The Weekly Consensus – September 18, 2017 (Volume 9, Number 35)

The Big Story
Running on Empty
Doug Stebbins

The economy continues to expand – jobless rates are at historical lows, consumer sentiment is strong, the housing market is hot, and the stock market is at all-time highs.  Then why are so many retailers struggling?  It is simple: the shopping habits of consumers have changed, and it has been hard for traditional retailers to adapt.  As ecommerce takes more and more market share, brick and mortar stores are fighting for a smaller group of shoppers.

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The Weekly Consensus – September 11, 2017 (Volume 9, Number 34)

The Big Story
RetailWire Discussion: ‘Okay Google, I want to order from Home Depot’
George Anderson, RetailWire

Google is on a retail roll. Home Depot announced it will join Google Express this fall, which will enable people to order products from Home Depot’s inventory using Google’s Home speaker device or mobile app. This announcement comes just a couple of weeks after a similar announcement of a Google Home tie in with Walmart.

With two of the largest retail chains in the world moving into voice orders with Google, the question becomes more a matter of “when” than “if” others will begin selling on the platform. Other retailers on Google Express include Bed Bath & Beyond, Costco, Kohl’s, Payless, Pier 1, Toys “R” Us, Ulta, and Walgreens.

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The Weekly Consensus – August 28, 2017 (Volume 9, Number 33)

The Big Story
Not So Strange Bedfellows
Marshall Schleifman

When Alphabet launched Google Express in 2013, it surely expected the service to become bigger and more important than it has.  After all, Alphabet does not undertake initiatives to be a laggard making a small impact.  With over 30 retail partners including stalwarts Costco, Walgreens, Bed Bath & Beyond, Kohl’s and Toys R Us, Google Express is Alphabet’s entry in ecommerce –  Amazon’s domain.  One could reasonably have forecast that world-class brands and products on a world-class Google technology platform would gain momentum and become a competitive force.  Thus far, however, Google Express has unintendedly stayed below everyone’s radar.  This week, that just might change.

At the same time that Amazon takes over Whole Foods to make its big splash into bricks and mortar, Google Express has taken an important step in its effort to earn more of the digital commerce pie.  Last week, Google announced a partnership with Walmart, representing Walmart’s latest strategy to narrow the digital commerce gap between the biggest bricks-and-mortar retailer and the largest digital one.  Starting next month, Walmart’s hundreds of thousands of products will be accessible through Google Express.  However, the value of Google Express to Walmart and vice versa is not about express.google.com or even the mobile app, but the next big channel of digital retailing:  voice shopping.  “When it comes to voice shopping, we want to make it as easy as possible for our customers. That’s why it makes sense for us to team up with Google,” Marc Lore, the president and CEO of Walmart U.S. eCommerce, wrote in his blog post announcing the new relationship.

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The Weekly Consensus – August 21, 2017 (Volume 9, Number 32)

The Big Story
GGP Makes a Play to Bring Real Life to Digital Brands
Michael A. O’Hara

Politely pushing through the crowds of private equity investors, venture capitalists and commercial lenders that clogged the Nasdaq Marketsite’s auditorium, Erin McCarthy made a beeline for the founders of an emerging consumer experience brand who had just descended the stage at Consensus’s Next Great Consumer Brands event.  Unlike the 300 or so other attendees of the May 2017 event, Ms. McCarthy had a different kind of capital to offer to presenters: retail real estate.

One might find it peculiar for a real estate executive to attend a conference dominated by ecommerce companies.  But for Ms. McCarthy, who is VP of Retail Development at GGP (formerly General Growth Properties), these companies are just what she is looking for.  In her role, she is charged with the task of bringing innovative potential users of retail real estate to the high-quality regional shopping centers owned and operated by America’s second largest mall operator.

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The Weekly Consensus – August 14, 2017 (Volume 9, Number 31)

The Big Story
The Pay-Off of Mobile Payments
Matthew Wilk and Bo Berluti

An interesting irony about the retail world today is that one of the most cutting-edge technological advancements taking place isn’t happening online, it is happening in stores. This new technology enables more streamlined transactions, it appeals to young people, it can be used to engender customer loyalty, and increasing numbers of companies are investing in it. Mobile payment options are changing how people shop, and the retail world is taking notice.

Mobile payment options such as Apple Pay, Google Wallet, customer loyalty apps, and Paypal enable customers to use their phones to complete transactions instead of producing a credit card or cash. Apps are usually linked to a preexisting credit card or debit account, and customers can either scan their phones or use near-field-communication between their phones and the cash register to pay. Mobile payment options appeal to consumers because they are convenient, and to retailers because they can be used to deepen customer loyalty and drive revenue.

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The Weekly Consensus – August 7, 2017 (Volume 9, Number 30)

The Big Story
Brandless is More
Sam Provet

Ten years from now, will you still be going to the supermarket every week to fill your cart with items from giant consumer products companies like Procter & Gamble and Unilever? One interesting and young company is working very hard to ensure that the answer to that question is no.

Brandless is an innovative and growing consumer products company that offers convenience, quality, and affordability. The company is digitally native, operating through its website, and many products are aimed at health-conscious customers and clearly labeled with attributes such as organic, or gluten free. Brandless also sells all its products with two unique twists: every item costs $3, and there are no brands. Per ounce, Brandless products are slightly more expensive than discount brands, but less expensive than similar quality lines such as Whole Foods private label 365. Products are labeled without logos or brand names, with simple descriptions of what the product is. For instance, graham crackers are simply labeled “Graham Crackers.” This novel and straightforward approach is attracting both customers and investors. Brandless has already secured $50 million in funding from firms such as Enterprise Associates and Google Ventures.

Brandless appears to be poised for growth not only because of its own strategy and positioning, but because at least three major trends in the consumer economy are set to be tailwinds for the company. First, trends in online shopping should be beneficial for Brandless. Internet Retailer estimates that ecommerce has grown to roughly 12% of total U.S. retail sales, and the upward trend shows no signs of abating. Direct-to-consumer businesses are also becoming more popular with online shoppers, as evidenced by the success of notable market “disruptors” such as Dollar Shave Club and The Honest Company, which have each garnered valuations of $1 billion.

Secondly, Brandless should also benefit from a growing global emphasis on healthy eating. Forbes reports that global sales of healthy food products are estimated to reach $1 trillion by 2017 and that consumers in all demographics say they would pay more for healthy foods. Many brands are scrambling to match these consumer tastes. Companies such as Kraft, Unilever and Heinz are facing increasing competition from both high-end and discount brands that are focused on organic alternatives. Brandless’s offering fits this trend perfectly – in a market where consumers are willing to pay more for quality products, Brandless offers good, nutritious essentials (and doesn’t ever charge more).

Lastly, consumers appear poised to gravitate toward private label products in the future. Marketers Media estimates that the U.S. private label market will grow at a CAGR of roughly 3% through 2020, and a 2016 study by Daymon Worldwide concluded that millennials are more drawn to private label goods than prior generations. This suggests that private label growth could accelerate as millennials age and enter peak spending years.

These trends suggest that many Americans in the future will be shopping for healthier household essentials by clicking a mouse instead of pushing a cart, and consumers may increasingly find value to be more important than brand names. Brandless appears poised to capitalize on this combination dynamics. As it leverages both its strong business model and key consumer trends, Brandless is designed for a successful future, $3 dollars at a time.

 

Headlines of the Week

Aldo acquires Vince Camuto in latest deal to reshape fashion industry

Aldo, the privately held Canadian shoe company, has agreed to acquire the footwear and accessories operations of the Camuto Group, the company founded by the fashion impresario Vince Camuto, who died in 2015. The takeover will give Aldo, which makes its own shoes and sells them in thousands of stores around the world, a bigger footprint at a moment when fashion brands are seeking growth through mergers and acquisitions. Terms of the deal, which was confirmed by the companies, were not made public.

Stitch Fix has confidentially filed for an IPO

Stitch Fix has filed confidentially for an initial public offering, setting itself up for another big test for the IPO market in the near future, sources tell TechCrunch. While we don’t know exactly when Stitch Fix will go public, we do know that a handful of companies are planning to go between Labor Day and Thanksgiving. Stitch Fix only recently hired its CFO, Paul Yee, in June — so it’s possible that they will push this a little further out. This marks the official beginning of the process ahead of the S-1 filing where the company will formally disclose its financials. Startups are allowed to file confidentially for IPOs under the JOBS act signed in 2012, allowing them to test the waters prior to formally releasing their company’s inner workings.

 

Apparel & Footwear

New Owners Take Over BCBGMaxAzria and Other Labels

The brand is still around but the owners are new. On Aug. 1, Marquee Brands announced it had acquired the entire portfolio of brands once owned by the BCBG Max Azria Group, the Los Angeles fashion house that filed for Chapter 11 bankruptcy protection on Feb. 28. Marquee Brands, headquartered in New York, acquired for $106 million the intellectual property rights to BCBGMaxAzria, BCBGeneration and Hervé Leger.

Wolverine Worldwide sells Sebago shoe brand

Wolverine Worldwide has sold its Sebago brand to the Italian company that makes Kappa shoes. BasicNet, S.p.A., bought the boat shoe brand from the Michigan footwear company for an undisclosed amount, Wolverine announced late Monday, July 31. The longtime Italian shoemaker also sells brands Robe di Kappa, K-way and Superga sneakers. The decision to unload Sebago comes as Wolverine is making changes to reduce costs and increase profits.

 

Athletic & Sporting Goods

Under Armour Is Slashing Almost 300 Jobs Amid Sluggish Sales

The Under Armour juggernaut has slowed down significantly. The sports gear maker said it was cutting about 2% of its global workforce, or some 280 jobs, and it now expects slower revenue growth this fiscal year, pointing to an intensely competitive environment in retail. What’s more, sales in its once booming footwear category slipped, a big disappointment for Under Armour. Under Armour shares tanked on the results, slipping 8.6% to about $18.30, their lowest level in four years. Just about a year ago, they were changing hands for roughly $43.

French Sporting Goods Giant ‘Decathlon’ Opening in San Francisco

French sporting goods giant Decathlon is taking over the former location of Golfsmith’s Golf & Tennis—which closed last year—at 735 Market Street.  The San Francisco location marks the retailer’s return to the American market; previously, it had four stores in Massachusetts before shutting down in 2006. Decathlon also plans to offer online sales to Californians soon. It will be Decathlon’s first store in San Francisco and in California. Decathlon—an international chain first founded in Lille, France—has 1,120 stores worldwide in 30 different countries. With a motto of “all sports under one roof,” it offers sports equipment for varying levels of expertise and activities, ranging from running and team sports to fishing and scooters.

 

Cosmetics & Health

Shoppers Drug Mart sees Q2 sales growth

Shoppers Drug Mart parent company Loblaw recently shared its second-quarter financial results, posting increases in same-store sales for the drug store chain. Its Loblaw grocery chain saw modest sales growth, due largely in part to the timing of Easter. “In a quarter characterized by continued price deflation, we delivered solid sales metrics and are pleased with our financial performance,” Loblaw chairman and CEO Galen G. Weston said. “We plan to intensify our focus on cost reductions in this highly competitive market given incremental external pressures on our industry.”

Walgreens Boot Alliance partners with KKR on PharMerica acquisition, settles with Theranos

Walgreens Boots Alliance was busy last week. As a minority investor, the company on Wednesday announced that it had formed a new company with KKR, through which the two acquired institutional pharmacy company PharMerica. The all-cash transaction is valued at roughly $1.4 billion and will make PharMerica a private company. “This is an opportunity to expand into a growing segment, and to do so through a national footprint,” Walgreens Boots Alliance co-COO Alex Gourlay said. “As the healthcare landscape and patients’ needs continue to change, this is another way we can support quality, affordable patient care.”

Brick-and-mortar Beauty Growth Shakes Up Industry

Multi-brand and vertically integrated beauty stores are shaking up the beauty industry — and growing at a rapid rate.  With hundreds of new doors opening in various formats, such cosmetics specialty and vertically integrated stores as Ulta, Sephora, Bluemercury, NYX, Kiko Milano, and e.l.f., have grown at a compound annual growth rate of nearly 19% over the past five years, according to a report by research and consulting firm Kline. Such stores now account for an estimated 20% of total beauty market sales.

 

Discounters & Department Stores

Dillard’s Targeted by Snow Park to Unlock Property Value

Activist investor Snow Park Capital Partners has built a position in department-store chain Dillard’s Inc. and is planning to push for changes at the company, including unlocking the value of its real estate portfolio. “Dillard’s is essentially an underleveraged real estate company that is masquerading as a low productivity retailer,” Snow Park Managing Partner Jeffrey Pierce said in an email.  A quarter of Dillard’s real estate is located in top-tier malls, which typically fetch about $650 per square foot in sales, according to Pierce.

Target set to give $14 million to youth soccer programs

Young soccer players have scored $14 million worth of new programs thanks to Target Corp. as the company continues to deepen its ties to the popular sport. The Minneapolis-based retailer announced last Tuesday an $8 million grant program to increase young people’s access to soccer in addition to a $6 million partnership with the U.S. Soccer Foundation to build 100 soccer play spaces across the country by 2020.

Earlier this year, Target announced a three-year deal to be an official partner of Major League Soccer, signed on as a major sponsor for local team Minnesota United FC (who wear the company’s bull’s-eye logo on their jerseys) and committed as the official retailer for U.S. Youth Soccer.

Costco is Still Amazon-Proof… Relatively Speaking

Across almost every sector in the retail industry, Amazon poses an existential threat. For warehouse club Costco, Amazon’s planned acquisition of Whole Foods appears to sharpen the threat. And yet Costco continues to outperform. The company last Wednesday reported a better-than-expected comparable sales gain of 6.2% in July, including a 6% increase in the US, its home, and largest, market.  Even excluding the impact of gasoline sales, US sales rose 5.5%, again beating expectations. And domestic customer visits increased 4.2%, quite a contrast with many physical retailers, which are seeing declines in foot traffic.  In fact, Costco’s sales performance has topped expectations in six of the first seven months this year, according to Retail Metrics.

 

Grocery & Restaurants

GrubHub Buys Yelp’s Eat24 for $288 Million

GrubHub Inc. is gobbling up its smaller competitors, but trading them in for much, much larger ones. On Thursday, the company said it would buy Eat24 from Yelp Inc. for $288 million in cash, well over twice the $134 million Yelp paid for the smaller food delivery company when Yelp bought it in February 2015. GrubHub and Yelp are also agreeing to a five-year partnership that will see Yelp integrating GrubHub ordering into its own restaurant listings. When someone places a GrubHub order through Yelp, GrubHub will pay a “partnership fee”, which the company considers a marketing expense.

Fast-casual chain Fatburger prepares for IPO, still gauging investor interest

Though the casual dining space is believed by some to be a weak link in the restaurant industry today, fast-casual chain Fatburger is ready to test the public market. Los Angeles-based Fatburger and Buffalo’s Cafe CEO Andy Wiederhorn announced Thursday morning that his holding company, FAT Brands, has been trying to gauge investors’ appetite for an initial public offering.

 

Home & Road

Glen Raven, Inc. to Acquire Sunbury Textile Mills

Glen Raven, Inc., a global provider of performance fabrics, has signed a Letter of Intent to acquire Sunbury Textile Mills, a market leader in the design and manufacture of decorative jacquard fabrics. Under the agreement, Sunbury will become a wholly owned subsidiary of Glen Raven, Inc. and will operate as part of Glen Raven Custom Fabrics, LLC, best known as the makers of Sunbrella® fabrics.

 

Jewelry & Luxury

Rough Market Cools Despite $572M De Beers Sight

The rough-diamond market slowed last month, with prices on the secondary market decreasing. De Beers sold $572 million of rough in the sixth sales cycle, an increase of 6% from the previous sight and 8% from the same period a year ago, the company said last Tuesday. However, rough dealers were reselling boxes of De Beers goods for no premium, or at a loss, in contrast to the buoyant activity in the first half of the year, sightholders said. While De Beers kept its prices generally steady, prices on the secondary market were about 4% to 5% lower than they were following the June sight, dealers reported.

The Key To Confidence In The Diamond Sector

They say that confidence is the key to success, and that preparation is the key to confidence. And from my years as President of De Beers Group’s International Institute of Diamond Grading & Research (IIDGR), I can safely say that this is certainly true of the diamond sector. Confidence is an increasingly vital component of success at all stages of the diamond value chain, and you can’t provide that confidence unless you have a wealth of knowledge and hard work behind you. That’s why De Beers Group established IIDGR. Ever since De Beers was established in 1888, we’ve been building an immense knowledge-base about diamonds and all aspects of the diamond sector.

Famed Jeweler Fred Leighton Dies

Legendary jeweler Fred Leighton, who transformed an estate jewelry business into a red carpet fixture and one of the industry’s most recognized brands, died July 26. He was 85.

Leighton was born Murray Mondschein, the son of a New York City cabdriver. Following two years in the U.S. Army, he bought a Greenwich Village Mexican dress store named for its former owner. He soon became entranced by the estate jewelry business.

“People began coming into the store to sell these amazing things that belonged to their grandmothers,” he told People in 2002. “A place like Sotheby’s didn’t have that many auctions, so you had to wait a long time for your money. I was buying things outright.”

 

Office & Leisure

Office Depot to acquire Staples’ stores after all?

Staples, which is in the process of going private, received an offer of $625 million to $700 million for its more than 1,200 retail stores and brand, according to a company filing with the Securities and Exchange Commission. The report has some industry observers saying that the would-be buyer must be Boca Raton-based Office Depot, which tried to merge with Staples last year but called it off after a court challenge by the Federal Trade Commission. The FTC deemed the combination “anti-competitive” for business consumers.

Exclusive: Hasbro ends talks to buy Lions Gate Entertainment – sources

Hasbro Inc, the maker of games ranging from Monopoly to foam Nerf balls, has ended talks to acquire U.S. movie studio and entertainment company Lions Gate Entertainment Corp, people familiar with the matter said on Wednesday. The deal would have given Hasbro a direct pipeline into Hollywood with more movies and TV shows tied to its toy brands.

 

Technology & Internet

Amazon’s new refunds policy will ‘crush’ small businesses, outraged sellers say

Amazon sellers are up in arms over a new returns policy that will make it easier for consumers to send back items at the merchant’s expense. Marketplace sellers who ship products from their home, garage or warehouse — rather than using Amazon’s facilities — were told this week by email that starting Oct. 2, items they sell will be “automatically authorized” for return. That means a buyer will no longer need to contact the seller before sending an item back, and the merchant won’t have the opportunity to communicate with the customer. If a consumer is returning an electronic device because it’s difficult to use, for example, the seller won’t be able to offer help before being forced to pay a refund.

Blue Apron sees job cuts ahead of Jersey City facility closure; shares fall 7%

A month after its initial public offering, Blue Apron is losing more than a third of its workforce at a Jersey City, New Jersey, facility. The meal-kit delivery company said it plans to close this location in October and has given all of its employees the option to transfer to the new facility located in Linden, New Jersey, about 15 miles from the old location. Blue Apron shares have struggled since debuting on the New York Stock Exchange last month. The company, which had an IPO price of $10 per share, had seen its stock fall more than 38 percent, however, news of the job cuts sent shares lower. The stock was recently hovering below $6 a share, down about 7 percent late Friday.

How Alibaba plans to win over luxury brands

Alibaba, China’s largest e-commerce platform, is improving its services to make luxury brands feel at home on Tmall, its B2C marketplace for retailers. Brands with an image to protect have long been wary of the marketplace, which has been battling counterfeit sellers that continuously pop up on the site, hawking cheaply made imitations of luxury goods. Since Alibaba doesn’t carry the inventory of its sellers, it can’t run authenticity inspections of every item in its marketplace. Tmall’s specialty is also mass selling: It carries a vast variety of brands and retailers that span across categories, meaning luxury brands could be positioned alongside anything from beer to diaper brands. As of January, there were 14,500 brands selling on Tmall.

 

Finance & Economy

US personal income unchanged in June vs 0.3% increase expected

U.S. consumer spending barely rose in June as personal income failed to increase for the first time in seven months amid a decline in dividend payments, pointing to a moderate pace of consumption growth in the third quarter. The Commerce Department said that consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent in June after an upwardly revised 0.2 percent gain in May. There was also little sign of inflation. The personal consumption expenditures (PCE) price index, excluding food and energy, rose 0.1 percent in June after a similar gain in May.

Takeaways From a “Near-Perfect” Jobs Report

A lot of annoying political analysis followed Friday’s jobs report. But if you strip away the spin, it was a good set of numbers – even “near perfect,” as Thomas Simons of Jeffries called it. With the expansion entering its ninth year, and already the second longest on record, now’s the time to be looking for signs it is coming to an end. Friday’s report offered none. Job growth was solid, but not strong enough to spook the Fed. Wage growth picked up, but not enough to threaten inflation. Discouraged workers began making their way back into the job market, indicating that despite an unemployment rate of just 4.3%, there’s still some slack to fuel future growth. An important milestone was passed: the Hamilton Project calculated the U.S. job market has finally fully recovered from the Great Recession. And The Wall Street Journal calculated layoffs are at their lowest level in half a century.

The Weekly Consensus – July 31, 2017 (Volume 9, Number 29)

The Big Story
Amazon Is Taking Tradtional Retailers [Back] to School
Paul Alexander, CFA

 

August doesn’t begin until tomorrow, but it is likely that more parents than ever before are already done shopping for their children’s back-to-school needs. According to the annual National Retail Federation (NRF) back-to-school season survey, 27% of families will begin shopping for back-to-school at least two months before classes begin this year, up from 22% in 2016. The NRF reported a similar shift last year as well, when 73% of families said they would begin shopping at least a month before school, which was up from 62% in 2015. What is behind this curious trend?

Don’t think too hard. This question has the same answer as nearly every other question posed over the last decade by retail’s changing landscape: It’s the internet. And it’s Amazon. Again.

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The Weekly Consensus – July 24, 2017 (Volume 9, Number 28)

The Big Story
The Continued Evolution of DTC and Brick and Mortar

Last week, online clothing brand Everlane announced plans to open its first retail store, a flagship location in San Francisco’s Mission District. Everlane joins a bevy of young, digitally native, vertically-integrated consumer brands that are following in the footsteps of “clicks-to-bricks” pioneers like Warby Parker and Bonobos. Brands like Tuft & Needle, Chubbies, and Cotopaxi, all fast-growing online brands, have ventured into brick and mortar, often first with pop-ups and then carefully with permanent retail locations.

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The Weekly Consensus – July 17, 2017 (Volume 9, Number 27)

The Big Story
Abercrombie & Fitch: A Moose of a Mess
Maeghan Thompson

Abercrombie and Fitch announced last Monday, July 10th, that the company would no longer seek to sell itself despite having previously entertained takeover bids, including from competitors such as American Eagle and Express. ANF’s stock price plummeted more than 21 percent upon the announcement, and shares of Gap, American Eagle and Express all fell more than four percent. Abercrombie now finds itself again with the daunting task of restoring its flagship brand to popularity, and the prospect of finding a helping hand from a would-be acquirer seems dim. In the meantime, the secular headwinds buffeting retail are as palpable as ever. Abercrombie was once the hottest teen brand in America. So how has it gotten to this point? What lies ahead?

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The Weekly Consensus – July 10, 2017 (Volume 9, Number 26)

The Big Story
RetailWire Discussion: Primed for Prime Day
Tom Ryan, RetailWire

For its third annual Prime Day, Amazon is ramping up the excitement to again wallop year-ago levels.

The first Prime Day occurred on July 15, 2015 and appeared to be a one-off occasion to celebrate Amazon’s twentieth anniversary. Proving successful in boosting sales and attracting new Prime members, the retailer ran the event again on July 12, 2016. Adding more than 800 limited-time “Lightning Deals” in the evening, last year’s Prime Day sales rose more than 60 percent and exceeded Amazon’s Cyber Monday sales.

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