January 22, 2018 Consensus

The Weekly Consensus – January 22, 2018 (Volume 10, Number 4)

The Big Story
Retail’s Big Show and The Rise of Retail Tech

Last week, the National Retail Federation (NRF) held its annual event, Retail’s Big Show – NRF 2018. The event showcases leadership and innovation in the retail industry. While the retail landscape hasn’t garnered much enthusiasm or excitement in recent years, the rise of retail technology, both in terms of development and use, may begin to change that.

NRF 2018 featured a number of new events and exhibits concerning technology and the vision of the future store, including an innovation lab. The innovation lab featured interactive exhibits centered around each step in the shopping journey, a showcase of the latest technologies, and information and content, including presentations from industry leaders. Exhibitors included the customary vendors and service providers, but also included some of the world’s largest technology companies and solutions providers, such as Amazon, Samsung, IBM, Intel, Microsoft, and Adobe.

The rise of retail-focused technology has enabled the continued evolution of omnichannel retailing. Stores and the web are increasingly becoming integrated, jointly representing a sales channel, and a platform to deliver product, serve the consumer, and build brands. Retail locations have been transformed from showrooms to logistical hubs, product development centers, and customer service houses. The original goal of omnichannel retailing was once to create a seamless blend of physical and digital. For many today, that remains the case. But some are striving for something unique – interaction with the customer that is aided by digital insight, but that provides a distinctive physical experience.

Some technologies on display and in discussion have seen some adoption and use. These include the use of artificial intelligence in sales and marketing, mobile payments innovation, and the unmanned store checkout process. Another centers around price changing, and the ability to change prices quickly due to product or market conditions. Although demand-based and surge-based pricing has been in use with sports tickets, concert tickets, and ride-hailing services, adoption in other areas has been slower, but no less important. In the case of groceries, stores could quickly drop prices of goods that were at risk of spoiling. Newer in-store technologies included the use of facial recognition tools, 3D video, and augmented reality that would enable consumers to virtually try on products like makeup and outfits in.

While all designed to improve the sales process, the spectrum of usage varies, and for many, the value remains to be determined. For some companies and retailers, however, these technologies are already playing a critical role. Rent the Runway is using self-service tablets that enable customers to return items and check-out new ones. Samsung has introduced a “retail-as-a-service” program – a modular retail store concept that targets small and medium sized brands for short-term and seasonal opportunities, such as product launches and holiday pop-ups. The stores can be set up with brand-specific configurations, and can be equipped with Samsung tablets at point of sale, Samsung displays throughout the store, and cameras and sensors that can monitor customer activity and notify sales associates.

For many retailers, the development and adoption of technology represents a shift in mindset. No one believes that the challenges in retail are behind them, but many believe there is still hope. By borrowing the tools used by many of their digitally-native brethren, retailers are feeling armed with the resources to compete. As a result, many are going on the offensive. They are embracing the ways that physical and experiential can outperform the online experience, hoping that that optimism leads to momentum that then translates to better experiences and higher sales. That was, in fact, the message from James Curley, Executive Vice President of Levi Strauss, who touted the importance of turning “moments into momentum.”

There is no shortage of available technologies or opportunities to implement them. For many companies, the question is what to focus on, what to lead with, and where to invest. Regardless of what that path ultimately is chosen or what technology is eventually used, many retailers share the same principles and objectives. They are focused on stronger connections, elevated brand experiences, and relationship building. Retailing is becoming less focused on the transaction. It is becoming more personal, more tailored, more experiential, and now, more technology-driven.

 

Headlines of the Week

Amazon narrows the list of metro areas for its new headquarters to 20

Amazon announced it has narrowed the list of potential sites for its second headquarters to 20 locations. Amazon said it will spend $5 billion in the place where it builds its second headquarters and will employ 50,000 people there.

Wal-Mart Makes Judith McKenna Its International Chief

Wal-Mart Stores Inc. will tap Judith McKenna to run its international unit, elevating one of its highest-ranking female executives to a critical role, according to people familiar with the matter. McKenna, currently chief operating officer of the retailer’s domestic operations, will succeed David Cheesewright on Feb. 1, said the people, who asked not to be identified because the move hasn’t been announced. Cheesewright, 55, has held the job for the past four years.  Running the international unit has served as a stepping stone to the top job: Chief Executive Officer Doug McMillon and his predecessor Mike Duke both once held the role.

 

 

Apparel & Footwear

  1. Riley Financial, Inc. Acquires 29% of bebe stores, inc.
  2. Riley Financial, Inc. and bebe stores, inc., announced that B. Riley has converted its existing loan to bebe into shares of bebe common stock and has acquired additional shares resulting in B. Riley’s ownership of approximately 29% of bebe’s shares outstanding.

After successfully divesting its retail stores, bebe contributed all of its intellectual property rights including licensing revenue to BB Brand Holdings LLC, bebe’s operating subsidiary which is 50% jointly owned by Bluestar Alliance LLC.  B. Riley’s investment in bebe involved the conversion of all outstanding principal and accrued interest owed by bebe to B. Riley under an outstanding loan in the aggregate amount of approximately $16.9 million into approximately 2.82 million newly issued shares of bebe common stock at a conversion price of $6.00 per share. Additionally, B. Riley purchased 250,000 shares of newly issued common stock from bebe and an additional 250,000 shares of common stock from a family trust.

 

 

Athletic & Sporting Goods

BSN SPORTS Acquires Gulf Coast Athletic Supply, Inc

BSN SPORTS, a Varsity Brands company and the nation’s largest direct marketer and distributor of sporting goods to the school and league markets, today announced it has acquired Gulf Coast Athletic Supply, Inc., based in Sugar Land, Texas.  GCAS, which has served team customers since 1990, is a leading distributor of team apparel and equipment in the south coast region of Texas, including the Greater Houston market.  The GCAS acquisition builds on BSN’s notable growth over the past year, which includes the addition of over 200 sales professionals in key markets such as Alabama, Georgia, Washington, Utah, Kentucky, Ohio, Maryland, Virginia, Oregon, Idaho and California.

Peter Millar acquires G/FORE

The most intriguing collaborations are those that combine opposing ideas to create unique, provocative products. That’s why when Peter Millar, a conservative apparel company, and G/FORE, an edgy, more forward-thinking brand, worked together to design a line of shoes that debuted at the 2017 PGA Merchandise Show, the collection raised some eyebrows and got people talking.  Fast-forward to January 17, 2018, and Peter Millar has announced that it has acquired G/FORE. That’s right, the traditional, straight-laced Peter Millar has bought the more modern, avant-garde G/FORE.  Based in Los Angeles, G/FORE began as a passion project that quickly evolved into a dynamic brand. Giannulli, an avid golfer and a longtime fashion designer who’s best known for creating Mossimo, a collection of beachwear and streetwear that became popular in the 1990s, identified a need for more stylish, more outspoken golf apparel that appealed to younger, trendier golfers.

Cosmetics & Pharmacy

Edgewell Acquires Men’s Luxury Skincare Line

Edgewell Personal Care Co. has acquired Jack Black LLC, a men’s luxury skincare line. Terms of the deal were not disclosed, but Edgewell said in a release that Jack Black’s brand positioning, channel footprint and product assortment would complement Edgewell’s men’s products. Jack Black is a Dallas-based company founded in 2000 that offers skincare, body care, shaving, hair care, fine fragrance, razors and gift sets.

The deal, funded from operating cash, is slated to close in the second quarter of 2018, the company said.  Edgewell reported $2.3 billion in revenue in fiscal 2017, down from $2.4 billion in 2016.

Swander Pace Carves Out J.R. Watkins to Grow the Personal Care Goods Brand

Swander Pace Partners has reached a partnership agreement with Watkins Inc. to grow and invest in the J.R. Watkins Personal Care & Household brand. Established in 1868, J.R. Watkins manufactures and distributes a variety of spices, personal care products and apothecary goods. As part of the investment, Swander Pace will provide the resources and financial backing to carve out the J.R. Watkins Personal Care & Household brand from Watkins, Inc. into a separate company named J.R. Watkins.  Financial terms were not disclosed. Swander Pace is a San Francisco-based private equity firm with more than 45 companies since its inception in 1996. Swander Pace targets companies with up to $500 million in revenue.

 

Discounters & Department Stores

Bon-Ton buys more time

A group of Bon-Ton Stores bondholders have agreed, for now, not to exercise their rights against the retailer after the grace period ended on a $14 million interest payment that Bon-Ton failed to make in December, according to a Bon-Ton press release. The forbearance agreement effectively puts off default on the missed payment. The agreement lasts until Jan. 26, after which it can be automatically extended until Feb. 4 with the bondholders’ consent. Bon-Ton said in the release it is “engaged in ongoing discussions with its debt holders in an effort to strengthen its capital structure to support the business.”

 

Grocery & Restaurants

Starbucks, Simon Property Group settle Teavana dispute

Starbucks Corporation and Simon Property Group have reached a settlement in a lawsuit that prevented the coffee house giant from closing 77 of the company’s 379 Teavana retail locations.

Home & Road

Energizer Adds Rayovac Batteries to Lineup with $2 billion Deal

Battery maker Energizer Holdings Inc said it would buy the battery and portable lighting business of Spectrum Brands in a $2 billion cash deal, adding brands such as Rayovac and Varta to its lineup.  The deal comes two weeks after Spectrum said it was exploring strategic options, including a sale, for its global batteries and appliances businesses.

Spectrum said it was still “actively marketing” its appliances business, which includes brands such as George Foreman cookware and Remington grooming products. The deal will add heft to Energizer’s battery unit and give it more pricing power, while also expanding its international business.

Bassett Furniture Reports 3.9% Rise in Q4 Sales

Case goods and upholstery manufacturer Bassett Furniture Inds. reported a 3.9% increase in sales and a 1.7% drop in operating income during its fiscal fourth quarter results. “We were pleased to finish our fourth quarter with a 4% gain in consolidated revenue, thus capping fiscal 2017 as a solid year for Bassett,” said Rob Spilman, chairman and CEO.  He added that the opening of stores in Pittsburgh and Wichita, Kan., during the quarter ushered in a period of robust expansion for Bassett’s corporate store network, “as we plan to open at least 10 new locations and reposition two to three others over the next 18 months.”

Jewelry & Luxury

De Beers turns to blockchain to guarantee diamond purity

Anglo American’s diamond unit De Beers aims to launch the first industry-wide blockchain this year to track gems each time they change hands starting from the moment they are dug from the ground, its chief executive said on Tuesday. De Beers, the world’s biggest diamond producer by the value of its gems, has led industry efforts to verify the authenticity of diamonds and ensure they are not from conflict zones where gems could be used to finance violence. For De Beers, cast-iron guarantees its stones are ethically sourced are vital to maintaining consumer confidence. It sells technology across the industry to help prevent anyone trying to pass off synthetic stones as natural.

Tiffany Holiday Comps up 6% in the Americas

On the heels of a strong third quarter, Tiffany & Co. reported Wednesday that same-store sales rose 6 percent in the Americas during the holiday season. Total sales in the region for the two-month period ended Dec. 31 increased 7 percent year-over-year to $516 million. On a constant-exchange-rate basis, there was a 6 percent increase in both comparable store sales and total sales. Tiffany reported varying degrees of growth across most of the United States, Canada and Latin America, with higher spending attributed primarily to local customers, not tourists.

 

Fred Meyer Jewelers Closing a Number of Mall Stores

Fred Meyer Jewelers is closing a number of its mall stores, confirms group vice president Kirsten Darrow. She declines to provide an exact number. “We are closing underperforming mall stores (under both Fred Meyer Jewelers and Littman Jewelers brands) whose leases are ending,” she adds. “It’s never an easy decision to close a location but we must adapt to the changing retail environment.  However, we are not exiting our mall format entirely.

Pandora Says It’s Now the World’s Best-Known Jewelry Brand

Pandora now considers itself the most-recognized global jewelry brand, vaulting over longtime champs Swarovski and Tiffany, CEO Anders Colding Friis said in a recent presentation for the financial community. “We are now the number one jewelry brand in the world,” he said. “In 2017, we beat the competition and became number one. Until then, we have been number two.” According to a Pandora global tracker, which measures the top 25 markets, aided awareness of Pandora is now at 83 percent, up from 80 percent the prior year. According to the company’s figures, that tops the world’s other leading jewelry brands Swarovski (80 percent awareness) and Tiffany & Co. (71 percent).

 

Office & Leisure

Office Depot’s chief accounting officer resigns

Office Depot Inc. has announced yet another change in its executive leadership. The Boca Raton company announced in a Securities and Exchange Commission (SEC) filing that its senior vice president of finance and chief accounting officer, Michael Rabinovitch, told the company Jan. 10 he would resign “to pursue other business opportunities.” Rabinovitch will continue to stay on with the company until Feb. 28, according to the SEC filing. His departure from Office Depot comes about two weeks after the company appointed a new chief financial officer. Prior to joining the company, Rabinovitch was the executive vice president and chief financial officer of Birks Group, a North American manufacturer and retailer of fine jewelry and luxury timepieces.

Fitness With Fur Babies: The Next Health And Wellness Money Hole?

Forget crazy cat ladies — it seems that millennials, as a whole, are crazy pet people. They are not afraid to orient their lives and spending around their “fur babies,” whether that means cooking dinner for their pet, getting a tattoo of its name or face or choosing an apartment, favorite restaurant or bar or even romantic partner based on how pet-friendly they are. Nasdaq notes that, as this generation delays having children, many are filling that space instead with a pet, which they refer to as a “fur baby,” and which they spoil as if it were their own child. Exhibit A – Petco has just launched a fitness partnership with Anna Victoria, wherein fur baby moms and dads can make exercising fun by doing it with their pet. Don’t be too quick to call it crazy: Some experts are saying that pet workouts will be the new meditation and mindfulness yoga.

Technology & Internet

Amazon is raising the price of Prime monthly memberships by nearly 20 percent

Amazon Prime memberships are getting more expensive for those customers who want the flexibility to pay for the speedy shipping and media streaming program on a monthly basis. The company announced that the Amazon Prime monthly fee is increasing from $10.99 to $12.99 in the U.S., an increase of 18 percent. The new price works out to nearly $156 a year. The increase comes less than two years after Amazon first introduced the monthly payment option as a way to attract new Prime members who either couldn’t afford the annual membership of $99 (which is not increasing), or didn’t want to commit to using the service continuously.

 

True Fit Secures Investment

True Fit, the data-driven personalization platform for apparel and footwear, announced a new $55 million Series C investment, led by Georgian Partners with participation from existing investors Jump Capital, Signal Peak Ventures, Intel Capital, and new investor Cross Creek Capital. The new funding will further develop True Fit’s robust AI data platform, as well as advance innovation of its personalized style, fit, and analytics solutions. It will also expand the company’s offerings to include more robust open APIs, new AI-driven integrations, and new capabilities such as personal outfitting, chatbot virtual stylists, and enhanced visualizations.

 

DTT Closes $80 Million Facility and Completes Acquisition of LP Innovations Inc.

DTT, the leading provider of video-based managed service solutions to the hospitality and C-Store industries, announced the closing of an $80 million debt facility led by Administrative Agent, Capital One and CapitalSource, a division of Pacific Western Bank. The facility will be utilized primarily for the acquisition of LP Innovations Inc. (LPI), a loss prevention provider to the retail industry and for additional growth capital.

Finance & Economy

Consumer sentiment falls in January, while tax reform viewed with optimism

U.S. consumer sentiment fell in the January mid-month reading, moving further from the decade high reached in October.  The preliminary January reading saw consumers have a less favorable view of the current economic conditions than in December.  The survey’s chief economist Richard Curtin noted that 34 percent of consumers spontaneously mentioned tax reform. Of those, 70 percent of consumers said the impact from the new tax reform law would be positive, while 18 percent said it would be negative.

 

U.S. Housing Market Saw Prices Rise 7% in 2017

The U.S. housing market had a strong 2017, according to a Redfin report.  National home prices last year increased 7% to a median sales price of $284,500, while sales increased 1.7% over 2016.  The year ended strong, too. Prices were up 6.8% in December from the same time the prior year to a national median sale price of $287,000 across the 75 markets Redfin serves—which does not include New York City—according to the report. But sales numbers were down 2.8% in December, and the number of homes for sale declined 14.5% compared to a year ago, marking 27 months in a row of inventory declines.