July 16, 2018 Consensus

The Weekly Consensus – July 16, 2018 (Volume 10, Number 27)

The Big Story
‘Twas the Hours Before Prime Day
Maeghan Thompson

As you’ve not doubt heard, this year’s Amazon Prime Day starts today, Monday, July 16th, only a few hours from now (12pm PT/3 pm ET). Prime Day 2018 will run through tomorrow, Tuesday, July 17th for thirty-six hours, which is six hours longer than last year’s event.  If Prime Day continues to grow as it has in recent years, which seems reasonable, millions of people right now are likely stretching their clicking and tapping fingers, and readying their “Buy now with 1-Click” buttons.

Prime Day was launched in 2015 to celebrate the 20th anniversary of Amazon’s founding.  Each year since, it has taken place in the middle of July to reward Amazon Prime members all over the world with special deals, making it the unofficial Black Friday of summer.  Internet Retailer estimates that total 2017 Prime Day sales (through Amazon and other retailers) reached $2.4 billion, and Amazon reported the day achieved 60 percent year/year sales growth. In addition, Amazon signed on more new Prime memberships on Prime Day last year than on any other day in company history. For 2018, Internet Retailer estimates total sales will grow 67% to just over $4.0 billion.

Many Prime members are likely to partake in today’s deal bonanza. In April of this year, Amazon’s CEO Jeff Bezos announced in a letter to its shareholders that Prime has signed on more than 100 million members globally since the membership’s start 13 years ago.  Soon after this announcement, Amazon increased its annual Prime subscription to $119 from the original $99 per year.  Membership benefits include free delivery options, free access to online movies, TV shows, music, and other perks.

This year, more than 1 million items will be available during Prime Day at reduced prices.  Like years before, Amazon announced early deals in the days before Prime Day this year, such as a $10 credit for Amazon Prime customers who shop at Whole Foods between July 11-17th.  Amazon is also adding countries to 2018 Prime Day, expanding it to Australia, the Netherlands, Luxembourg, and Singapore.  Amazon expects to again set new sales records this year.

Since the first Prime Day, Amazon’s competitors have been forced to launch competing deal events to keep customers’ attention. Walmart, Target, Kohl’s, eBay, Dell, and Macy’s have all responded with their own discounts in prior years.  This year, eBay announced its ‘Primo’ tech sale last week, which gave 10 percent off all tech products, and Dell and Macy’s both announced ‘Black Friday in July’ sales.  Activity such as this has resulted in Prime Day becoming less of an Amazon-exclusive event, and more of a national affair.  Correspondingly, Racked.com reports that Google searches for “Prime Day” have recently surged ahead of searches for “Amazon Prime Day.”

While estimates of total Prime Day sales reached $2.4 billion last year, the event is dwarfed by China’s Singles Day, which generated over $25 billion in 2017. Still, Prime Day’s rapid growth has been impressive, and is clearly turning mid-July into a new holiday of consumerism in the U.S. and other countries where Amazon has a strong presence. And if Prime Day’s ascent continues at this pace, who’s to say that $25 billion isn’t someday within striking distance?

 

Headlines of the Week

Macy’s Data Breach Includes Online Card Data

Another retailer has been hit with a data breach. This time, Macy’s has revealed that hackers obtained names and passwords of online customers — and might have accessed credit card numbers and expiration dates. The data breach impacted one-half of one-percent of customers who were registered on Macys.com or Bloomingdales.com, spokeswoman Blair Rosenberg said Tuesday (July 10), according to Bloomberg. “We have investigated the matter thoroughly, addressed the cause and, as a precaution, have implemented additional security measures,” Macy’s said in an emailed statement.

 

Levi Strauss CFO says trade war could tarnish American brands around the world

Levi Strauss & Co. has had a good run over the past three quarters, continuing to outpace industry peers even in a strong denim fashion cycle. But the new 25 percent tariffs on U.S. jeans in the European Union and a trade war with China, could spell trouble for Levi’s and other iconic American brands, the apparel brand’s financial chief said.

“Long term, it could have an impact at how people look at American products and American companies. And that is something that we do worry about.” Levi Strauss’ CFO, Harmit Singh, told CNBC. Products associated with American ideals — jeans, bourbon, motorbikes and boats — are just some of the 180 goods the EU is targeting with new import taxes in retaliation for the Trump administration’s tariffs on imported steel and aluminum.

 

 

Apparel & Footwear

Kate Hudson’s Fabletics athleisure line plans to open 75 new stores in global push

As Fabletics celebrates five years as a fashion brand in the athleisure industry — athletic wear designed for working out or running errands — it’s mapped out an aggressive growth strategy amid a competitive landscape that includes rivals Lululemon, Gap’s Athleta, Nike and Tory Burch Sport. The privately held retailer, owned by ShoeDazzle and JustFab parent company TechStyle Fashion Group, is planning to open 75 new stores across the U.S. and overseas, bringing its total to 100. A company spokeswoman told CNBC it’s “rapidly surpassed $300 million in annual revenue” after just five years in business, while its current store base has achieved same-store sales growth of 20 percent year over year. The news comes amid increased competition in women’s athletic wear.

Gordon Brothers Acquires Bench Brand And Related Intellectual Property

Gordon Brothers — a global advisory, restructuring, and investment firm — announced that it has acquired the Bench brand and all its related intellectual property assets.

Launched in Manchester, England, in 1989, Bench is one of the first streetwear fashion retailers and until very recently its products could be found in more than 20 countries in Europe and North America. In focusing on lifestyle products associated with the skate and BMX culture of the late 1980’s, early 1990’s, Bench was far ahead of its time in tapping into this unique lifestyle. Over the years, Bench has expanded its product offering to include high quality men’s, women’s and kid’s streetwear products offered at accessible price points. As recently as 2017, the brand had more than 80 Bench branded stores in Europe and North America and an additional 2,000+ wholesale points of sale, making it one of the only true global streetwear brands of scale. In the short-term Gordon Brothers will focus on reestablishing the brand’s European e-commerce presence while it methodically rebuilds the business’ wholesale footprint in that territory.

 

Athletic & Sporting Goods

Vista Outdoor to sell eyewear brands to European PE fund

Vista Outdoor Inc has agreed to sell its Bollé, Cébé and Serengeti brands to an unidentified European private equity fund. The proceeds are expected to be about $158 million. Robert W. Baird & Co. served as transaction and financial adviser to Vista Outdoor on the deal while Reed Smith LLP served as legal adviser. Based in Farmington, Utah, Vista Outdoor is a maker of consumer products in the outdoor sports and recreation markets.

 

Nike’s new concept store feeds its neighbors’ hypebeast and dad-shoe dreams

Nike is unveiling its new concept store in the heart of one of Los Angeles’ famed shopping districts, “Nike by Melrose.” Yes, it’s on Melrose Avenue, but it’s also a statement of fact: The store was built by the people of Melrose. Everything about it–from its location to the products that it stocks–has been determined by data about how people from the area interact with Nike. The company found, for instance, that one in fifty pairs of shoes sold in the area was a Nike Cortez, which was reflected in the product selection available to customers. By using data points like this to inform store selection, says Michael Martin, VP of digital products at Nike, the company is trying to create an agile and responsive store to “show and flow new products which will be rotated super fast, bi-weekly, into the stores so that customers can keep coming back.”

Cosmetics & Pharmacy

One Click Retail Delves Into Amazon’s Beauty Business

Brick-and-mortar retailers, especially mass marketers, have even more reasons to shudder as Amazon ups its commitment to beauty.  Amazon pumped out an estimated $2 billion in health and personal care and beauty sales in the second quarter, according to an analysis just released from One Click Retail. That represents a 30 percent jump over the same period in 2017. Amazon’s gains continue to outstrip category increases at physical retailers and most online competitors. Amazon’s beauty category haul alone is pegged at $950 million for the quarter, up 26 percent over the past year. Interestingly, as more prestige brands succumb to consumer demand and sell on Amazon, the percent of luxury sales is also on the rise.

Funding Round Brings higi $21M, New Investors

Population health enablement company higi has completed a fundraising round that brought the company $21.3 million, led by such new investors as Flare Capital Partners and 7wireVentures. Higi said it would focus its new resources on expanding access points to its health monitoring stations, broaden engagement and bring population health workflow insights to bear on prevention and value-based outcomes. Currently, higi has more than 11,000 smart health stations that enable consumers to create and build a longitudinal health profile and connect it to 80 health devices and applications, as well as their electronic health records.

 

Discounters & Department Stores

Nordstrom Investors Spurn Growth Plan That Fits Just Fine

I suspect the Nordstrom family just got a frustrating reminder of why it tried to take its namesake retail company private earlier this year. At a Tuesday presentation for investors, Nordstrom Inc. executives outlined a strategic plan and a long-term financial outlook that includes revenue growth of 3 to 4 percent on an average annualized basis from 2017 to 2022. The company says it is on track to continue taking market share in the highly competitive apparel business.

J.C. Penney turns to local YouTube stars to boost back-to-school

Hang around school-age girls with any device connected to the internet and you’ll discover their preferred way to catch up on the latest trends is YouTube, where they subscribe to multiple channels about dance, fashion, makeup, and other topics. The videos are all original content from social media celebrities you’ve probably never heard of. Among the most popular YouTubers — with a new video out every Wednesday at 4 p.m.— are twin sisters Brooklyn and Bailey McKnight, 18. The social media sensations who just graduated from Collin County’s Lovejoy High School in Lucas are soon-to-be Baylor University freshman, where they plan to major in entrepreneurship. The twins have more than 5.5 million YouTube followers, plus 3.3 million on Instagram, and that has drawn the eyeballs of a major retailer headquartered in North Texas.

 

Grocery & Restaurants

Brynwood Partners Buys Pillsbury Doughboy Unit From J.M. Smucker

Private equity firm Brynwood Partners has agreed to buy J.M. Smucker Co.’s U.S. baking unit in a deal valued at $375 million, acquiring a struggling business that includes the Pillsbury brand. The baking business generates about $370 million in annual sales.

High Bluff acquires Taco Del Mar

Private-investment firm High Bluff Capital Partners has acquired the Taco Del Mar quick-service chain from Franchise Brands LLC.  San Diego, Calif.-based High Bluff in June completed its acquisition of the Quiznos parent QCE LLC.

Home & Road

Helen of Troy’s Houseware’s Sales Climb 19 Percent

Helen of Troy Limited reported Housewares segment net sales increased by 18.9 percent in the first quarter ended May 31.  The gains reflected incremental distribution with existing domestic customers, an increase in online sales, new product introductions for both the Hydro Flask and OXO brands, an increase in sales into the club channel, an acceleration of Hydro Flask orders by retailers in advance of the Hydro Flask integration into the Helen of Troy ERP system and international growth.

Lowe’s Reshuffles Executive Suite

Under the new leadership of President and CEO Marvin Ellison, Lowe’s has restructured its executive team to simplify roles and responsibilities.  The positions of chief operating officer, chief customer officer, corporate administration executive and chief development officer have been eliminated, and responsibilities formerly under these roles will be assumed by other senior leadership roles that will report directly to Ellison, the company said. Effective immediately, Chief Operating Officer Richard Maltsbarger will be leaving the company. In addition, effective Nov. 6, 2018, after ensuring a smooth transition, Chief Customer Officer Michael McDermott has decided to leave the company to pursue other interests.

Jewelry & Luxury

Tiffany & Co opens doors to interactive style studio

Tiffany & Co has opened the doors to a ‘style studio’ in the heart of Covent Garden.

Described as a concept “like no other” for the brand, the new store has been designed to encourage creative interaction and play. Opening on James Street, and expected to operate until mid-2019, the space invites residents and visitors to explore, personalise, create and self-style.

 

Office & Leisure

‘We’re here to play and we’re here to stay’: Toys ‘R’ Us Canada wants customers to know it’s still alive

Toys “R” Us Canada wants you to know it’s very much alive. The toy retailer has ceased all U.S. functions since the company declared bankruptcy and closed all stores two weeks ago, but the company’s Canadian unit is alive and kicking — creating a very unique brand problem for a company that most consumers associate with “dead.”

The company’s Canadian president Melanie Teed-Murch is on a two-month Canadian tour to recast the brand — reminding people it’s alive through a series of media appearances and a planned redesign of physical locations to allow new in-store experiences. It’s also using mobile payments and in-store pickups of online orders to appeal to tech-savvy customers who may be tempted to shop on Amazon. The refresh of the brand spans two core areas — updates to physical locations, for which the company will reportedly spend $7.6 million by the end of the year, and a re-casting of the company’s image as a Canadian institution, appealing to customers’ sense of community.

Build-A-Bear Workshop’s ‘Pay Your Age’ Deal Canceled Amid Chaos

Build-A-Bear Workshop’s “pay your age” deal proved to be too alluring for its own good.

Only hours after it began, the bargain event was forced to shut down after chaos erupted across its U.S. stores. The limited-time promotion kicked off Thursday morning in Build-A-Bear shops within the U.S., U.K, and Canada. For one day only, customers were given the chance to purchase the stuffed toys, which usually range in price from $20-$35, for the amount of their age. Children could take home a bear for only a few dollars, while adult prices capped off at $29. But many were furious to find that the “pay your age” event had been canceled only hours after its launch due to safety concerns posed by unexpectedly large crowds.

Technology & Internet

L Catterton Asia and JD.com Announce Strategic Partnership with Secoo

L Catterton Asia and JD.com announced a strategic partnership with Secoo Holding Limited, Asia’s largest online integrated upscale products and services platform. Through the partnership, L Catterton Asia and JD will invest $175 million in Secoo.

 

Finance & Economy

Consumer companies, desperate for growth, drove dealmaking to a 15-year high in 2017

Consumer giants, which are facing increased competition from upstart brands, are buying growth where they cannot create it. The result: a new report found deal activity in the sector reached a 15-year high last year. Deals in the consumer goods industry rose 45 percent over the year prior, according to a survey from OC&C Strategy Consultants. The value deals of jumped 190 percent.  While the companies are all seeking growth, the deals reflect an array of strategies. Some are investing in digital companies to help more rapidly adjust to changing consumers. Others are buying companies in faster-growing regions, like the emerging markets, or within on-trend categories, like organic food.

 

U.S. Consumer Confidence Declines with Economic Optimism Cooling

U.S. consumer sentiment eased in June as Americans became less optimistic for the economy and income growth, according to figures from the New York-based Conference Board. The report indicates that while Americans remain upbeat on the current state of the economy amid bountiful jobs and lower taxes, there is less confidence that gains will remain robust. Some 18.8 percent of respondents said they expected their incomes to rise in the next six months, the smallest share since April 2017. As a result, purchase plans for motor vehicles and major appliances settled back. Along with still-tepid wage gains, confidence may be feeling an impact from elevated fuel prices and an intensifying global trade war that threatens to boost inflation and has already spurred big swings in the stock market. The University of Michigan’s consumer sentiment gauge showed a similar result on economic expectations earlier this month.