March 19, 2018 Consensus

The Weekly Consensus – March 19, 2018 (Volume 10, Number 12)

The Big Story
RetailWire Discussion: Walmart Goes Big, Goes Nationwide with Online Grocery Delivery
George Anderson, RetailWire

Walmart currently offers online grocery delivery in only six markets, but by the end of the year, it will expand the service to more than 40 percent of all U.S. households.

“Ninety percent of Americans live within 10 miles of a Walmart store, and we serve more than 150 million customers a week, which gives us a unique opportunity to make every day a little easier for busy families,” said Tom Ward, vice president, Digital Operations, Walmart U.S., in a statement. “Today, we’re expanding this promise by helping even more customers save time and money without leaving their homes.”

Walmart’s service, which promises the same everyday prices online as in stores, will be available on its website at walmart.com/grocery and through the its mobile app. Customers pay a $9.95 fee on orders of $30 or more.

Online grocery orders at Walmart are picked by personal shoppers in its stores. The retailer, which currently employs more than 18,000 personal shoppers, plans to add thousands more as it expands home delivery this year. Personal shoppers go through a three-week training program to learn how to select the best produce and meat for customers.

Delivery of online orders will be handled by Uber and other providers. Online grocery customers are very important to the retailer. In the past, Walmart CEO Doug McMillon has said that online grocery shoppers spend nearly twice that of those who shop in its stores alone.

The move by Walmart to expand its grocery delivery service is likely to be seen as a way for the retailer to head off Amazon’s Prime Now, which offers free deliveries to members within two hours. Walmart’s new program, which includes an option for same-day delivery for orders placed by 1:00 p.m., does not require a subscription.

Walmart also faces a growing challenge from Target, which is expanding online grocery deliveries using Shipt, which it acquired last year. Target has announced plans to make the service available to the majority of its stores by the 2018 Christmas selling season.

Discussion Questions: What impact will Walmart’s nationwide rollout of online grocery delivery have on consumer behavior and its business rivals? Will Walmart’s program prove to be a tipping point for online grocery deliveries in the U.S.?

 

Comments from the RetailWire BrainTrust:

 

Walmart has the potential to change the delivery game for groceries. They have the logistics in place to leapfrog their competitors in this channel. It will come down to execution and customer satisfaction with the value proposition. Grocery delivery has been difficult for many retailers as the costs have been prohibitive and consumers are unwilling to subsidize the additional expense. It comes down to an efficient supply chain and distribution network. Only Walmart and Amazon have that in place. But Walmart clearly has the advantage of having stores everywhere.
Phil Masiello, Founder and CEO, Hound Dog Digital Agency

The stars of grocery delivery really need to align in order for this service to shed the light of profit on the business. It requires a population that is less mobile and can pay for the personal shopper and delivery service, as well as quality in produce and grocery products. The merit and outlook hinges on the value that consumers place on their time.
Lyle Bunn (Ph.D. Hon), Strategy Architect – Digital Place-based Media

 

Walmart’s push into home delivery will no doubt help boost the penetration of overall U.S. online grocery sales. It will also encourage rivals, like Kroger, to expand their delivery services further and faster. That said, the $9.95 fee is likely to be off-putting for some. There is still enormous resistance to delivery charges, particularly for medium-sized orders where such charges represent a fair proportion of the overall cost. Of course, the elephant in the room is profitability. Even with the $9.95 fee, this initiative is likely to be margin-eroding. The blunt truth is that online, especially with last-mile delivery to homes, is not particularly profitable. Walmart needs to do this to defend market share and to future-proof its business, but it comes with costs attached.
Neil Saunders, Managing Director, GlobalData

I think we need to deconstruct this a bit. A $9.95 surcharge on a $30 sale is almost a 33 percent price increase. And that says, “always low prices,” how? Also, as all loyal Uber riders know, depending on where you are, Uber and its drivers can be charitably described as a crapshoot. I’m not sure I would like to see some of the men and women who have hauled me around various cities show up at my door. All that said, the idea of cost-effective home delivery still seems to be the Holy Grail of the online grocery industry, so it will be interesting to see what happens. I’ve long maintained that any delivery system is only as strong as its weakest link. Companies like FedEx and UPS which have excellent screening programs still get caught on home security cameras tossing and kicking boxes and other less endearing behaviors. What happens if what’s inside that box isn’t a down comforter but rather a half dozen bananas, a dozen eggs and a cake? These caveats firmly in place, the real question here is, “Will Walmart shoppers be willing to pay a fairly stiff surcharge to have their groceries delivered?” If the answer to that proves to be yes, then I think all cautionary bets are off and you’ll see home delivery explode. If not, and it’s a very public failure, it could set things significantly back.
Ryan Mathews, Founder, CEO, Black Monk Consulting

 

Read the entire RetailWire discussion here:

 

Headlines of the Week

Toys R Us files for liquidation, likely spelling its end in the U.S.

Toys R Us, the toy superstore chain that became a dream factory for kids nationwide, said in a U.S Bankruptcy Court filing that it must liquidate, a move that will likely lead to the closure of all its stores and sale of remaining merchandise. The company’s main lenders “have determined that the best way to maximize their recoveries is to liquidate the existing inventory in all … 735 remaining U.S. stores and begin an orderly wind-down of the U.S. operations.” Toys R Us had initially hoped to be able to keep 400 stores open, according to the court filing, but realized it didn’t have enough cash to preserve that many. “Projected cash burn” according to the motion, was $50 to $100 million a month, without even investing in any of the planned improvements to stores. “The stark reality is that the Debtors (Toys R Us) are projected to run out of cash in the U.S. in May 2018,” the motion states. The chain, based in Wayne, N.J., said it has enough money left to pay its 33,000 workers for “no fewer than 60 days.”

 

Walmart will offer grocery delivery in more than 100 metro areas

Walmart already doubled down on its grocery pickup service. Now it’s doing the same for grocery delivery. The big question: Can it succeed at both?  The giant brick-and-mortar retailer just announced that it is expanding its online grocery delivery service from six U.S. metro areas today to more than 100 in total by the end of the year. The announcement comes amid an onslaught of competition in the grocery delivery space, highlighted by Amazon’s rollout of Prime Now delivery, Target’s $550 million acquisition of delivery startup Shipt and Instacart’s streak of signing on big grocery partners.

 

 

Apparel & Footwear

Outdoor Voices raises $34 million for comfy workout clothes

These are the most comfortable pants of my life. They’re also soft, flattering… And it turns out that some venture capitalists think sweatpants and workout clothes make for a good investment. Outdoor Voices  is raising a $34 million Series C round led by GV (formerly Google Ventures). This also includes an investment from Mickey Drexler, former CEO of J.Crew. Drexler is Chairman of Outdoor Voices. The company has raised over $56 million in the past three years from General Catalyst, Forerunner Ventures and others.

What’s Acne Studios Worth?

Acne Studios is up for sale, according to market reports, which indicate the Swedish label is working to find a buyer. Acne co-founders Jonny Johansson and Mikael Schiller have reportedly been in conversation with an American investment bank for several months now and are likely to launch a formal sale process after the summer. According to market sources, Acne Studios currently generates over €200 million a year and is growing fast. The company could fetch a valuation of €400 million to €500 million in an outright sale — and maybe more if there is competition from multiple bidders. This would imply a valuation multiple of 2 to 2.5 times revenue. In a market with strong appetite for luxury M&A, Acne is certainly a prized target.

DSW abandons e-commerce startup Ebuys

Shoe retailer DSW Inc. said Tuesday it is shuttering Ebuys business, calling it quits on an e-commerce company it bought for $62.5 million just two years ago. DSW bought the parent of retail sites ShoeMetro and ApparelSave in March 2016 in a bid to expand its online presence and grow sales, but the e-commerce startup proved to be more a burden. DSW tried to make the investment work by installing new leadership at the business last year. But in November, the company wrote down the value of Ebuys on its balance sheet by $52.7 million after taking a loss on the business because of huge markdowns to clear inventory. After being unable to find a buyer for Ebuys, DSW said it expects to complete a liquidation process within the next few months. The company will book one-time charges related to the exit. Ebuys was a fulfillment business that sold discounted shoes on third-party marketplaces such as Amazon and eBay.

 

Athletic & Sporting Goods

Adidas is banking on the hottest trend in sportswear

There’s no stopping Adidas. The German sportswear brand said in an earnings call Wednesday that its revenues were up 35% in North America in 2017.  Adidas US head Mark King told Business Insider that Adidas now has momentum after seeing success in the running category and others, citing breakout hits like the UltraBoost.  King said the success was due to “investment in the right things” as Adidas has focused on its most important categories — vintage-inspired Originals, training apparel, running, basketball, and what the brand calls its “core” products — and becomes more ingrained in US sports.

 

Niner sale closes; new owner also owns Huffy Corp.

After an eventful few months, Niner Bicycles has been purchased by UWHK Ltd., an investment firm that also owns Huffy Corp. A U.S. Bankruptcy Court judge approved the sale last week and the purchase closed Friday afternoon.  Niner co-founder Chris Sugai will continue to lead the company, which will remain headquartered in Fort Collins, Colorado. UWHK Ltd. was formerly Emersion International, a Hong Kong-based entity that agreed to buy Niner late last month. UWHK is an investment firm in premium global outdoor brands and a division of United Wheels Ltd. United Wheels is the majority shareholder in Huffy Corp.

Cosmetics & Pharmacy

Aetna Acquisition Clears CVS Health Stockholder Hurdle

CVS Health officially has its stockholder’s blessing for its Aetna acquisition. The Woonsocket, R.I.-based company had a special meeting to secure stockholder approval for the $69 billion acquisition of the health insurer, at which more than 98% of shares voted to approve the deal. The company said it expects the deal to close in the second half of 2018, pending regulatory approval. The company said it is aiming to fill unmet healthcare need with the Aetna acquisition, touting its potential to bring patients more access to care in-store, in-home or through the use of connected health tools.

 

Clorox Fortifies VMS Offering with Nutranext Acquisition

The Clorox Company acquired dietary supplement manufacturer Nutranext. WM Partners, a Fort Lauderdale, Fla.-based private equity firm, on Monday announced the sale of its vertically-integrated manufacturer and marketer of dietary and nutritional supplements based in Sunrise, Fla. for $700 million. In calendar year 2017, Nutranext generated sales of about $200 million. About 90% of Nutranext sales are in the U.S.

The Nutranext portfolio of brands include Rainbow Light, the No. 2 vitamin brand in the natural channel according to WM Partners; specialty minerals under the Natural Vitality brand; and supplements for hair, skin and nails under the Neocell brand.

Revlon Reports 4Q Loss

Revlon Inc. (REV) reported a loss of $76.9 million in its fourth quarter.  On a per-share basis, the New York-based company said it had a loss of $1.46. Losses, adjusted for one-time gains and costs, came to 86 cents per share.  The beauty products maker posted revenue of $786.6 million in the period. For the year, the company reported that its loss widened to $183.2 million, or $3.48 per share. Revenue was reported as $2.69 billion. Revlon shares have declined slightly more than 1 percent since the beginning of the year. The stock has fallen 26 percent in the last 12 months.

Men’s Grooming Gains Attention, Shelf Space at Mass Retail

Men’s grooming routines have moved far beyond just a quick shave. Today, many men have elaborate routines for making sure they look presentable, if not fashionable before they face their day. These consumers are buying more grooming products, and retailers that keep up with the current trends in beard care, hair care, and skin care can succeed in this growing category. Manufacturers say the men’s grooming category is generally growing at mass retail, but some segments have suffered well-publicized declines due to a move to online sales. “Products in the shave aisle — razors, shave creams — pretty much all those categories are down in brick-and-mortar sales,” said Ralph Marburger, vice president of global gray care and grooming at Combe in White Plains, N.Y.

 

Discounters & Department Stores

Target Partners With Shipt To Launch Same-Day Delivery

Discount-store operator Target Corp. (TGT) announced Thursday it will begin same-day delivery in partnership with online marketplace Shipt of more than 55,000 groceries, essentials, home, electronics, toys and other products in two East Coast cities.  Shipt will begin deliveries from Target stores in Washington, D.C. and Baltimore from March 29, 2018. Cumulatively, the new partnership gives nearly 2.9 million households across these two cities access to Target products delivered by Shipt in as little as one hour.

Sears shares jump after company reports a profit for holiday quarter

Sears Holdings reported a smaller-than-anticipated decline in same-store sales for the holiday quarter following an earnings pre-announcement last month, sending its shares up as much as 17 percent after hours. The company also announced that on Wednesday it secured a loan of $440 million to use toward a $407 million payment into its pension plans, unleashing 140 of Sears’ properties from a ring-fence agreement with the Pension Benefit Guaranty Corporation. It said those properties alone have an appraised value of nearly $980 million.

 

Grocery & Restaurants

Starbucks strikes licensing deal with multi-brand operator in Brazil

Starbucks is transferring its 113 company locations in Brazil to a well-regarded multi-brand operator who plans to expand the Seattle-based coffeehouse chain’s presence in the region. The value of the deal made with Sao Paulo-based SouthRock, which owns and operates restaurants inside Brazil’s largest airports, was not disclosed. The agreement, announced Tuesday, will allow SouthRock to grow Starbucks retail operations in Rio de Janerio and Sao Paulo, as well to expand to new markets such as Brasilia and the South.

Juice It Up acquired by consortium of private equity brands

Privately held Juice It Up, a longtime rival of Jamba Juice in the Southern California region, has been acquired by a consortium of private equity brands. Acting as the sole franchisor for Juice It Up will be SJB Brands, whose main investors are California-based private investment firms Dover Shores Capital, Britt Private Capital and Jupiter Holdings. SJB purchased the 90-unit Irvine, Calif.-based chain from former CEO Frank Easterbrook.

Home & Road

Lifetime Brands, Inc. Reports Fourth Quarter 2017 Financial Results

Lifetime Brands, Inc., a leading global provider of branded kitchenware, tableware and other products used in the home, reported its financial results for the fourth quarter and year ended December 31, 2017. Consolidated net sales were $182.8 million in the quarter ended December 31, 2017; a decrease of $10.7 million, or 5.6%, as compared to consolidated net sales of $193.5 million for the corresponding period in 2016. In constant currency, which excludes the impact of foreign exchange fluctuations, consolidated net sales decreased $12.7 million, or 6.5%, as compared to consolidated net sales in the corresponding period in 2016.  Gross margin was $71.2 million, or 39.0%, as compared to $75.0 million, or 38.8%, for the corresponding period in 2016.

Jewelry & Luxury

Signet’s Sales Fall Again, Will Close 200 Stores

Signet Jewelers once again recorded falling comps, with same-store sales declining 5.2 percent in the company’s fourth quarter (ended Feb. 3) and 5.3 percent for fiscal year 2018. The comp decline wasn’t surprising, as the fourth quarter encompasses the holiday season, and Signet had already announced that comps had declined over the holiday. Total sales for the quarter came in at $2.3 billion, a 1 percent increase over last year. That increase was due to an extra calendar week and the addition of R2Net, parent company of James Allen, which reported a 35 percent sales increase.

Swatch Group Sees Turnaround in 2018

Swatch Group has reversed two straight years of sales declines and is reportedly bullish on 2018 heading into the Baselworld show. In its annual report, the Swiss watch company said its Watch & Jewelry segment, which includes watch brands like Breguet, Longines and Tissot plus its Tourbillon and Hour Passion stores, posted 7 percent year-over-year sales growth at current exchange rates. Growth was particularly strong in the second half of the year, with fourth quarter sales up 15 percent and December coming in as the second-best month in company history.

How a pair of 20-somethings from Eastern Europe are shaking up the watch scene

To quote vaunted 19th Century French novelist Victor Hugo, “There is nothing as powerful as an idea whose time has come.” And though today I’m writing primarily about the upstart luxury wristwatch brand Filippo Loreti, it’s not in reference to that watchmaker that I invoke this famed quote. (Wristwatches have been commonplace for more than a century, after all, and are hardly a novel concept.) In this case, the “idea” in question is the use of online crowdfunding to help launch and scale a product or service. And even more specifically, I’m referring to Kickstarter, the luminary of the slate of new public-benefit corporations that help raise capital for ventures that would likely never have lifted off via traditional business growth models.

 

Office & Leisure

Former Amazon exec takes helm of PetSmart’s online acquisition

The co-founder and CEO of Chewy.com, Ryan Cohen, is stepping down from role as chief executive. PetSmart, which acquired Chewy in 2017, said that Cohen will be succeeded by Sumit Singh. Singh joined Chewy in August and has served as COO since November. Prior to that, he was director of Amazon Fresh Worldwide. Singh will be supported by Chewy’s management team as the online retailer continues to operate largely as an independent subsidiary of PetSmart, focusing on its current business strategy.

Guitar Center downgraded again on new refinancing plan

Ratings agency S&P Global downgraded Guitar Center again this week as the troubled instrument retailer tries to refinance and restructure debt. Guitar Center did not immediately respond to a request from Retail Dive for comment. S&P dropped the retailer’s overall rating to CC, from CCC-, and issued a negative outlook. It follows Guitar Center’s announced offer to lenders Monday to refinance some of its debt, according to a press release from S&P. Under the plan, Guitar Center would issue $635 million in senior secured notes due 2021, and use the proceeds, together with some cash, to refinance the existing $615 million secured notes, which carry a lower interest rate than proposed notes, according to S&P.

Technology & Internet

Warby Parker is valued at $1.75 billion after a pre-IPO investment of $75 million

Warby Parker’s co-CEOs continue to talk about an IPO like it’s a “when,” not an “if.” But the “when” still isn’t now. The eight-year-old eyewear retailer announced a new investment of $75 million last week led by its existing backer T. Rowe Price that will keep it a private company for at least the near future. The new funding values the New York City-based company at $1.75 billion, according to a person familiar with its finances, and is expected to help it fuel several new initiatives before having to prove its payoff to public-market investors. Warby Parker last raised a $100 million investment about three years ago that valued the company at $1.2 billion, and has now raised nearly $300 million in total.

 

Alibaba’s Jack Ma and Joe Tsai are pumping $20 million into Rent the Runway

Blue Pool Capital, a financial firm that principally invests the wealth of Alibaba founders Jack Ma and Joe Tsai, has invested $20 million into the women’s clothing rental business Rent the Runway. The filing was spotted by the research firm Lagniappe Labs, which said the round valued Rent the Runway, with the new funds, at a little less than $800 million. Rent the Runway co-founder and CEO Jennifer Hyman said her company, which is profitable on an Ebitda basis, was not planning on raising new funding but saw this as a rare opportunity at an advantageous time in the business’ lifecycle.

 

Finance & Economy

Consumer Sentiment in U.S. Jumps to 14-Year High After Tax Cuts

Consumer sentiment in March unexpectedly jumped to a 14-year high after tax cuts boosted disposable incomes, while new tariffs boosted inflation expectations and dimmed the outlook, a University of Michigan survey showed. The advance in confidence should help underpin consumer spending, the biggest part of the U.S. economy, after a report earlier this week showed a sluggish start to the year for retail sales. A tightening labor market, rising home prices and tax cuts enacted in December are supporting optimism among Americans.

 

Housing starts fall more than expected in February

U.S. homebuilding fell more than expected in February as a plunge in the construction of multi-family housing units offset a second straight monthly increase in single-family projects.  Housing starts declined 7.0 percent to a seasonally adjusted annual rate of 1.236 million units, the Commerce Department said. Data for January was revised up slightly to show groundbreaking increasing to a 1.329 million-unit pace instead of the previously reported 1.326 million units.  While the volatile multi-family housing segment accounted for the decline in home building last month, the broader housing market appears to be slowing.

 

Jobless claims fall as labor market strengthens

The number of Americans filing for unemployment benefits fell last week, pointing to sustained labor strength even as economic growth appears to have slowed early in the first quarter.  Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 226,000 for the week ended March 10, the Labor Department said.  Data for the prior week were revised to show 1,000 fewer applications received than previously reported. Claims dropped to 210,000 during the week ended Feb. 24, which was the lowest level since December 1969.