The Big Story
RetailWire Discussion: Amazon Go Plans to Transform Convenience in Retail Stores
George Anderson, RetailWire
It’s been nearly a year since Amazon.com opened its first Amazon Go convenience store. While the beta version of the concept, which was initially supposed to open earlier this year, took longer than expected, Amazon Go is now ready for its coming out party, Bloomberg reports.
The 1,800-square-foot store, which operates without checkouts, uses sensing technology that identifies customers who scan their Amazon Go mobile app as they enter the location. When a shopper takes products from the store’s shelves, the items are automatically added to the customer’s virtual shopping cart. If they put something back, the item is removed from the virtual cart. When customers leave the store, Amazon bills their accounts and sends a receipt to the app.
Amazon Go features everyday staples, such as bread and milk, as well as ready-to-eat meals and snacks made fresh by on-site chefs and local suppliers. Customers can also pick up Amazon Meal Kits with all the ingredients needed to make a meal for two in about half-an-hour.
With checkout-free stores, Amazon Go intends to eliminate one of the key customer pain points at retail. In March, The Wall Street Journal reported that Amazon had delayed the opening of the concept after discovering the store’s technology would malfunction if large numbers of customers were on the premises. Amazon’s management, apparently, now believes it has worked out those issues sufficiently enough to move ahead with Go’s public unveiling.
Bloomberg reports that Amazon has shifted from hiring engineers and research scientists for the project to construction managers and marketers, another sign that it is ready to roll out the concept to more locations. How quickly Amazon Go ramps up or whether its “just walk out” technology will be exported to Whole Foods is not yet clear. The Verge reports that regulators in the UK and Europe have approved a trademark request for the concept, suggesting that Amazon’s ambitions extend beyond the borders of the U.S.
Discussion Questions: Will Amazon Go be a success? Does the fact that Amazon took a year to move past the beta stage make you more or less confident in the concept? Do you expect Amazon to roll out the technology behind Go to Whole Foods, as well?
Comments from the RetailWire BrainTrust:
While the progress Amazon is making with Go is encouraging, this is still bleeding-edge technology that will take time to perfect. Consider how long it’s taken to make self-checkout work — and it still has challenges. There’s no doubt that we are seeing the future of transaction processing with Amazon Go, but I suspect the reality for the broad adoption and penetration of this type of technology is still many years away.
Mark Ryski, Founder, CEO & Author, HeadCount Corporation
The bigger story is the closing down of Amazon Fresh in some markets along with the Whole Foods buy. It tells us that stores are necessary in grocery (especially fresh). But I cannot believe for a second that the Go concept is a winner. Unless you don’t care about margin erosion caused by shrink. Then, hey … Go for it.
Paula Rosenblum, Managing Partner, RSR Research
I’m certainly not less confident. It’s totally normal for a tech-first company to stay in beta phase with a new product for a long time. In fact, I believe that Gmail — Google’s email service — was in beta for more than a decade. I expect the same to be the case for Amazon Go. It will likely stay in “beta” for a number of years to come yet. All that means is that Amazon is still refining how it works. These type of delays are only a cause for concern when the parent company doesn’t have sufficient capital runway to invest in experimentation — when the lack of a quick result means that the company has to cut back, so that the product or service never has the breathing space to develop. That is not the case for Amazon. They have more than enough cash to continue experimenting until they are fully happy.
Stuart Jackson, Managing Director, Regency Analysis
Amazon has much to lose from a poorly implemented version of this technology. In profits (shrinkage as others mentioned), poor customer experience (incorrect receipts if the tech is wonky) and all the backlash that follows those outcomes from the press or investors. So the fact that they’ve taken some time to work further on the Just Walk Out technology signals that it may come to market as fairly mature and less prone to errors.
Kiri Masters, Founder and CEO, Bobsled Marketing
The future is kind of here … For the on-the-run grab-and-go shopper Amazon Go should score big points, for the price-savvy shopper I expect them to go elsewhere. There will always be issues with tech at retail and what Amazon has learned in a year would probably have taken a traditional grocer 10 years, and that is not to insult grocers, it’s just the R&D around this type of innovation is lacking across the industry. I’m curious to see how this technology would do in a grocer like Whole Foods or a Kroger where there are over 20,000 SKUs and everything is spread out, fortunately, I have a feeling I won’t have to wait long. I hope this catches on — as mentioned above, checkout lines are always at the top of the list of shoppers’ pain points and this tech alleviates that.
Seth Nagle, Senior Marketing Manager, RW3
Headlines of the Week
The mobile trend that started early on Black Friday continued throughout the day, with Adobe Inc. finding that nearly $1.9 billion in revenue came from mobile devices on what has historically been the busiest day for the U.S. retail industry, a 16.9% increase over last year. That means mobile accounted for 36.9% of Black Friday’s record-setting $5.03 billion in online revenue. More than $1.3 billion of those online sales came from smartphones alone, comprising 26% of total online revenue. The $5.03 billion in total online sales for the day after Thanksgiving is up 17.0% from $4.30 billion that Adobe measured in 2016. While Black Friday set another record, Adobe still predicts Cyber Monday online sales will be higher, at $6.6 billion.
Apparel & Footwear
Guess?, Inc. was founded in Los Angeles nearly 40 years ago with its eye on the U.S. consumer, but its weakest market now is the United States and the Americas region.
In the past two years, since Victor Herrero was named the company’s chief executive officer, business has been improving at a strong pace in Europe and Asia. But the Americas remains a challenge. During a conference call on Nov. 21 highlighting the venture’s third-quarter results for fiscal 2018, Herrero noted that the 60 store closures announced earlier this year will now turn into 70 outposts—with most of those doors in the United States. The company already made a $22 million up-front payment to a common landlord—with $12 million recognized as net losses on lease terminations and $10 million in advance rent payments. “Also, as more than half our leases will expire in the next three years, we have a lot of flexibility to close stores and further improve our profitability,” the CEO said.
Greg Tunney, president and CEO of RG Barry Brands Inc., is stepping down from both roles, effective immediately. Tunney, a 12-year veteran of the Pickerington, Ohio-based company best known for its Dearfoams slipper collection, will continue to work with its board of directors in the role of senior adviser. In December, Tunney will also assume the post of chairman of the Two Ten Footwear Foundation. Tunney isn’t fully stepping away from the shoe business. After taking a break to spend time with family, he will take on a new role at a footwear and accessories firm. For right now he has declined to name the company. During Tunney’s tenure at RG Barry, the firm transitioned from being a public company to a private one and acquired the Baggallini bag line and the Footpetals footwear accessories brand.
Athletic & Sporting Goods
Under Armour Inc.’s footwear chief has stepped down, the latest executive departure as the sportswear maker continues to work through a restructuring plan. A spokeswoman for the Baltimore company said that Ryan Drew has succeeded Peter Ruppe as senior vice president of the brand’s footwear division. Drew was previously a vice president and general manager of Under Armour’s basketball division. Ruppe had previously spent 25 years at Nike Inc. and joined Under Armour two years ago to help grow its footwear sales. But Under Armour has since slumped. Its sales have slowed, including most notably in its footwear segment. CEO Kevin Plank has said footwear will be one of the primary drivers of Under Armour’s future growth, but shoe sales grew just 2 percent to $285 million in the third quarter.
Maurice Sporting Goods, Inc., one of North America’s largest distributors of outdoor sporting goods, announced that it has reached a definitive agreement to sell its assets to Middleton Partners. To facilitate the transaction, Maurice and its subsidiaries today filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Middleton Partners, a private investment firm with deep experience investing in distribution and consumer products businesses based in Northbrook, Illinois, has signed a letter of intent to purchase Maurice as a strategic buyer and is currently finalizing an Asset Purchase Agreement. In accordance with Section 363 of the U.S. Bankruptcy Code, other companies will have an opportunity to submit competing offers for the assets.
Cosmetics & Pharmacy
AmerisourceBergen will be acquiring H.D. Smith. for $815 million in cash. The Springfield, Ill.-based H.D. Smith has been in business since 1954, and currently operates 10 distribution centers across the country, which provide full-line distribution of branded, generic and specialty drugs, the companies said. H.D. Smith’s customers include retail pharmacies, specialty pharmacies, long-term care facilities, hospital systems and independent doctors and clinics.
Discounters & Department Stores
After being one of the few retail bright spots for several years coming out of the great recession, off-price department stores such as Macy’s Backstage and Nordstrom Rack appear to be reassessing their business models and making changes to their location strategies following several quarters of declining sales. Kroll Bond Rating Agency (KBRA) KBRA recently took a closer look at the sector following posted declines in same store performance this year. The ratings firm noted several contributing factors for the recent sales declines. For one, retailers rushed to open more off-price stores when demand was strong leading to the sector being “over-retailed” and prompting more competitive pricing and discounting within the sector.
Jeff Gennette, who’s been with Macy’s for three decades, was promoted to chief executive officer this spring, and has heard all your complaints about his stores, assuming you still shop there. He’s cautious about offering opinions, less of a public figure than his voluble predecessor, Terry Lundgren, and calm as he faces what’s become known on Wall Street as the retail apocalypse. With a few exceptions, stores everywhere are hurting—especially department stores such as Macy’s. Gennette has one of those increasingly familiar corporate career arcs: He worked himself to the top only to find that he’s on the edge of a cliff.
Grocery & Restaurants
Nestle SA is among companies exploring a purchase of Hain Celestial Group Inc., a U.S. maker of organic and vegetarian food, according to people familiar with the matter, as the Swiss giant seeks to expand into healthier fare. The Vevey, Switzerland-based company has held preliminary talks about purchasing all or parts of Hain Celestial, the people said, asking not to be identified as the details aren’t public. Other companies, including U.S. food makers and buyout firms, are also interested in Hain Celestial. Hain Celestial said in September it’s working with advisers to explore strategic alternatives.
Yo! Sushi, a London-based conveyor-belt sushi chain owned by investment firm Mayfair Equity Partners, has purchased Bento Sushi, North America’s second largest sushi company, for CA$100 million, around $78 million, the companies said Monday. Bento Sushi operates more than 600 locations, mostly in Canada but with some in the United States, in various formats, including quick-service restaurants and kiosks in supermarkets. It also supplies sushi to an additional 1,700 sites, including supermarkets and non-commercial operations.
Home & Road
Bhaskar Rao, recently named executive vice president and chief financial officer for Tempur Sealy International, cited a number of positive developments at the company during its recent third quarter conference call with analysts. Rao noted that on a segment basis, sales in North America increased 10%, driven by growth across all of the company’s brands. Tempur-Pedic led the way, with sales in North America growing “a robust 26%,” compared to the third quarter last year. Sealy’s sales increased in the low single digits. Sales in Canada were up “a solid 10%.” Sales in the direct-to-consumer channel increased 149% in the third quarter, including an increase in web sales of more than 200%.
The Ethan Allen Interiors board of directors has announced a cash dividend to shareholders of $0.50 per share. The total includes a special cash dividend of $0.31 per share and regular quarterly cash dividend of $0.19 per share. Both the special and regular cash dividend will be payable to shareholders of record as of Jan. 10, 2018, and will be paid on Jan. 24. “We are pleased that our business performance and strong balance sheet makes it possible to make this $0.50 per share cash dividend to our shareholders,” said Chairman and CEO Farooq Kathwari in an announcement. “This decision is a reflection of the company’s commitment to share in the successes of the company with its shareholders.”
Jewelry & Luxury
Signet Jewelers posted another downbeat series of results, with its third-quarter sales and profits hurt by the recent series of hurricanes and disruptions as it began outsourcing its credit. Overall comp sales for the period (ended Oct. 28) fell 5 percent. Flagship chain Kay saw sales fall 7.2 percent. Sales also dropped 5.1 percent at Jared; 3.3 percent at Zales; 15.8 percent at Gordon’s; 1.9 percent at its Canadian division; and 5.1 percent at its U.K. division.
Negotiations began immediately when Komba John-Bull and his four coworkers arrived at Pastor Emmanuel Momoh’s home on that fateful night on March 13, 2017. The team of diamond diggers was confident they had something significant and, as tradition dictated, were entitled to a dash — or stipend — from their financier, who owned the rights to the massive rock they’d found earlier that day. The dash would be an expression of confidence that he believed his workers were there to deliver some good news. Sitting in his lounge, puzzled by their coy sense of excitement, the pastor eventually agreed to a price of 800,000 leone to persuade the men to disclose what they knew — or possessed. The equivalent of around $100 was a hefty fee, he thought, but this must be important if they’d found it necessary to come to his house unannounced.
Office & Leisure
This is a high stakes time for Mattel’s new chief executive Margo Georgiadis. The veteran Google executive, who took the CEO job in January, says she is counting on her first holiday season at the toymaker to be a “great” one. She needs a big win, especially now, as she is fighting off a takeover offer from rival Hasbro. Christmas holiday sales are always a make or break time for retailers, and for Mattel it is crucial, because the company is in a financial crunch. Its latest quarterly report revealed a drop in revenues and big losses, forcing Geogiadis to cut the dividend. The bankruptcy filing by Toys “R” Us in September is also weighing on the company.
Technology & Internet
The parent firm of A.C. Moore Arts & Crafts has acquired one e-commerce firm and invested in another to bolster its online operations. Nicole Crafts LLC, which owns the Winslow-based retail chain, said Monday it has purchased Blitsy, an online retailer of arts and craft products. The company also said a “major investment” has secured an “exclusive partnership” with Zibbet, described as an online marketplace “powered by a global community of independent artists, crafters and vintage collectors.” The privately held firm did not disclose the value of its investments or the size of its stake in Zibbet. A.C. Moore, with 135 stores along the East Coast, will tap Blitsy’s expertise to relaunch its website next year, the companies said in a statement. The Blitsy e-commerce site will continue to be based in Chicago.
Finance & Economy
U.S. consumer sentiment saw slight gains in November compared to the mid-month reading, though the index remained below the decade high reached in October. The University of Michigan’s survey of consumer attitudes for November rose to 98.5 in a Wednesday release. The measure was forecast by Reuters economists to hit 98. The indicator has remained largely unchanged in 2017, which reflects American consumers’ increasing confidence and certainty about their income and employment prospects, said Richard Curtin, chief economist for the Surveys of Consumers. “Increased certainty about future income and job prospects has become a key factor that has supported discretionary purchases,” Curtin said in the survey release.
Americans’ access to credit improved while their perceived vulnerability to a financial shock declined, according to a Federal Reserve Bank of New York survey that painted a slightly more optimistic picture of U.S. households. The so-called survey of consumer expectations found that respondents who were too discouraged to apply for credit over the past 12 months declined to 4.9 percent in October, continuing a downward trend and reaching its lowest level since the survey began in 2013. The survey, done every four months, also found a rise in those applying for and accessing credit, and a drop in rejections.