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The Weekly Consensus

Ideas, observations, and news on the consumer products and retail industries
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The Weekly Consensus – December 11, 2017 (Volume 9, Number 47)

The Big Story
For Retailers, Is Being Political Ever Correct?
Mark Lenz

Patagonia last week updated its homepage with this message, written in stark white on black: “The President Stole Your Land.” The change announced Patagonia’s opposition to (and legal efforts to prevent) President Trump’s recent order to significantly reduce the size of two large national monuments in Utah.  REI, another large outdoor retailer, also responded to the president’s decision by making a more subdued statement that they “are unwavering in our nonpartisan commitment to public lands.”

The federal government owns nearly two thirds of the land in the state of Utah, an amount of land much higher than in all other states in the U.S. except for two.  The announcement by President Obama creating Bears Ears National Monument last year, which makes up 1.3 million acres, while pleasing environmentalists and the local Native American tribes, did not please the local politicians and states’ rights supporters.

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The Weekly Consensus – December 4, 2017 (Volume 9, Number 46)

The Big Story
Gluttony Wednesday
Doug Stebbins, CFA

One should never underestimate the power of branding.  At some point, “the day after Thanksgiving” became known as “Black Friday”, a change that has magically caused normally rational people to wake up at 2am to line up outside of stores in the freezing cold.  While many believe that the term Black Friday was coined to identify when retailers’ red ink (losses) would turn into black ink (profits), it actually was a term created by the Philadelphia Police Department in the 1950’s to describe the chaos as shoppers descended upon the city for post-Thanksgiving holiday gift buying.  As the term took root in Philadelphia, there was an effort to rebrand the day “Big Friday” to make the city seem more welcoming to shoppers.  But it was too late, the Black Friday moniker was here to stay, and it is now known nationwide as the official beginning of holiday shopping season.

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The Weekly Consensus – November 27, 2017 (Volume 9, Number 45)

The Big Story
RetailWire Discussion: Amazon Go Plans to Transform Convenience in Retail Stores
George Anderson, RetailWire

It’s been nearly a year since Amazon.com opened its first Amazon Go convenience store. While the beta version of the concept, which was initially supposed to open earlier this year, took longer than expected, Amazon Go is now ready for its coming out party, Bloomberg reports.

The 1,800-square-foot store, which operates without checkouts, uses sensing technology that identifies customers who scan their Amazon Go mobile app as they enter the location. When a shopper takes products from the store’s shelves, the items are automatically added to the customer’s virtual shopping cart. If they put something back, the item is removed from the virtual cart. When customers leave the store, Amazon bills their accounts and sends a receipt to the app.

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The Weekly Consensus – November 20, 2017 (Volume 9, Number 44)

The Big Story
Amazon Should Be Jealous
Marshall Schleifman

Most people are familiar with the concept of “Hallmark holidays” – celebrations that are perceived to exist primarily for commercial purposes.  Headlined by Valentine’s Day, Mother’s Day, and Father’s Day, and filled out with commemorations of Grandparents, Secretaries, Bosses and others, “Hallmark holidays” drive consumer purchases of cards and gifts to feed the corporate profit beast (in its defense, Hallmark officially disclaims credit for creating any holidays).  In fact, according to National Day Calendar, various interest groups, industry associations, and businesses now sponsor over 1,500 “national days” to attract attention and share-of-wallet.

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The Weekly Consensus – November 13, 2017 (Volume 9, Number 43)

The Big Story
The “Apocalypse” Will Hurt Women More Than Men
Michael A. O’Hara

In a well-researched article, a team of four Bloomberg writers (aided by five others) made it abundantly clear last week that things will likely get a whole lot worse for brick and mortar retail in the coming years.  If 2017 is the retail “apocalypse,” (a foretelling of the battle of good versus evil at the end of the world), these authors made the case that 2018 or 2019 may be retail’s “Armageddon” (the biblical site of such battle). In America’s ‘Retail Apocalypse’ Is Really Just Beginning published on November 8, 2017, the Bloomberg authors lay out both the number of recent store closings and the amount of debt that major retailers are carrying and will likely find difficult to refinance. They also note that institutional lenders are increasingly less comfortable with retailer debt as an investment asset class than previously, and they explore the growing amount of reserves taken by consumer credit companies as people fail to repay debts owed to bankrupt companies even though they are legally required to do so.  But among the parade of horribles detailed in the article was a passing reference to a phenomenon that may have broad social ramifications not yet fully understood by most in the industry: the shifting sands from brick-and-mortar retail to ecommerce will have a meaningfully worse impact on the employment of women than men – particularly at the low end of the wage scale.

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The Weekly Consensus – November 6, 2017 (Volume 9, Number 42)

The Big Story
Why Victoria’s Secret Isn’t Worried
Paul Alexander, CFA

 

News coverage of the retail industry has been dominated this year by bankruptcies, falling foot traffic, and the unyeilding encroachment of Amazon. So much of our attention has been drawn to the shift in spending from physical stores to the internet, that it has become tempting to judge a company’s future prospects through one simple, binary calculation: is this retailer heavily exposed to brick and mortar stores and malls? If yes, then its prospects are probably poor. If no, then perhaps it has a chance do well. According to this decision tree, L Brands, the parent company of the mall-based brands Victoria’s Secret and Bath and Body Works, may be in trouble. And recent events would seem to support that outlook. Sales at Victoria’s Secret have slumped recently amid discontinued product lines, millenials’ changing tastes, and new ecommerce-based competitors like Adore Me, True & Co, and Third Love. The stock market appears to have a pessemistic view of the company – shares of L Brands are off over 50% since the end of 2015. However, at the company’s annual analyst day last Thursday, L Brands reminded us that this binary decision tree is overly simplistic. Why? Because there is more to the world than U.S. malls and Amazon.

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The Weekly Consensus – October 30, 2017 (Volume 9, Number 41)

The Big Story
Halloween: When Things Get Less Scary for Retail
Maeghan Thompson

 

Halloween is a time when many of us like to use spooky decorations, costumes, and horror movies to give ourselves and loved ones a thrilling scare. When it comes to traditional brick and mortar retail, things are scary enough already. Shopping malls and department stores are struggling with declining traffic, many companies are closing underperforming stores, and 19 major retailers have filed for bankruptcy protection this year. However, this year’s Halloween season may offer the retail world a brief respite from the otherwise gloomy environment for a couple of reasons. Ironically, for retail, Halloween may be the least scary time of the year.

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The Weekly Consensus – October 23, 2017 (Volume 9, Number 40)

The Big Story
Will Stitch Fix’s IPO Be as Trendy as Its Clothes?

 

Last week, Stitch Fix, an online personal stylist and subscription apparel business founded in 2011, filed paperwork for its initial public offering. For many, this represents the latest “new consumer” brand to go public – and all that comes with it. While it marks the continued growth and evolution of emerging brands and the new consumer economy, it also opens the space (and the brands within it) to scrutiny.

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The Weekly Consensus – October 16, 2017 (Volume 9, Number 39)

The Big Story
A Public Lesson
Betsy White

Womenswear apparel retailer J.Jill reported some unexpected bad news last Wednesday about its performance in the current quarter ending October 28, 2017.  The update was so awful the Company’s stock price dropped by over 50 percent, causing the company to lose about $230 million in market value.  The negative reaction extended less dramatically to apparel retailers across the board, with many wondering whether the news is a harbinger of more widespread weakness in women’s apparel.

J.Jill’s news is not just a story about brick and mortar retail.  While the majority of the company’s sales are generated through its stores (the good news is that its store locations are primarily in “A” malls), it has a relatively high direct/ecommerce sales penetration of between 40 percent and 45 percent. On a comparable sales basis, J.Jill analyzes its sales performance holistically, only publishing combined store and direct comparable sales, which has been the primary driver of its overall sales increases.

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The Weekly Consensus – October 9, 2017 (Volume 9, Number 38)

The Big Story
2017 Holiday Sales: More Diamonds than Coal?
Billy Busko

 

75 days.  Yes, it’s hard to believe, but there are only 75 shopping days until Christmas.  And it’s that time of the year when prognosticators reveal their holiday sales forecasts based partly on recent back-to-school sales and a myriad of other factors.  For perspective, holiday sales account for roughly 20% of total annual retail sales.

As the second largest shopping season, forecasters have taken note of this year’s back-to-school sales increase of approximately 10% over 2016, totaling a record $84 billion ($30 billion for K through 12 spending and $54 billion for college spending).  The other factors that analysts weigh are typically economic inputs, but, of course, weather can also have an impact.  Weather Trends, a service that predicts weather for retailers, forecasts that Thanksgiving Day will be six degrees cooler in the Northeast and nearly twenty degrees cooler in the Midwest, which retailers will welcome, as an early chill tends to bolster sales.

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