December 31, 2018 Consensus

The Weekly Consensus – December 31, 2018 (Volume 10, Number 49)

The Big Story
RetailWire Discussion: What Are the Takeaways from the Best Holiday Season in Six Years?
Tom Ryan, RetailWire

 

According to Mastercard SpendingPulse, holiday sales in the U.S. from Nov. 1 through Dec. 24 expanded 5.1 percent, the strongest growth rate in the last six years. The gains were led by a 19.1 percent hike in online sales, and also helped by a recovery in some key categories. Apparel sales improved 7.9 percent, the category’s best year-over-year gain since 2010, while home improvement climbed 9.0 percent. Electronics and appliance sales dipped 0.7 percent.

Apparel sellers are improving their performance through better inventory management and efforts to instill more freshness into offerings, according to analysts. Investments in digital by Walmart and others are similarly boosting online and overall omnichannel efforts. Adobe last week predicted BOPIS-related sales increased 47 percent over the holiday from a year ago, while mobile spending soared 57 percent.

Taylor Schreiner, director, Adobe Digital Insights, said in a statement, “Retailers who can offer the easiest shopping experience, whether through excellent use of data to anticipate shoppers’ needs or by providing an option for picking up products at brick-and-mortar stores, are the ones people are flocking to.”

But much of the improvement is being attributed to external factors. Improving consumer confidence supported by stronger employment, improved wages and tax cuts are offsetting concerns over stock-market gyrations, a potentially slowing economy and the partial government shutdown.

“The reality is the consumer felt comfortable enough to splurge and we’re hearing more and more it’s for items for themselves,” Bob Phibbs, CEO of The Retail Doctor and a BrainTrust panelist, told USA Today.

Also, Amazon said it generated a “record-breaking holiday season,” selling “millions more” Echo Dot and other Amazon Devices and signing up “tens of millions” to free Prime trials worldwide.

Discussion Questions: Do you see more external or internal factors driving the healthier growth rates this holiday-selling season? What encourages you and worries you most about the 2018 retail holiday season? Does the favorable performance indicate that retail has smartly adjusted to the digital disruption of recent years?

Comments from the RetailWire BrainTrust:

This was undoubtedly a robust holiday season, mostly thanks to relatively strong consumer finances and confidence. Most retailers also helped themselves by managing inventory well and stepping up omnichannel services. However, I am going to add two important caveats. First, while sales were good, I doubt that profit results will be quite so favorable: there are a lot of headwinds on costs that will harm retailers. Second, not all retailers will benefit from the favorable circumstances; there will be some big losers as results are announced in the new year.
Neil Saunders, Managing Director, GlobalData

Definitely more external factors, though I agree with Neil that it looks like retailers behaved themselves overall when it came to inventory and were fairly disciplined about that through the season. However, I think the most important take-away from the season is that retailers should NOT be patting themselves on the back, or walk away from this holiday thinking they have “solved” omnichannel. If anything, retailers should look at this holiday season as a windfall, and invest it directly back into building the next generation of customer experiences. I think 2019’s holiday will be the story of those who do that – and those who don’t.
Nikki Baird, VP of Retail Innovation, Aptos

On a macro level, there is a strong economy, and job market as a result, functioning as a foundation for spending. There is also Amazon, which is still the one clear leader in terms of being the digital disrupter-in-chief. Elsewhere, there was aggressive promotion throughout the holiday season, starting ahead of Thanksgiving. Couple that with leaner inventories and retailers should report better numbers. How much better? That will reveal which ones, if any, are actually selling goods at reasonably healthy margins.
Phil Rubin, CEO, rDialogue

 

The key factor for this year’s holiday season success is, in a word, convenience. Retailers have finally come close to where the shopper wants them to be, from marketing, through sales and finally fulfillment. Retailers also took advantage of the early Thanksgiving this year to stretch the shopping season and have several campaigns.
Ron Margulis, Managing Director, RAM Communications

 

Read the entire RetailWire discussion here:

 

Apparel & Footwear

Guess to pay $45M to resolve European antitrust investigation

The European Commission fined Guess €39.8 million ($45.2 million) “for restricting retailers from online advertising and selling cross-border to consumers in other Member States, (‘geo-blocking’), in breach of EU competition rules,” according to a press release. The practice allowed the apparel brand “to maintain artificially high retail prices, in particular in Central and Eastern European countries,” Commissioner Margrethe Vestager, the agency’s antitrust chief, said in a statement. Earlier this year Guess was buffeted by allegations of sexual assault against Co-Founder Paul Marciano, who eventually resigned following an investigation of his conduct.

 

Payless lenders prep for downward spiral

Payless lenders are reportedly in the early stages of organizing, two sources familiar with the situation told Debtwire. Since exiting bankruptcy, the shoe retailer’s earnings have fallen short of its forecast. For fiscal 2018, sales plummeted $15 million year-over-year to $426 million. Same-store sales rose in the quarter by just 3.3%, far lower than the 9.9% projected increase, with reduced traffic particularly in North America. Late last month, the shoe retailer launched the first of nine holiday pop-up stores in large industrial spaces with “a more modern look and feel than traditional Payless brick-and-mortar stores.” It’s also getting media buzz for a recent prank that involved taking over a former Armani store with a “luxury” store concept called Palessi. Last year, the retailer emerged from bankruptcy with a plan agreed to by lenders, who now largely own the company.

 

Gymboree is reportedly shopping for bankruptcy loan as it prepares second Chapter 11 filing

Gymboree is seeking a bankruptcy loan to keep stores open while it looks for a buyer, the Wall Street Journal reports. The children’s retailer is preparing to file for Chapter 11 bankruptcy for the second time in under two years. The company emerged from Chapter 11 in September 2017 after closing more than 360 stores. Gymboree is seeking a bankruptcy loan to keep some of its stores open while it looks for a buyer. If Gymboree does file for Chapter 11, it would likely close the majority of its 900 stores. The San Francisco-based company last filed for bankruptcy in June 2017, struggling to bear the burden of more than $1 billion of debt from its 2010 leveraged buyout. It closed more than 360 stores and emerged from bankruptcy after three months.

 

Athletic & Sporting Goods

Premiership Rugby: Minority shareholding sold to CVC Capital Partners for £200m

Premiership Rugby has moved into a “new era” after a deal was concluded for private equity firm CVC Capital Partners to invest more than £200m.  CVC have bought a minority shareholding, understood to be about 27%, after member clubs had previously rejected an offer to buy 51%.  CVC has previously led investments in Formula 1 and elite motorcycling series Moto GP.  Premiership Rugby says the extra money will not result in a hike in player wages, but will instead go towards improving facilities at club level and growing the league globally.

 

Pamplona Capital buys controlling stake in Latham Pool Products

Pamplona Capital Management said that it acquired a controlling stake in Latham Pool Products. The deal values Latham at $375 million. Wynnchurch Capital, the seller, will retain a stake. Latham, of Latham, New York, makes pool components and accessories in North America.  The Company has over 20 manufacturing facilities and distribution centers across the U.S. and Canada

 

Thule Group Acquires Rooftop Tent Maker Tepui Outdoors

Thule Group has announced the acquisition of rooftop tent maker Tepui Outdoors Inc. for $9.5 million. This acquisition will further enhance the Thule Group’s expanding portfolio of products focused on an active lifestyle.  Tepui Outdoors was founded in 2010 by Evan and Gabriela Currid. The company is based out of Santa Cruz, CA, and led by Evan Currid, who will continue to manage the product category within Thule Group.  Tepui Outdoors has approximately 20 employees and net sales for 2018 is expected to be approximately $6.5 million.

Cosmetics & Pharmacy

Ilia Beauty, Silas Capital announce partnership

Ilia Beauty has announced a new partnership with Silas Capital, a New York-based emerging growth equity firm that invests in next-generation consumer brands. “Ilia has always been a pioneer in clean color, and the clean beauty movement is clearly happening right now. The capital infusion and new partnership will allow us to do things we’ve never done before, like marketing and broader brand awareness across digital and retail,” Sasha Plavsic, founder of Ilia Beauty, said. “It’s a really exciting time to be in this space.” The Laguna Beach, Calif.-based beauty brand’s portfolio consists of more than 100 products crafted with organic ingredients and non-toxic synthetics, and also are manufactured ethically and sustainably, the company said.

WBA’s Q1 shows positive impact of acquired Rite Aid stores

Walgreens Boots Alliance has shared the financial results for the first quarter of its fiscal year 2019. The company posted $33.8 billion in sales for the quarter, a 9.9% increase from the prior year’s first quarter, with net earnings up 36.8% to $1.1 billion. Net earnings per share increased by $45.7% to $1.18. Walgreens Boots Alliance also announced a new cost-management program that is aimed at bringing annual cost savings of more than $1 billion by the end of its third year. The program’s initiatives are aimed at optimizing divisions, global smart spending, global smart organizing and enterprise digitization to transform long-term capabilities.

Discounters & Department Stores

Nonprofit thrift stores growing rapidly as shoppers prioritize bargains and reuse

Pam Kaiser browses the shelves of figurines at Goodwill in Roseville in search of vintage items that speak to her family’s roots. “I love to find Scandinavian things. I’m Swedish and my husband is German,” said Kaiser, who is a thrift store regular. “It’s fun to find things that are unique.” She has plenty of places to treasure hunt these days. Nonprofit thrift stores in Minnesota are experiencing unprecedented growth to handle both a growing appetite for secondhand bargains and a burgeoning amount of donated items.

Thrift stores, viewed a generation ago as places where poor people shop, are now attracting more middle class, environmentally conscious consumers in search of vintage and one-of-a-kind items.

Manhattan’s Extravagant Holiday Windows Aren’t Just for Gawking

This very winter, as New York City’s department stores geared up for millions of gift-seeking shoppers, retailers turned to a ghost of advertising past: the venerable holiday window. Carefully manicured and artfully prepared, extravagant holiday displays have graced Manhattan’s sidewalks for more than a century, reflecting in their polished glass a passing SUV just as they may have once revealed a Model T. These days there are more ways than ever to influence shoppers, from Instagram campaigns to Super Bowl commercials—yet the windows persevere.

Longtime Customers Mourn Loss of Historic S.F. Department Store Gump’s on Its Final Day

Gump’s opened its doors an hour early as a group of loyal customers gathered outside the store on Post Street. One longtime customer, Sylvia Brosamer, said she had to come when she heard Gump’s was going out of business. “Everything in there was beautiful,” Brosamer told KPIX. “We always came at Christmas.” The store, she said, is like a thread woven into the fabric of her fondest memories of Christmas, her childhood and even her wedding.

 

 

Emerging Consumer Companies

Instagram-Popular Shoemaker Rothy’s Expected to Post $140 Million in Revenue

The first Rothy’s pitch to Goldman Sachs, in August of last year, was propitious. One member of the bank’s venture capital team already owned a pair of the company’s stylish but comfortable flats that let her run from the subway to the office without changing shoes, her little life hack for a quick workout. Rothy’s are knitted like a pair of high-tech running shoes, rather than cut and sewn together. As such, they are, by all accounts, uncommonly comfortable and, at the time of the Goldman meeting, were already a social media phenomena. The bank’s asset management unit eventually did the deal, buying a $35 million stake in the burgeoning footwear brand at an undisclosed valuation. With a product on the sartorial scale tucked deftly between athleisure and business, a compelling story of sustainability, and a well-worn playbook on digital disruption, Rothy’s expects to post a little more than $140 million in revenue this year.

 

The Shinola Hotel to open in Detroit

Shinola, the Detroit-based accessories brand, will open The Shinola Hotel in Detroit in January following two years of construction. The hotel will feature 129 guest rooms, a number of restaurants and bars, event facilities, and retail space. A new Shinola store opened at the location in November. This is the first Shinola Hotel.

 

Dirty Lemon forms new parent company, raises $15 million from Coca-Cola

Dirty Lemon and The Coca-Cola Company announced an investment in Iris Nova, the newly-formed parent company of Dirty Lemon. The investment is part of a $15 million round. Iris Nova plans to launch two new brands in 2019, and to release a new SKU each month starting in January. Additionally, Iris Nova has allocated $1 million in 2019 to invest in other beverage brands.

 

Grocery & Restaurants

Jollibee Foods Corp. acquires final stake in Smashburger

After taking big stakes in Smashburger over the course of three years, Asia’s largest restaurant operator, Jollibee Foods Corp., said it has acquired the remaining 15 percent stake in the Denver-based better burger chain. Jollibee, based in the Philippines, operates more than 4,300 restaurants around the world under various banners including its namesake fried chicken fast food chain. The ownership change comes three years after Jollibee took a 40 percent stake in Smashburger in a deal valued at $335 million. In February, Jollibee snapped up an additional 45 percent of Smashburger for $100 million. Prior to the latest deal, Smashburger’s remaining 15 percent was owned by Black Shamrock Partners, a private equity firm.

 

Applebee’s no longer fully franchised after 69-unit buyout

Applebee’s has taken a step back into restaurant ownership with the purchase of 69 locations from a North Carolina franchisee, marking the first company-owned restaurants in the Applebee’s system in three years. The company said it had closed on a deal to buy 69 Applebee’s from Raleigh, N.C., franchisee Apple Gold Group. The restaurants, which are located in North and South Carolina, will be operated by Applebee’s COO Kevin Carroll.

 

Peet’s Coffee buys majority stake in kombucha brand

Peet’s Coffee, a subsidiary of JAB Holding Co., has purchased a majority stake in a Northern California kombucha brewery, Revive, with the intent of broadening the company’s nationwide distribution. Terms of the deal with Revive Kombucha, a craft brewery in Petaluma, Ca., were not disclosed.

 

Instacart to part ways with Whole Foods

In a widely expected move, online grocery delivery provider Instacart said it will now “wind down” its partnership with Amazon-owned Whole Foods Markets. Apoorva Mehta, founder and CEO of Instacart, said in a blog post that the San Francisco-based company will start pulling its personal shoppers — who pick, bag and deliver online grocery orders — from Whole Foods stores. Instacart has provided delivery from Whole Foods since 2014. After Amazon closed its acquisition of Austin, Texas-based Whole Foods in late August 2017, many retail grocery industry observers believed it was just a matter of time before the supermarket chain’s relationship with Instacart would end.

 

Home & Road

Executive shakeup at Pier 1 as CEO leaves

The chief executive of Pier 1 has jumped ship a mere eight months into the company’s three-year turnaround plan. Late Wednesday, the retailer announced the sudden departure of CEO Alasdair James. Pier 1 has appointed Cheryl A. Bachelder, a member of the company’s board of directors, as interim CEO, effective immediately. The company is also considering new options to turn around its business, and “improve profitability and cash flow.” One strategy nailed down prior to quarter-end included securing a revolving credit facility to include a new $50 million first-in, last-out (FILO) tranche with Bank of America and Pathlight Capital. Additionally, the company reduced its planned capital expenditures for fiscal 2019 from $60 million to $40 million. It is also implementing a more rigorous cost reduction program that is expected to generate annualized expense savings beginning in fiscal 2020, according to the company.

Williams-Sonoma Suit Claims Amazon Is Misusing Name, Copying Furniture

Williams-Sonoma Inc. (WSI) is suing Amazon.com Inc. in U.S. District Court of Northern California, claiming infringement and dilution of the company’s trademarked name. The suit claims Amazon.com has set up “an unauthorized Williams-Sonoma branded store on its website, falsely claiming that these retail services are ‘by Williams-Sonoma’ and leading to a variety of customer complaints misdirected to WSI that actually concern Amazon’s unauthorized retail services.” Within the complaint are screen shots capturing Williams-Sonoma branded products on Amazon’s site bearing a “by Williams-Sonoma” hyperlink above an image of the product, which the complaint contends falsely implies that Williams-Sonoma is selling the product through Amazon. The suit also goes after Amazon for patent infringement, saying Amazon copied WSI’s Orb and Slope chair designs, which are sold under the West Elm brand.

Jewelry & Luxury

De Beers’ Lightbox Chief Reveals 2019 Plans

De Beers shocked the industry in May by announcing it would launch a line of fashion jewelry featuring laboratory-grown diamonds. Lightbox Jewelry started selling the products online in September, and it’s now looking at expansion options. The main opportunity to develop the business will come once the miner has finished building a $94 million synthetic-diamond facility in Oregon in 2020. That center will grow about 500,000 carats of rough per year, providing Lightbox with the bulk of its supply and complementing existing production from its facility in Ascot, UK. The company is currently only selling the jewelry on its own website, but plans to enter into partnerships with retailers for online and in-store sales.

Holiday Jewelry Sales Rise 4%

US retailers enjoyed their strongest growth in six years this holiday season, although jewelry was slightly off pace, a report by Mastercard SpendingPulse revealed. Jewelry sales increased 3.7% year on year for the period from November 1 to December 24, a company spokesperson confirmed with Rapaport News, marking a slowdown from the 6% growth reported for the category during the 2017 season. The increase in jewelry sales also lagged behind total retail, which climbed 5.1% to more than $850 billion for the period, Mastercard SpendingPulse said.

Outlook 2019: Question for luxury brands – Who are you?

In an atmosphere fouled by unrelenting political crises, growing nationalism and incipient economic uncertainty, luxury marketers will be hard-pressed to focus on the one issue that must acquire their undivided attention in 2019: the product. Yes, product. Because that is the sole reason why luxury brands and retailers exist: to offer exceptionally well-crafted, quality products and unparalleled service to highly discerning customers who feel they are worth it. Closely linked to product is the merchandise or service’s relevance to the affluent customer’s current lifestyle.

 

Office & Leisure

Amazon reveals its best-selling toys of the holiday season

LOL Surprise — Amazon had a good holiday season. Amazon announced a “record-breaking” holiday season on Wednesday, noting more items ordered than ever before. Part of its success came from the toys customers ordered as gifts during November and December. One of the top gifts, as highlighted near the top of the press release, was the LOL Surprise collection of dolls, specifically the Glam Glitter series. The dolls have become quite the sensation. They were also a top seller over Thanksgiving weekend, and have sold $4 billion worldwide as of October. LOL Surprise accounted for seven of the top 10 toys in the United States in October and was the top toy, according to NPD Group analysis. Other top toys included a Lego set, a Nerf gun, and children’s art materials.

Instagram is helping save the indie bookstore

The internet is killing independent bookstores. Right? Maybe not. For years, that’s been the prevailing narrative. Since Amazon launched in 1995, it has been lamented as earth-shattering for the brick-and-mortar bookstore business. Indeed, Amazon decimated giant bookstore chains like Barnes & Noble and the now-shuttered Borders. But independent bookstores, against all odds, are actually growing, not dying. And the internet — particularly social media and Instagram — has played a huge role in revitalizing independent bookstores. Between 2009 and 2015, the number of independent bookstores grew by 35 percent, according to the American Booksellers Association.

HMV calls in administrators for second time in six years

Music retailer HMV has confirmed it is calling in KPMG as administrators. Owners Hilco, which took the company out of its first administration in 2013, blamed a “tsunami” of retail challenges, including business rate levels and the move to digital. It said the stores would continue to trade while negotiations were held with major suppliers and it looked for buyers. Paul McGowan, executive chairman of HMV and its owner Hilco Capital, said: “Even an exceptionally well-run and much-loved business such as HMV cannot withstand the tsunami of challenges facing UK retailers over the last 12 months on top of such a dramatic change in consumer behaviour in the entertainment market.” He pointed out HMV sold 31% of all physical music in the UK in 2018 and 23% of all DVDs and Blu-rays, with its market share growing month by month throughout the year. But he added that the industry consensus was that the market would fall by another 17% during 2019 and therefore it would not be possible to continue to trade the business.

Technology & Internet

Digital plays a role in more than half of US retail sales

Computers and smartphones will play a role in more than half of U.S. retail sales this year, according to a new report by Forrester Research Inc. The consultancy arrives at that percentage by assuming that e-commerce will account for 15% of retail sales this year and digital will influence 36% of offline sales. Digital’s influence stands to grow, writes Satish Meena, a Forrester senior forecast analyst, in the report. He expects digital to influence 58% of retail sales by 2023 thanks in large part to the growing role that smartphones are playing in shoppers’ lives.

MINDBODY Goes Private In Deal With Vista Equity Partners

Software company MINDBODY, which makes platforms for the fitness industry, will become a private company after a brief stint as a public one.  MINDBODY is going private via a $1.9 billion deal with Vista Equity Partners, which has purchased all of the company’s stock.  MINDBODY has been public for around three years. Under the terms of the deal, the company’s shareholders get $36.50 in cash per share, which represents a 68 percent premium from where the stock closed in trading last week.

Amazon Customers Made This Holiday Season Record-Breaking with More Items Ordered Worldwide Than Ever Before

Amazon announced a record-breaking holiday season thanks to its customers all around the world, with more items ordered worldwide than ever before. Some of the best-selling products this season included all-new Echo Dot, L.O.L. Surprise! Glam Glitter Series Doll, fashion items from Carhartt, and Bose QuietComfort Wireless Headphones, among others.

 

Finance & Economy

Jobless claims signal labor market strength, consumer confidence tumbles

The number of Americans filing applications for jobless benefits fell marginally last week in a sign of labor market strength, with claims appearing to stabilize after drifting higher in recent months.  After several years of near-steady falls, claims trended higher between mid-September and mid-December, prompting concern the U.S. economy was losing a step.

 

Retail Sales Jump By 5.1 Percent Over The Holidays

Amid the holiday season, total retail sales in the United States jumped by 5.1 percent from Nov. 1 to Dec. 24 compared to the prior year. The sales figures, which were provided by Mastercard SpendingPulse, did not include automobiles and are said to show the most robust growth over a six-year period, The Wall Street Journal reported.  According to consultants and analysts, retailers were challenged to keep up sales throughout the holiday shopping season with an atypically early Thanksgiving. But WSJ reported that merchants like Target and Walmart lengthened their online order deadlines for Christmas.

 

US home price growth slowed in October

U.S. home price growth slowed in October, a likely consequence of higher mortgage rates having worsened affordability and causing sales to fall.  Home prices have dropped as would-be buyers are struggling to afford homes. Prices have consistently climbed faster than wages, a challenge that was overcome until last year by historically low mortgage rates. But borrowing costs began to rise last year after President Donald Trump cut taxes by increasing the budget deficit and the Federal Reserve hiked interest rates.