint and the increasingly strong hold its Prime loyalty program has on customers.

Technology & Internet

Juicero, Start-Up With a $700 Juicer and Top Investors, Shuts Down

From the moment it started, Juicero stood out as a symbol of Silicon Valley’s insular excess. The company sold a $700 Wi-Fi-enabled juicer, trying to solve a problem that did not exist. It also raised some $120 million, and attracted a mountain of attention. But on Friday, the company said it was shutting down operations — joining the hordes of other Silicon Valley start-ups that could not deliver business results to match the hype.

 

MatchesFashion Sells at Reported $1 Billion Valuation

Private equity firm Apax Partners has acquired a majority stake in MatchesFashion in a deal that valued the company at a reported $1 billion. The news follows reports of a fierce bidding war for the luxury e-tailer, which attracted interest from Apax, Bain Capital, KKR and Permira. MatchesFashion founders, Tom and Ruth Chapman, as well as existing venture capital backers Scottish Equity Partners (SEP) and Highland Europe, will retain minority stakes in the business.

 

Finance & Economy

How Hurricane Harvey Will Ripple Through the U.S. Economy

Hurricane Harvey will distort measures of the U.S. economy in weeks and months ahead. Everything from jobless claims, which already surged in a report on Thursday, to gross domestic product and inflation, will be knocked off course by the storm.  The storm will make it difficult for economists to gauge the trajectory of the economy, with brief spikes across a wide range of reports. It will be hard to discern whether bad reports result from storm damage and then whether good reports owe to the effects of rebuilding. It could be well into 2018 before the storm’s effects have fully washed out of the economic data.  Estimates of the storm’s national economic impact remain preliminary — and Hurricane Irma could exacerbate the effects. Beginning this week, a growing number of economic indicators will show Harvey and Irma’s impact, from jobless claims, to inflation, to retail sales, to housing starts and beyond.

 

Higher consumer spending underpins euro zone strong growth

The euro zone economy grew at a robust pace in the three months to June, driven mostly by higher domestic demand and investment.  The European statistics office Eurostat said the euro zone’s expansion picked up speed in the second quarter, with the economy growing 0.6 percent compared with the previous three months. That was in line with previous estimates and market expectations and up from a 0.5 percent rise in January-March.  The acceleration was driven by growing consumer spending and investment, with the economy shrugging off slower export growth as a result of the strong euro.