It’s a busy time of year for US retailers at corporate HQs with Q1 financial reports and instore with seasonal sales. We’ve got the latest US retail news, a selection of financial results and highlights to keep you current. Unsold retail inventory will negatively impact profits according to a Reuters report. Antony Karabus of HRC Advisory says e-commerce is chipping away at bricks and mortar retail profits because of the cost of investment in technology among other factors. Retailers are handcuffed by a 63% increase in promotional costs and discounting in Q1 2016 according to the DynamicAction Retail Index.
Gap Chief Executive Art Peck said the company’s marketing needs a shakeup and TV is back in the mix. Walmart beat market expectations with Q1 2016 revenue of $115.9 billion and shares rose 7%. CNBC said Walmart’s low price commitment should send shivers across the US retail industry which will be forced to respond. Urban Outfitters surprised the market with impressive Q1 revenue of $762 million, up 3.2%. TJ Maxx (TJX Cos) delighted the market with a revenue increase of 10% to $7.5 billion.
Home Depot also beat expectations with strong Q1 2016 revenue of $22.76 billion and same-store sales up 7.4% in the US. Target previewed its vision of the future for retail stores in a pilot program in 25 LA retail outlets. According to Breitbart.com, some analysts are saying a transgender Target promotion created a massive consumer boycott and continued poor sales resulted in a 20% loss in stock prices and a $10 billion drop in overall shareholder value. Gap reported a sales drop of 6% to $3.44 billion. Sports Authority launched its going-out-of-business sales and plans to close all of its 463 stores.
Unsold US retail inventory a challenge after dismal earnings season
A pile-up of unsold inventory across U.S. retail chains are likely to squeeze profits further as stores struggle to make up for a weak first quarter marred by weak sales and share declines.
Moving the stale stock of mostly clothes, accessories and electronics is likely to lead to bigger discounts and steeper markdowns, which in turn would reduce chances for a swift profit rebound. Tepid consumer demand for small discretionary purchases is likely to compound the problem, analysts said.
Disappointing sales by some of the biggest retailers including Target Corp (TGT.N), Macy’s Inc (M.N), JC Penney (JCP.N) and Kohl’s Corp (KSS.N) are likely to lead to even more promotions and discounts to woo customers Via reuters.com
E-commerce is Chipping Away at Brick and Mortar Sales
E-commerce is slowly chipping away at in-store sales, according to Antony Karabus of HRC Advisory (HRC), a leading strategic retail advisory firm. The finding was revealed today as part of Karabus’ latest retail industry study, which found that operating earnings as a percent of sales has declined by up to 25% due to a shift from in-store to online sales, combined with e-commerce and omni-channel investments and the high cost of fulfilling e-commerce transactions.
“Retailers haven’t yet figured out how to grow and maintain brick and mortar profitability while trying to keep up with the likes of Amazon in today’s increasingly digital environment,” said Antony Karabus, CEO of HRC Advisory. “Retailers need to recalibrate and fine-tune their economic business models to reflect today’s new variable cost-oriented online model. Those who can engage customers and meet their heightened expectations, while offering complete visibility of inventory availability, can be lucrative in reducing markdowns and improving inventory productivity.”
As part of the study, Karabus analyzed the financial data of department stores, luxury, specialty apparel, beauty, and off-price retailers and also interviewed 15 C-level retail executives to gain their perspectives. Karabus determined that investments made in supply chain upgrades, digital marketing and IT, variable logistics costs and managing a high level of online returns are generating incremental SG&A costs of 2 to 3 percentage points of sales. Further, the combination of this, together with real estate, wage inflation and the declining in-store sales are resulting in a 1-2 percentage point reduction in physical store profit contribution. Via businesswire.com
Retailers Handcuffed by Staggering 63 Percent Increase in Promotions in Early 2016 According to the Latest DynamicAction Retail Index Released at Shoptalk
Retailers are relying heavily on discounts and promotions thus far in 2016, continuing the trend from the 2015 holiday season of pulling the promotional “lever” far too often, according to the DynamicAction Retail Index: Spring 2016. The findings were released today at the inaugural Shoptalk conference in Las Vegas, NV.
Key findings from the benchmark include:
- Retailers sold less at full price in Q1 2016 vs. a year ago, with full-price sales down 4 percent for the quarter and orders using a promotion up 63 percent. March was an especially promotional month, with an 86 percent increase in orders using promotions compared to 2015.
- Retailers found it harder to convert first-time buyers into second-time buyers, with those conversions down 6 percent compared to last year.
- While revenues were up 10 percent in the first quarter compared to 2015, retailers’ ability to control profit has been unstable in early 2016. Retail profits were up an average 5.2 percent year-over-year in Q1; however, most gains occurred in January, with increasing volatility in February and March. Via dynamicaction.com
Walmart Earnings, Q1 2016
Walmart reported first-quarter profits and sales Thursday that were better than expected, unlike several department stores that have struggled to gain ground.
America’s largest retailer earned $0.98 in adjusted earnings per share, beating the forecast for $0.88, according to Bloomberg. Its revenues totaled $115.9 billion, beating expectations of $113.3 billion.
Walmart shares rose by as much as 7% in early trading, the biggest gain since October 2008 according to CNBC. They’ve gained 11% this year. Via businessinsider.com
Wal-Mart’s low price commitment should send shivers across retail
Look out, retailers: Wal-Mart is hungry for growth, and on the menu is more of your lunch.
On a call with investors after its big first-quarter beat Thursday, the world’s largest retailer said it would forge ahead more quickly on its “investments in price” that began late in the fiscal period. Wal-Mart said it lowered prices on “key items in select geographies,” which helped drive its performance during the latest period.
The company’s update comes as retailers across the space are already grappling with too much inventory, a consumer addiction to discounts and blockbuster growth among other low-price players, all of which are contributing to price deflation. And with competitors that tend to follow its lead (remember the list of retailers who raised their wages in Wal-Mart’s wake?) further price cuts across the space seem inevitable. Via cnbc.com
Urban Outfitters’ Surprise Success
Now it is 2016, and that faint whooshing of two short years ago has turned into a loud and hard to ignore grinding noise as physical retailers nationwide are finding themselves largely caught in the gears of progress moving forward at an insanely rapid clip. And while much has changed in the last two years, one thing remains immutably the case: the truth is still in the sales numbers pudding.
And those numbers, as we have extensively catalogued over the last several weeks, have been pretty grim. There have been a few standouts. Walmart managed to shock the street and pop-up some gains, TJX remained physical retail’s most reliable power hitter and H&M continued in its nearly unquestioned demographic domination. But by and large, the story was more about misses than hits.
Which makes Urban Outfitters’ performance in the last quarter all the more notable. While other retailers of its description and demographic appeal base were reporting losses across the board and closing stores, Urban Outfitters (and its affiliated Anthropologie and Free People’s brands) was reporting gains and plans to open new locations. It’s also making progress of the eCommerce front, though unusually quietly in an age where it seems every retail tech upgrade is accompanied by a press release.
So how did Urban Outfitters get to be the sleeper success story of Q1? Via pymnts.com
T.J. Maxx: The rare store that’s thriving while those at the mall struggle
It was hard to find any shred of upbeat news in the apparel industry last week, when heavyweights Macy’s, Kohl’s and Nordstrom all reported disappointing spring sales results.
But on Tuesday, the parent company of T.J. Maxx and Marshalls dropped a roaring first-quarter earnings report that showed no signs of the troubles engulfing its mid-price clothing counterparts. TJX Cos. saw revenue increase 10 percent to $7.5 billion, and recorded a 7 percent increase in comparable sales, or sales at stores open more than a year. The retailer even raised its earnings forecast for the year based on how strong business was in the first quarter.
The results continue a hot streak for a company that has for over a year managed to avoid the general malaise at the mall. And its success offers some insight about what is – and isn’t – proving enticing to customers in the current shopping environment. Via chicagotribune.com
Home Depot beats expectations amid hot housing spending
As The Wall Street Journal points out, Home Depot and rival Lowe’s are also facing rising competition from Amazon, but their vast assortment of items not sold, or are hard to sell, on the e-commerce site (think mulch, kitchen cabinets, and flowers for the yard) help protect them. Home prices are also rising as more consumers pour money into home improvements and more people are moving, proving favorable for Home Depot.
Shares of the company were up 2.5% on the news in premarket on Tuesday. Home Depot shares have risen 12% over the past three months.
“We were pleased with our stronger than expected start to the year, driven by solid execution and broad-based growth across the store,” chairman/CEO/president Craig Menear said in a statement. “This was made possible by our hard working associates and their continued dedication to our customers in a quarter marked by week-to-week demand spikes caused by weather variability.” Via retaildive.com
First look at Target’s stores of the future
Target (TGT) has tapped its largest market, California, to test several potential changes to the look of its future stores.
In a pilot program called “LA25,” the discounter has taken its 35 top store enhancements that it has been testing across the country and put them all together in 25 stores in Los Angeles. Some of the enhancements include sleeker apparel fixtures, a better-lit fresh produce section that emphasizes organics, dedicated service stations for people to quickly pick up online orders, as well as the addition of specialists in key departments to help provide product knowledge.
There are “service advisers,” too, that assist in navigating the chain’s website and mobile app Cartwheel.
Also, Target continued with the overhaul of its restaurant options to make them more interesting for shoppers. For instance, it expanded the floor space devoted to Starbucks (SBUX) and added the coffee king to the five or so stores that didn’t have the concept before. It is also testing “healthy” fast-casual concepts such as salad bowl seller Freshii and sandwich maker Which Wich, which comes on the heels of the company announcing the launch of a Chobani yogurt cafe inside a new store set to open in New York City in October. Via retailingtoday.com
Target Sales Drop Amid Transgender Promotion, Consumer Boycott, $10 Billion Stock Crash
Retail giant Target is losing sales and may be on track for another major stock-drop in the second quarter, analysts say, amid a growing boycott caused by the company’s transgender friendly policies.
The company’s second-quarter sales, from April to June, may drop as much as 2 percent compared to the prior year, executives told reporters and Wall Street analysts. That’s “horrendous,” said Jim Cramer, founder of the stock-market website, TheStreet.com.
The earnings prediction comes a month after the left-leaning company announced April 19 that it would allow men claiming to be women to use the women’s bathrooms and changing rooms at its stores. The decision has sparked a boycott petition effort that garnered over 1.2 million signers in only a week. Target executives deny the pro-family consumer boycott is making a significant difference. Via breitbart.com
Gap Reports More Declines, Blames Marketing
Gap’s journey through the gauntlet continued on Thursday when the beleaguered 47-year-old retailer reported first-quarter earnings. The chain saw net sales slide 6% to $3.44 billion, compared with the year-earlier period, while same-store sales were down 5% for Gap Inc., led by an 11% decline at Banana Republic. Gap’s namesake brand saw same-store sales fall 3%, while sales were down 6% at Old Navy.
The San Francisco-based company’s marketing expenses for the quarter were $127 million, a 9% drop over last year. Chief Executive Art Peck called out marketing as a specific factor in the poor sales at Old Navy.
“We have not had strong marketing in the first quarter of the year,” Mr. Peck said on a conference call, noting that the brand pulled out of TV in April, but will return to the small screen for the remainder of the year, specifically for back-to-school. “We put TV and a number of other things back into the schedule, in order to bring our voice back every day,” he said. Via adage.com
Sports Authority shutting down with giant going-out-of-business sale
Sports Authority, in planning to close all of its stores, is set to launch its going-out-of-business sales this week, according to court documents. In shutting down, the 463-store chain becomes the latest casualty among rivals for the sporting-good business. It follows the recently announced closure of the Sport Chalet chain, based on the West Coast. While sporting goods and athletic wear sales are growing, traditional retailers like the two chains have been hurt by competition from online.
Sports Authority’s final sales are expected to start by Friday and finish by the end of August, the documents state.
The big-box chain, which filed for bankruptcy protection less than three months ago, had initially planned to try to sell or close about a third of its retail sites in order to strengthen and streamline its operations. But the retailer, based in Englewood, Colo., added that if attempts to restructure its debt failed, it might close all of its stores. Via usatoday.com
Indian e-commerce update
Tomorrow, we wrap up the week’s news with an in-depth look at news, highlights and trends in the competitive world of Indian e-commerce.