A look at key issues/developments in the dynamic discipline of marketing
Thursday, August 31, 2017
Reports of 'Retail Apocalypse' Greatly Exaggerated
BY REBEKAH MARCARELLI
Published:
U.S. retailers are opening 4,080 more stores in 2017 than they are closing and plan to open over 5,500 more in 2018, according to a new research report from IHL Group.
The research reviewed over 1,800 retail chains with more than 50 U.S. stores in 10 retail vertical segments. It found that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017.
"The negative narrative that has been out there about the death of retail is patently false," said Greg Buzek, president of IHL Group. "The so-called 'retail apocalypse' makes for a great headline, but it's simply not true. Over 4,000 more stores are opening than closing among big chains, and when smaller retailers are included, the net gain is well over 10,000 new stores. As well, through the first seven months of the year, retail sales are up $121.6 billion, an amount roughly equivalent to the total annual retail sales of The Netherlands."*
According the the research, the total net increase of stores for 2017 is 4,080, including retail and restaurants. Core retail segments will see a net gain of 1,326 stores, while table-service and fast-food restaurants are adding a net of 2,754 locations. In total, chains are opening a net 14,239 stores and closing 10,123 stores. 42-percent of retailers have a net increase in stores, only 15 percent have a net decrease, and 43 percent report no change.
The three fastest growing core retail segments are mass merchandisers such as off-price retailers and dollar stores (+1,905 stores), convenience stores (+1,700 stores) and grocery retailers (+674 stores). The research also shows specialty apparel retailers are seeing the largest number of closings, with a net loss of 3,137 stores. Yet, for every chain closing stores, 1.3 chains are opening new stores.
When it comes to chains shuttering stores, only 16 chains account for 48.5 percent of total number of stores closing. Five of these chains (Radio Shack, Payless Shoesource, Rue21, Ascena Retail and Sears Holdings) represent 28.1 percent of the total stores closing.
"Without question, retail is undergoing some fundamental changes. The days of 'build it and they will come' are over," added Buzek. "However, retailers that are focusing on the customer experience, investing in better training of associates and integrating IT systems across channels will continue to succeed."
Wednesday, August 30, 2017
Amazon is actually the weakest of the big U.S. retailers, Moody’s says
Published: Aug 30, 2017 1:16 p.m. ET
The e-tail titan is wrongly perceived to be dominant, in part because online sales still account for just 10% of overall U.S. retail
Getty Images
By
CIARALINNANE
CORPORATE NEWS EDITOR
Amazon.com Inc., far from dominating the retail sector, is actually the weakest of the big U.S. players based on operating results, Moody’s Investors Service said Wednesday.
The e-commerce giant is the subject of a number of myths regarding its size and clout that mask the reality of its position compared with rivals like Wal-Mart Stores Inc. WMT, +0.10% and Costco Wholesale Corp. COST, +0.53% , according to Charlie O’Shea, Moody’s vice president and lead retail analyst.
Amazon’s stock AMZN, +1.47% has outperformed rivals, but it’s mostly based on the company’s growth story, and particularly the success of its cloud business, Amazon Web Services, O’Shea wrote in a new report.
“That potential is overshadowing the superior real-time operating performance of Amazon’s key retail competitors,” O’Shea wrote. “The emphasis on stock performance is, in our view, forcing brick-and-mortar competitors toward managing more irrationally for short-term performance just when they’re confronting secular change.”
He cited as an example Staples Inc.’s SPLS, +0.05%decision to sell itself to private-equity firm Sycamore Partners as a way to boost shareholder value.
The perception that Amazon is poised to take over the grocery business via its acquisition of Whole Foods, which closed this week, is another myth, said O’Shea.
“Online sales still account for only about 10% of overall U.S. retail sales, with a much lower percentage in the grocery segment, leaving the big brick-and-mortar retailers, led by Walmart, still really formidable competitors in the industry,” he wrote.
Estimates for the Amazon Prime membership base are also wildly inflated, O’Shea said, with some pundits betting the figure is as high as 85 million. Amazon itself has never provided a number, other than to say it is in the tens of millions.
Would You Get Groceries From Amazon?
Moody’s calculations, which are based on demographic information, suggest Prime membership is closer to 50 million, which compares with Costco’s total membership of 86.7 million as of the end of its fiscal year in August 2016, and its paid membership of 47.6 million.
Amazon is also far from controlling U.S. food sales, which come to about $800 billion a year. Wal-Mart Stores Inc. WMT, +0.10% alone sells more than $200 billion in food, or over 25% of the total, according to O’Shea.
Kroger Co. KR, +0.83% sells about $130 billion in food, while Safeway parent Albertson’s sells food worth about $60 billion annually and Costco sells about $50 billion.
“We believe it’s a big stretch to say Amazon will dominate the U.S. food retail business in the next two years,” O’Shea said. “Even with Whole Foods in its basket, its food sales still amount to less than $20 billion annually.”
The perception that as soon as Amazon enters a product category, it immediately wins is also flawed, said the analyst. While Amazon is clearly disruptive, it does not dominate any category in which it operates. In consumer electronics, for example, Amazon has about a third of the share of Best Buy Co. Inc. BBY, -1.05%
“When it announced that it would enter services, we think it received way more attention than it deserved,” said O’Shea. “Best Buy has Geek Squad embedded with its customers, and 20,000 employees will be difficult to tackle, especially when considering the added advantage of the store base to support this effort.”
Amazon is unlikely to become a player in appliances with the addition of the Kenmore brand, despite the excitement that news of its cooperation with Sears Holdings Inc. SHLD, -2.36% initially raised. “We think this is largely a non-event and looks like any other third-party relationship,” said the report. “If anything, we think that struggling Sears has entered this agreement to help with its sagging public-relations image.”
Amazon shares have surged 28% in 2017, while the S&P 500 SPX, +0.51% has gained 9%.
Monday, August 28, 2017
Can We Stop Saying Omnichannel And Just Say Retailing?
Who’s sick of the term “omnichannel?” I for one certainly am! We’ve been haphazardly tossing this term around for the better part of the last five years in the retail space, and yet, as an industry we are still, for the most part, not close to achieving the true essence of the terms definition. That’s not to say we aren’t making strides – there are plenty of retailers that are connecting the dots to build a seamless supply chain. But even the best have not fully integrated across their distribution, e-commerce, and store networks.
While the rate of penetration of e-commerce differs greatly based on retail category, I think we can safely put to bed the notion of physical retail being doomed. The e-commerce boom has been significant, averaging double digit growth rates for the past 15 years in terms of sales. Yet, that growth rate has slowed significantly and has been cut in about half since 2004 (31 percent Q1 2004 vs 15.1 percent Q1 2017) and e-commerce sales still sit at less than 10 percent of total retail according to the U.S. Census Bureau.
But while the e-commerce picture is starting to become a bit clearer now, over the past decade it was not nearly so and a lot of over-reaction took place. I have had retail executives from large companies tell me that they were spending roughly 90 percent of their capex on e-commerce platforms and distribution – even though it represented at best 10 percent of their sales. Think about that for a moment – the industry was dumping huge sums of money to upgrade the systems for a channel that brought in one-tenth of their income, while allowing the channel that brought in the remaining nine-tenths to languish from a capital expenditures standpoint. So, it’s no wonder retail stores felt old and tired – because they were! We weren’t spending any money on keeping them fresh. As the picture comes more into focus, I expect that trend to reverse significantly – and it is already, as more retailers are focusing on upgrading their experiential offerings.
While many things have changed over the last decade plus when it comes to e-commerce, one thing remains constant – the fundamental economics of the last mile equation. The solution presented by the retailer needs to cost equal to, or less, than what the customer is willing to pay. Conventional wisdom would dictate that as technological advancements happen exponentially, a retailer’s ability to provide a cost that is acceptable to the consumer while not causing harm to their bottom line should have become greater. But as retailers competed in a “race to the bottom” to win customer share on e-commerce platforms – that has not been the case. If anything, the last mile equation has become more complex and has put many retailers in a position where their e-commerce is unprofitable as shoppers now expect “on-demand” solutions for minimal to no cost.
But what if we were sitting on the best solution to the last mile equation this entire time? That’s right, the same physical real estate that went unnoticed or underappreciated for many retailers over the past decade provides the best ability to serve as the crucial last step in the distribution chain between e-commerce and the consumer.
Growing in popularity, the concept of buy-online-pickup-in-store is one-way stores are serving as a centralized distribution hub for e-commerce orders. Stores are better located to then most warehouses when it comes to proximity to the shopper. As long as the item is in-stock, the turn-around time is a couple of hours if not shorter and allows the consumer to use the hyper-focused aspects of online shopping with the near instant gratification of in-store. Additionally, by having the shopper pick-up the item, it eliminates the costly last mile conundrum for the retailer. Some retailers are taking it a step further, offering curb-side pick-up of online orders for even greater customer ease.
Another way retailers are testing to solve the last mile is through crowdsourced delivery options. Providers like Deliv are attractive to retailers because it allows them to still own the customer relationship while helping them provide the coveted same day delivery. Cost will be the factor to note in these cases, but giving the customer the option is what makes this attractive. Time-pressed shoppers may very well opt for same-day delivery over picking-up in store, especially if it is more cost-effective than traditional delivery options.
Of course another huge advantage that stores can lean on is their large employee base and Walmart is testing that theory for last mile shipping. The program pays employees extra to deliver online orders to customers that are on their normal route home. According to a blog post by president and CEO of Walmart eCommerce U.S., Marc Lore, the retailer’s store network “puts us within 10 miles of 90% of the U.S. population.” By leveraging their stores and their employees, Walmart has found a new way to make same-day delivery work. Again, while not as fast as in-store or curb-side pick-up, this method allows the retailer to bring its pre-existing assets to bear in the quest for the elusive last-mile solution.
So, are we ready to finally retire the “omnichannel” crutch-phrase? Unfortunately, not quite yet as solutions are still being worked through and retailers are finally spending on upgrading their physical infrastructures once again. But I can see it, it’s not that far off I promise – the day when we can back to just talking about “retailing” again.
Amazon Cuts Whole Foods Prices as Much as 43% on First Day
By
Jennifer Kaplan
and
Matthew Boyle
Internet giant bought upscale grocery chain for $13.7 billion
Some prices unchanged but favorites like avocados are cheaper
Amazon to Slash Prices, Offer Services at Whole Foods
Amazon Moves Quickly to Show Whole Foods Changes
Amazon.com Inc. spent its first day as the owner of a brick-and-mortar grocery chain cutting prices at Whole Foods Market as much as 43 percent.
At the store on East 57th Street in Manhattan, organic fuji apples were marked down to $1.99 a pound from $3.49 a pound; organic avocados went to $1.99 each from $2.79; organic rotisserie chicken fell to $9.99 each from $13.99, and the price of some bananas was slashed to 49 cents per pound from 79 cents. The marked-down items had orange signs reading “Whole Foods + Amazon.” The signs listed the old price, the new price and “More to come...”.
The Amazon Echo, a voice-activated electronic assistant, was also for sale at the store for $99.99 -- a sharp pivot into electronics for a company known for kale and quinoa. The Echo Dot, a smaller version, was advertised for $44.99.
The tech giant’s $13.7 billion purchase of Whole Foods has sent shock waves through the already changing $800 billion supermarket industry. The wedding between Amazon and the upscale grocery promises to upend the way customers shop for groceries. Cutting prices at the chain with such an entrenched reputation for high cost that its nickname is Whole Paycheck is a sign that Amazon is serious about taking on competitors such as Wal-Mart Stores Inc., Kroger Co. and Costco Wholesale Corp.
Whole Foods Market is lowering their prices. Photographer: David Williams
“Price was the largest barrier to Whole Foods’ customers,” said Mark Baum, a senior vice president at the Food Marketing Institute, an industry group. “Amazon has demonstrated that it is willing to invest to dominate the categories that it decides to compete in. Food retailers of all sizes need to look really hard at their pricing strategies, and maybe find some funding sources to build a war chest.”
Simon Salamon, 60, a regular Whole Foods shopper, said the price drop brought him to the East 57th Street store.
“It reminded me why I shop at Amazon,” he said. “Ninety-nine percent of the time they have the best prices and their return policy is great. With the prices lower, I think we’re more likely to shop here every day.”
Sunday, August 27, 2017
Amazon once again flashes its ability to destroy the competition
Jeff Bezos and Amazon have once again shown their ability to wreak havoc on an entire industry.Reuters / Brendan McDermid
By announcing sweeping price cuts at Whole Foods, which it recently acquired, Amazon once again succeeded in wreaking havoc on the grocery industry.
It's just the latest example of the company wiping out billions of dollars of competitors' market caps with a corporate announcement, and it's bound to happen again.
Competitors' stock prices are looking more sensitive to Amazon's news than their own.
Amazon is once again sending shockwaves rippling through the retail industry.
The Jeff Bezos-led juggernaut announced on Thursday that it would start cutting prices at Whole Foods, the organic grocer it acquired for $13.7 billion in mid-June. The pricing overhaul will begin on Monday, it said, the same day the deal is expected to close.
The widespread weakness in the grocery industry highlights an interesting wrinkle that's developed: Companies in Amazon's crosshairs are moving more on what the retail giant is doing than on their news and fundamentals.
Take Sprouts, for example. It fell just 1.7% after its second-quarter earnings report — a piece of news that had to do with its operations. Walmart found itself in a similar situation when it announced results last week, falling 1.6%, even after giving a lukewarm third-quarter forecast.
The collateral damage among grocers is just the latest example of Amazon imposing its will on an entire industry with a simple corporate announcement, leaving billions of dollars of erased market value in its wake. And there's nothing to suggest this dynamic will slow down anytime soon. Retailers are being forced into a new reality where the specter of Amazon lurks at every turn.
It first happened to the grocery industry right after the Whole Foods deal, with the group losing 8% over the following week. Sporting-goods retailers felt similar pain around the same time amid speculation that the sneaker and apparel giant Nike would start selling products on Amazon.
In the end, Amazon added $18 billion in market cap in a week while its competitors lost a total of $31 billion — an almost $50 billion gap.
Only time will tell which industry will be the next to feel Amazon's wrath. It's possible that competing grocers will feel the pain multiple more times before it's all said and done. Or it could be another area entirely.
And that's the scary part: Any section of the retail universe could be next.
Walmart is getting hip, but it’s keeping it a bit of a secret
ModCloth employees model swimwear to promote body positivity in 2015. The company is now owned by Walmart.
Long the proudly uncool symbol of American middle-class consumerism, Walmart is now on a high-end shopping binge that suggests a departure from its pedestrian mass-market roots. The Modcloth and Bonobos acquisitions are just the two most high-profile deals in a litany of trendy e-commerce brands the world’s largest retailer has absorbed in recent months.
Premium outdoor equipment site Moosejaw, home goods website Hayneedle, and online shoe warehouse ShoeBuy.com have all joined the Walmart umbrella in the past year. Walmart is also rumored to be in talks with cosmetic subscription delivery service Birchbox.
Like most of what happens in the retail world these days, the surprising turn can be explained in one word: Amazon. Walmart is frantically bulking up its online operation in a bid to stay competitive with the online shopping juggernaut. And it’s efforts have finally started to pay off in the form of breakneck growth in web sales.
The push isn’t just about ushering Walmart’s existing customer base online, though. The chain must also win over shoppers who already reliably buy that way. Those people tend to be younger, wealthier, and, in some cases, more distrustful of or resistant to Walmart’s yellow smiley than the typical store patron.
To overcome that image problem, the latest additions to Walmart’s brand stable will be wrapped in a new banner, that of its subsidiary, Jet.com. The former startup, which Walmart bought for more than $3.3 billion last year, is the crown jewel of its recent acquisition spree, an all-encompassing retail site that ambitiously took aim at Amazon with a cutting edge price algorithm.
Jet.com may have drifted from its original “Costco-of-the-internet” strategy since its 2015 inception, but it’s purple, tech-ish logo suggests a more forward-thinking company without the baggage of Walmart’s reputation in the mind of most consumers.
Walmart execs confirmed in a recent earnings call that millennial-focused Jet will be the sole home for Modcloth and Bonobos products for now; you’ll never see them in Walmart stores or the company’s own website.
This packaging makes sense; according to a report from Digital Commerce 360, the higher income demographics of Walmart’s new sites match more closely with those of Jet.
Aside from opening up Walmart to a new swathe of customers, the new direction will also help it strategically target some of Amazon’s weaknesses.
Above all else, Amazon is known for its utilitarian convenience and efficiency. While that reputation has been a boon in making it the go-to destination for everyday commodity items, it’s somewhat complicated its efforts to push into more brand-dependent areas like fashion.
Amazon is seen in many of its customers’ eyes as a place to make a quick order when you know exactly what you want, not a site to idly browse new clothes or seek out designer wares.
Amazon seems to understand this. Similar to Walmart, it’s launched most of its most recent forays into in-house apparel labels under new names that give no indication of their behemoth parent.
Here, Walmart has a chance to build Jet.com into a hipper version of Amazon by assembling a range of upscale niche brands with built-in cachet that people don’t tend to associate with Amazon.
Walmart’s not the only traditional retailer thinking along these lines. Target, now a distant rival, has been making its own more modest push into the world of trendy e-commerce.
Earlier this summer, it poured money into mattress delivery startup Casper after deciding against a billion-dollar acquisition. It’s also locked down deals to make its stores the exclusive brick-and-mortar home for online brands like shaving companies Harry’s and Bevel and pet subscription service Barkbox.
This game-plan seems to be a bit more natural fit for Target, which has always made its name as a cheap-chic alternative to drabber big-box counterparts.
But in both cases, the moves show how the existential threat posed by Amazon is forcing mammoth old-school retailers to think outside the big box, so to speak, and form unlikely partnerships with the young upstarts in their industry.
Why Amazon Isn’t Ready for Prime Time in China
Alibaba and JD.com have kept e-commece giant at bay by boosting offerings and dangling discounts
Amazon’s relatively bare mobile platform is a turnoff for Chinese consumers used to seeing a kaleidoscope of colors and attention-getting deals, one analyst said.PHOTO: ZHANG PENG/GETTY IMAGES
In launching its Prime membership program in China last fall, Amazon.comInc.AMZN -0.75%was betting that the lure of hard-to-find Western goods and free international deliveries would be enough to get traction in the world’s largest e-commerce market.
That hasn’t happened, according to retail analysts, underscoring the difficulties faced by U.S. technology companies as they try to compete in a country with high hurdles for outsiders and increasingly sophisticated competitors.
Companies including FacebookInc. and AlphabetInc.’sGOOGL -0.68%Google have struggled with stringent government controls and censorship, while Apple Inc. has seen its iPhone market share decline as Chinese smartphone makers offer less-expensive, high-performing smartphones.
“Over time, companies from Apple to Microsoft are seeing Chinese rivals move up the value chain and narrow the gap between them and their products,” said Mark Natkin, managing director of Marbridge Consulting in Beijing.
Retail analysts say it is largely Chinese competition, and not the ground rules of doing business, that has challenged Amazon’s efforts here. Membership programs aren’t popular in China, and consultants say Amazon’s app for mobile phones—the shopping cart of choice in China—lags behind its competitors in ease of use and appeal.
What’s more, the company’s main pitch to Chinese consumers—authentic Western goods shipped free from abroad—is being weakened as Chinese rivals strengthen their offerings and dangle discounts.
Chinese competitors Alibaba Group HoldingBABA -1.86%and JD.comInc.JD -2.85%have invested heavily to improve their selection of products and spent liberally on promotions and discounts through massive sale campaigns this year, said Jason Yu, China general manager at Kantar Worldpanel, a consumer-research firm.
In its most recent analysis in June, Kantar estimated that Amazon had a 1% share of China’s fast-moving consumable goods, like diapers and food, unchanged from a year ago.
Free delivery, even internationally, isn’t much of a selling point in China either, since overseas shipping costs are free or generally low. An 800-gram can of Aptamil infant formula, for instance, is free to ship from Germany to Shanghai on both Alibaba’s Tmall and JD platforms via bonded warehouses. A similar product is also shipped free by Amazon.
In China, Amazon Prime’s offerings don’t stand out, said Shirley Lu, a Shanghai-based analyst focusing on retail at Euromonitor International.
“Local e-commerce providers have fast deliveries, good customer service and very competitive pricing,” Ms. Lu said. “These are areas Amazon will find hard to beat.”
Free delivery, even internationally, isn’t much of a selling point in China. PHOTO: ZHANG PENG/GETTY IMAGES
An Amazon spokeswoman said the company has had a “strong response” to Prime from Chinese customers since its launch last October, with membership figures more than doubling since the beginning of the year. She declined to provide figures.
Amazon in October last year sweetened its offer by discounting its China Prime membership fee to $30, or half its standard list price. Prime membership costs $99 annually in the U.S.
But membership programs are also a tough sell in China, where high-profile scandals involving beauty chains and health clubs have made consumers wary, said Deborah Weinswig, New York-based managing director at Fung Global Retail & Technology.
JD and Alibaba also offer memberships, but on those sites you don’t have to be a member to qualify for free shipping on most purchases beyond $15. Alibaba’s 88 Membership program is free and rewards frequent shoppers on their site with discounts for high-end brands and free concert tickets. JD’s Plus program costs $22 and dangles unlimited e-books and free exchanges and returns, on top of free shipping for all purchases five times a month.
Furthermore, Euromonitor’s Ms. Lu noted that most Chinese consumers shop on their smartphones, and that Amazon’s relatively bare mobile platform is a turnoff for Chinese consumers used to seeing a kaleidoscope of colors and attention-getting deals.
Mobile-phone shopping will account for more than 60% of China’s total e-commerce this year, about $720 billion, Boston Consulting Group analysts estimated.
Wang Hao, a 38-year-old internet entrepreneur in Shanghai who buys everything from steaks to computer parts online, said he found Amazon’s site “as bland as plain water.” JD’s website, a riot of red and orange hues, “makes one feel festive and in the mood to shop,” he said.
Finally, the video streaming service included in Amazon Prime—with its award-winning original content—isn’t available in China due to censorship rules.
Visitors gather at an Amazon booth during the 2016 China International Electronic Commerce Expo.PHOTO:GETTY IMAGES
Still, China is an important piece of the puzzle for Amazon in its plans to one day haul and deliver packages and cargo globally for others as well as itself.
The online retailer has been building its business with manufacturers and sellers in China, encouraging them to sell direct to U.S. consumers via Amazon.com. As the company sends more merchandise from China to the U.S.—and especially as it develops its own air-service offerings—it needs to fill trucks and planes going both ways.
As Amazon adds international shipping capabilities including its own planes, “in order for it to be cost effective, they need to have goods that are going out of the U.S. and into the U.S. to do it profitably,” said John Haber, chief executive of supply-chain consultancy Spend Management Experts.
Going forward, Robert W. Baird & Co. Amazon analyst Colin Sebastian expects Amazon to continue to focus on its global store, which allows Chinese consumers to buy products from countries including the U.S. and the U.K. That is an area where it can likely gain a better foothold because of its reputation as a place to buy authentic Western goods.
“They’ve dialed back their strategy and expectations from trying to compete as a mainstream online retailer,” Mr. Sebastian said.
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