The Weekly Consensus – April 24, 2017 (Volume 9, Number 17)

The Big Story
Three Reasons Why We Like PetSmart’s Chewy.com Acquisition
Maeghan Thompson

PetSmart announced last week that it is buying Chewy.com, an online retailer of over 30,000 pet related products.  According to Recode.net, the purchase price is $3.35 billion, making it the largest e-commerce acquisition ever.  That statistic may be eye-popping enough to make you sit up, roll over, and play dead, but it makes sense to us for three reasons.

First, Chewy.com is very successful.  Non-pet owners might not be familiar with the website, but it has grown to become the online leader in pet foot and litter sales in a relatively short period of time.  The company, which was founded in 2011, achieved sales of $900 million in 2016, and projected to reach over $1.5 billion this year.  According to 1010Data.com, Chewy commands 57% of online pet food and littler sales, ahead of Amazon’s 33% and PetSmart’s 2%.  An emphasis on customer service and love of pets has helped Chewy.com to distinguish itself from competitors and bond with its customers. The website’s customer service agents are available 24 hours a day via phone and text, and sent handwritten holiday greeting cards to 2 million customers last year.  The company keeps profiles of each customer and their pets, and enters newly registered customers into a drawing for a free oil painting of their pet – 700 paintings are awarded and delivered per week, according to Bloomberg.

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The Weekly Consensus – April 17, 2017 (Volume 9, Number 16)

The Big Story
Trading Spaces
Betsy White

One of the more attention-grabbing retail news items last week was JC Penney’s announcement that the company would delay the closing of 138 stores due to a surge in business after the closures were announced. The reality however, was only a short delay in the start of liquidation sales. The stores will still close, just slightly later than originally contemplated, ostensibly because the company determined it would make more money (or lose less) if the liquidation sales start in May instead of April.

Reading almost daily about another retail chain closing some or all of its stores leads one to ponder what can be done with all of this retail space being vacated at lightning speed.  While painful for landlords, retailers, and often the consumer in the short term, there is a huge opportunity for property owners, along with new tenants, to remake the brick and mortar landscape.

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The Weekly Consensus – April 10, 2017 (Volume 9, Number 15)

The Big Story
RetailWire BrainTrust Throwdown: Is It Inevitable That Tech Companies Will Dominate Retail?
Rick Moss, RetailWire

Commerce is the engine that has driven the global prominence of the U.S. economy. Still, the e-commerce revolution that caught on in the late 1990s is so fundamentally different, that the prior 400 years of traditional retail can be viewed as a prelude to the empowered, connected consumer age in which we exist. We’re in the midst of a hi-tech revolution with no limits in sight.

We asked two of our BrainTrust panelists, Ken Lonyai and Ryan Mathews, to argue for and against the following premise:

The new model for retail, as exemplified by Amazon, is built on mastery of data, AI and IT services. Legacy retail companies can’t possibly make a transition to this type of data-first company. Therefore, possibly within the next decade, big retail will be entirely dominated by tech companies.

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The Weekly Consensus – April 3, 2017 (Volume 9, Number 14)

The Big Story
J.Crew: A Harbinger and Lesson?
Paul Alexander, CFA

While preppy retailer J.Crew has long been known for its colorful and playful catalogs, the most recent pages of the company’s history have unfolded not on an inviting, sandy beach, but in court. Last week, the company’s debtholders moved to block J.Crew’s recent efforts to transfer a large portion of its intellectual property into a subsidiary beyond the reach of lenders. Wilmington Savings Fund Society argued that J.Crew’s plan to move 72 percent of its trademarks, worth $250 million, should be stopped because the IP belongs to the company’s lenders as per a 2011 loan agreement. Wilmington further referred to the retailer as “insolvent,” and said J.Crew’s owners are trying to “improperly advance [their] self-interest over the interest of J.Crew and its creditors.” In its own defense, a J.Crew spokesperson argued that its proposed IP transaction “fully complied with governing loan agreements,” reiterating a stance the company took in an early February court filing, where it contended, according to the Wall Street Journal, that J.Crew continues to work “on strategic opportunities that will benefit all of its stakeholders, including lenders.”

The struggle between J.Crew and its lenders raises three key points. First, we may see more legal battles in the coming weeks and months as a wave of bankruptcies sweeps through retail. Numerous news outlets reported last week that Payless Inc. was preparing to file bankruptcy imminently, and could close as many 400 to 500 of its over 4,000 stores. Payless would be the latest in spate of recent retail bankruptcies, including RadioShack, BCBG, The Limited Stores, HHGregg, and Gander Mountain Sports, and more appear to be on the way. For instance, Sears Holdings Inc. warned two weeks ago in its annual report that “substantial doubt exists related to the company’s ability to continue as a going concern.”

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The Weekly Consensus – March 27, 2017 (Volume 9, Number 13)

The Big Story
You Don’t Have to Fake It to Make It:
Why Brands Need to Avoid Fake News
Rob Bailey, Managing Director Consumer Marketing, KCSA

Fake news is a type of hoax or deliberate spread of misinformation, be it via the traditional news media or via social media, with the intent to mislead in order to gain financially or politically. It often employs eye-catching headlines or entirely fabricated news-stories in order to increase readership and, in the case of internet-based stories, online sharing. (Source: Wikipedia)

A recent study by Stanford University professor Matthew Gentzkow and his NYU counterpart Hunt Allcott revealed that only 8% of 1,200 US respondents believed false news stories were accurate. So, why are consumers, and the marketers that want to grab their attention, so smitten with fake news websites? The answer is simple: consumers find them interesting and entertaining, and marketers are enamored with the sheer volume of consumers these fake news sites enable them to reach.

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The Weekly Consensus – March 20, 2017 (Volume 9, Number 12)

The Big Story
Trump Bump/Slump
By: Douglas Stebbins

There is nothing the stock market despises more than uncertainty.  It seems that the market would rather accept a less than optimal certainty rather than try to evaluate the range of outcomes of some looming unknown.  Who can forget, when on election night, the Dow futures at one point dropped more than 900 points – not because of Trump’s specific policies, but rather the market’s reaction to the unexpected Trump victory.  The drop was short-lived, and the day after the election the stock market ended up over 1% as Wall Street had begun to contemplate what a Trump presidency might mean to the stock prices.

Since Election Day, the markets have embraced Trump’s pro-business message and pro-business cabinet assignments.  Whether it is discussions (or tweets) of stimulus or taxes or regulation, it is generally understood that Trump will lean pro-business.  The result has been a nice stock market bump in the four months since the election, with the S&P 500 up over 11% and the Dow Jones average up over 14%.

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The Weekly Consensus – March 13, 2017 (Volume 9, Number 11)

The Big Story
Reports of the Death of Retail Store Shopping May Not Be Exaggerated
 

Since the internet bubble of 2000, we have been hearing about the end of brick-and-mortar shopping.  The recent flurry of distressed situation and bankruptcy filing news make it seem like the two decades of prognostications are finally starting to come true.  At the commencement of this 11th week of 2017, let’s take stock of this year’s major store closing announcements and retail Chapter 11 filings, which are piling up.

J.C. Penney, Sears and Macy’s have announced new closures of up to 140 stores, 104 stores and 68 stores, respectively.  Abercrombie & Fitch will close 60 stores, Crocs 160 locations and Staples 70 stores.  Cushman & Wakefield “anticipate[s] as many as 5,000 major chain closures in the coming year — a 25% increase over 2016.”

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The Weekly Consensus – March 6, 2017 (Volume 9, Number 10)

The Big Story
This Should be Signet’s Next Move
By Michael A. O’Hara

With apologies to iconic industry household names such as Tiffany, Rolex and DeBeers, Signet Jewelers Limited is the most “important” company in the North American jewelry industry.  I say this not only because its nearly $7.0 billion in sales volume dwarfs the volume of its next closest retail rival, but also because of its important place in diamond culture.

Signet’s North American brands, which include Kay Jewelers, Zales, Jared, Piercing Pagoda, People’s and others, do two important cultural things for the diamond industry.  First, through the most aggressive customer credit program in the market, Signet makes diamond engagement rings available to the masses, particularly young men of marrying age who have not yet established enough credit to purchase such an expensive item (on average, $3,000 to $4,000 in the U.S. and Canada).  Second, because of this credit offering and because Signet has stores everywhere – often multiple locations in each shopping center –Signet has contributed significantly to the diamond remaining omnipresent in the North American engagement process and helped that gemstone remain relevant beyond the borders of the carriage trade.

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

The Big Story
Good-Buy
Steve Bowles

So here it is, another in a long line (nine years!) of stories about brick-and-mortar retailers suffering another in a long line of embarrassing setbacks. Now comes JCPenney announcing it has decided that there are too many JCPenney stores for the way that they currently do business.  Specifically, Penney plans to close 130-140 stores (along with a couple of links in the company’s distribution chain) during the next few months.  About 6,000 workers will be offered buyouts as Penney closes more than 13% of its stores.

Meanwhile, my own personal hobby horse is busy too, suffering its death throes in a particularly sad version of humiliating slow-motion.  That’s right, things at Sears/Kmart remain…less than promising.  Having recently announced that it plans to close 150 stores (108 of them being especially lackluster Kmarts).  About 4,000 more workers will be laid off as part of the process.

Even Macy’s recently announced plans to cut 100 of its 675 stores, with a further 10,000 layoffs.

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The Weekly Consensus – February 20, 2017 (Volume 9, Number 8)

The Big Story
Cold Cash

This week, Yeti, the premium cooler company that filed for an IPO in 2016 but has since put that on hold, will open its flagship store in its hometown on Austin, Texas. Located in a 1930s warehouse south of downtown Austin, the project is nearly two years in the making and covers more than 6,000 square feet.

Yeti has long appealed to hunters, fishermen, and outdoorspeople. It has excelled with content marketing, and that has helped it successfully create an aspirational brand in a segment that doesn’t see many aspirational brands. The approach has worked. The company generated $469 million in revenue in 2015, representing three-year growth of 748%. The flagship is its most ambitious content marketing yet.

Following in the footsteps of digitally-native businesses that open brick and mortar locations, the flagship is heavy on experience. It offers the chance to see and touch – and with an open-area bar and a stage for musicians even taste and hear – the brand.

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