The Weekly Consensus – August 13, 2018 (Volume 10, Number 31)

The Big Story
Rite Aid’s Roller Coaster
Marshall Schleifman

Last Wednesday evening, pharmacy chain Rite Aid and supermarket Albertsons mutually agreed to terminate their pending merger.  Despite general support for the strategic merits of the combination, some large institutional Rite Aid shareholders opposed the deal and both major shareholder advisory firms urged against it believing that the economics of the proposal disproportionately accrued to Albertsons’ side.  Rite Aid abruptly cancelled its shareholder vote scheduled for Thursday morning, providing no reason for doing so.  This curious breach in standard procedure simply may have been intended to avoid the embarrassment of a failed vote or it may have been the follow-through on a high-stakes Rite Aid negotiation threat when Albertsons would not make a concession to appease the holdout shareholders.  While Rite Aid’s press release stated that it had “heard the views expressed by [its] stockholders”, Albertsons’s press release explained that it was “unwilling to change the terms of the merger.”

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The Weekly Consensus – August 6, 2018 (Volume 10, Number 30)

The Big Story
Thanks and Praise to the NASDAQ
Michael A. O’Hara

The Summer of 2009 was quiet for initial public offerings, especially for the IPO team at the NASDAQ.  Only a year removed from the collapses of Bear Stearns, Lehman Bros. and Washington Mutual and the bailouts of AIG, Chrysler and General Motors, the financial markets, while showing the first “green shoots” of hope, were hardly teeming with new listings.  On one of these slow news days in the Summer of 2009 the NASDAQ invited Consensus to Times Square to celebrate the first publication of our Retailer Health Ratings®.  While not exactly the IPO of Facebook, we were honored to take the stage with our colleagues, families and a small collection of friends and ring the bell (actually, push the button) to start the day’s trading.

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The Weekly Consensus – July 30, 2018 (Volume 10, Number 29)

The Big Story
Chick-fil-A’s Latest Eyebrow-Raising Move: Meal Kits
Daniel O’Brien

Fast food has held a unique position in American culture and the American diet for decades. It is impossible in many towns and cities to drive down Main Street and not be met with large neon signs, golden arches, and Colonel Sanders staring you in the face. One company, however, has long differentiated itself from the major burger chains. Best known for its delicious chicken sandwiches, cordial customer service, and controversial political views, Chick-fil-A has taken a different approach to fast food than most. It is now experimenting with a new product offering that could separate itself from the pack even further. The company will soon begin testing an offering of meal kits that customers can pick up in store and bring home to prepare on their own. This test, which will begin in mid-August in the Atlanta, Georgia area, could drive incremental sales if customers who are already in store decide to add meal kits for future consumption to their transaction. But getting into meal kits also entails a number of challenges and risks.

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The Weekly Consensus – July 23, 2018 (Volume 10, Number 28)

The Big Story
Toys “R” Us’ Hidden Technology Treasure Could Be Worth Millions
Paul Alexander, CFA

As the investment bankers charged with selling the intellectual property of the Toys “R” Us bankruptcy, we at Consensus have been working with potential investors to reimagine and relaunch the brand. While poring over the company’s wealth of trademarks, brands, domains, franchise agreements, and more, we experienced the investment banking equivalent of stumbling across a lost treasure chest in your grandmother’s attic: we found a trove of unused “IPv4 addresses” that may yield value to the bankruptcy estate in the millions of dollars.

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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.

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The Weekly Consensus – July 9, 2018 (Volume 10, Number 26)

The Big Story
Full of Vacancy

Last week, it was reported that mall vacancies have hit their highest level since 2012 and are closing in on all-time records. According to a report by REIS, the commercial real estate data company, the amount of occupied retail real estate in 77 major U.S. metropolitan areas dropped by 3.8 million square feet in the second quarter, the largest decline since 2009.

The news coincided with the last of more than 700 Toys R Us stores closing last week, after the company filed bankruptcy earlier in the year. In all, more than 4,100 major retail stores closed so far in 2018, according to Coresight Research. Six hundred Walgreens have closed this year, while Bon-Ton, Sears and Kmart, Best Buy, Signet Jewelers, Mattress Firm, and GNC have all closed two hundred stores or more this year. Claire’s, Foot Locker, and The Children’s Place have closed one hundred or more locations.

Shopping centers saw 8.6% of their retail space unoccupied in the second quarter, up from 8.4% at the start of the year, according to the REIS report. The vacancy rate peaked at 9.4% in 2011. Back then, the economy was still in a recession, and too many malls had been built in the preceding decades, resulting in a glut of retail space. “We were over-retailed,” said Barbara Denham, a senior economist at REIS. “The recession knocked a lot of stores out of business. While the industry made corrections, it may still be the case that the U.S. is over-retailed. The Wall Street Journal recently noted that for every person living in the U.S., there is 24 square feet of retail space. In Australia, it amounts to 11 square feet, and in the U.K., it is just five square feet.

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The Weekly Consensus – June 25, 2018 (Volume 10, Number 25)

The Big Story
Death, Taxes, and Tariffs?
Billy Busko

Nearly 150 years ago, Civil War journalist and poet Ambrose Gwinnett Bierce neatly offered this definition of a tariff, “A scale of taxes on imports designed to protect the domestic producer against the greed of his consumer.”

On July 6th, the US will impose tariffs on $34 billion of Chinese products. On the heels of July 6th, the US will impose tariffs on another $16 billion of Chinese products. China announced reciprocal action:  applying tariffs on $50 billion of US goods. In this high stakes game of trade, the US more than doubled down last week. In fact, the US quadrupled down by stating that another $200 billion of Chinese goods would be subject to a 10% tariff.

What does this potentially mean to the US consumer?

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The Weekly Consensus – June 18, 2018 (Volume 10, Number 24)

The Big Story
Retail’s Retreat and Refresh
Betsy White

You almost never hear the words retail and change used in a positive sense these days, but last week brought a mixed bag of stories regarding brick and mortar retail that included two developments that offer some optimism for the industry.

First, three stories last week illustrated the increasingly common phenomenon of old retail space being repurposed:

  • Hudson’s Bay announced it would not continue to operate its Lord & Taylor mid-town Manhattan store next year once the sale of the location to WeWork, a co-working space operator, is completed after holiday 2018. The original plan was to shrink the store, but now the company plans to close it and focus more resources on ecommerce.
  • Cirque du Soleil announced it will be opening a 24,000 square foot “Creactive” family entertainment center in a Toronto area mall in 2019. Ostensibly, the space for the new center will come from a recently closed anchor retailer.
  • The New York Times reported that part of a former Macy’s store in Alexandria, VA has been converted into a homeless shelter, at least temporarily.

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The Weekly Consensus – June 11, 2018 (Volume 10, Number 23)

The Big Story
Buffett and Dimon Are Right About Quarterly Guidance
Paul S. Alexander, CFA

In a commentary published in the Wall Street Journal last week, JPMorgan Chase & Co CEO Jamie Dimon and Berkshire Hathaway chairman Warren Buffet encouraged companies to cease issuing quarterly earnings guidance. The rationale was that short-term guidance “often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.” The article further argued that markets’ fixation on the near-term can also deter companies from going public, which can limit those companies’ financial options, as well as the investing options of the general public.

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

The Big Story
RetailWire Discussion: Best Buy Finds More Inventory on Hand Drives Sales
George Anderson, RetailWire

Best Buy has been on a roll with a same-store sales gain of 7.1 percent in the first quarter following a nine-point comp gain during the fourth quarter. Among the keys to the consumer electronics chain’s success has been its inventory management.

Speaking on Best Buy’s earnings call with analysts in late May, CFO Corie Barry applauded the company’s inventory and demand planning group for “the quality of our inventory,” which she said was reflected in the chain’s net promoter score. “Customers are consistently telling us one of the big drivers of that improved customer experience year-over-year is inventory availability both online and in stores,” said Ms. Barry. “And so, I feel very good about the targeted quality of the inventory and then also the levels in support of the business we’ve been seeing.”

Best Buy’s inventory is up about nine percent on a square foot basis year-over-year. The chain is in the midst of a multiyear effort to transform is supply chain, according to a Wall Street Journal report. While the chain’s management believes the investments being made are critical to Best Buy’s sales success, analysts are watching to see if it delivers the returns investors expect.

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