A look at key issues/developments in the dynamic discipline of marketing
Tuesday, July 10, 2018
Bright Farms takes local produce model nationwide with hydroponics
By Mary Ellen Shoup
09-Jul-2018 - :
Local food, hydroponics
It wasn’t too long ago when locally-grown produce evoked images of backyard gardens or roadside produce stands
many miles outside of city limits. Now, the local produce movement has morphed into an urban-centered industry
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BrightFarms plans to build 10 to 15 more greenhouses over the next three years.
thanks to the rise of hydroponic greenhouses.
One major player in the hydroponic space, BrightFarms, grows local produce nationwide by financing, building, and
operating greenhouse farms in urban areas, partnering with nearby supermarket chains, enabling it to quickly and
efficiently eliminate time, distance, and costs from the traditional food supply chain.
BrightFarms’ locally-grown lettuce and basil are currently in 650 stores including Walmart, Kroger, Ahold, and
Albertsons locations. In two years, the brand has grown its distribution by 225%
reaching a household penetration of 1.5 million, CEO Paul Lightfoot said.
“We're a mission-driven company focused on changing the health of our society and our planet by becoming the first
national brand of local produce. We work with the nation's largest retailers to offer a premium, delicious and healthy
product at an affordable price for the average consumer,”
Lightfoot told FoodNavigator-USA.
And its footprint continues to expand dramatically with a greenhouse set to open in Ohio this summer giving a
stronger reach into the Midwest market and another greenhouse opening in Texas in early 2019.
Its route to rapid expansion hasn’t been a solo journey however. Bright Farms has brought in more than $100m in
funding having recently secured more than $55m in Series D equity financing from investor Cox Enterprises in late
June.
“This financing will enable us to continue rapid national expansion of BrightFarms’ network of local and sustainable
farms,” Lightfoot said.
Like many other players in the space, BrightFarms’ greenhouses consist of a hydroponic system utilizing a
combination of natural and artificial light to grow its lettuce varieties and basil. Its distinct advantage is the short
distance the company's produce has to travel to get to stores and eventually in the hands of consumers, resulting in
energy and cost savings.
BrightFarms CEO Paul Lightfoot says the company has reached 1.5 million households
Future of urban hydroponics
According to the company, its operations use 80% less water, 90% less land, and 95% less shipping fuel than longdistance,
centralized and field-grown suppliers.
Affordably priced for the mainstream shopper, BrightFarms is able to reach a broader audience – who have tended
to be priced out of the category – by appealing to their desire for fresh, locally-grown produce, he claimed.
“Local is today's #1 demand trend in both restaurants and supermarkets.
As consumers demand fresher, local food,
more major retailers are turning to BrightFarms to meet this demand,” Lightfoot added.
The company’s clear local origins has also helped it compete against organic offerings.
In fact, the Food Marketing Institute’s 2017 Power of Produce report listed both organic and local as two of the
largest trends in fresh food, but noted that consumers have a significant preference for local. Researchers found that
when quality, appearance, and price are equivalent, 60% of consumers chose the local option versus just 32% for
organic.
At retail, BrightFarms is giving big produce brands a run for their money, according to Lightfoot.
“When we enter retailers, we are replacing the shelf space of West Coast distributors. Our program drives
incremental category growth while attracting our retailers’ most valuable consumers,” he said.
“For retailers, fresher produce also leads to longer shelf life and helps them eliminate waste.”
As BrightFarms continues to grow – targeting the buildout of 10 to 15 more greenhouses in the next three years – it
remains focused on building greenhouses outside of “densely populated urban cores” as part of its strategic
business model of providing access to locally-grown produce at price point where most American shoppers can
participate, according to Lightfoot.
“The locally-grown food trend is here to stay and is already challenging big agriculture.”
Healthy Personalized Foods Might Be Right Around the Corner
The Lempert Report: 3D printing could create ingredients that conform to users' needs or preferencesBy Phil Lempert on Jul. 09, 2018
We've been touting 3D printing for food opportunities here at The Lempert Report ever since I witnessed and tasted Oreos being 3D printed at SxSW (South by Southwest) five years ago.
We’ve showcased other foods, like pizza being 3D printed, and offered up the idea that 3D printing of food, in retail stores as well as home applications, could be one of the biggest tools in our fight against waste.
Now it gets even more exciting.
Jin-Kyu Rhee, associate professor at Ewha Womans University in South Korea, presented his research findings at the 2018 American Society for Biochemistry and Molecular Biology annual meeting, aimed at applying 3D technology to the creation of customized food that would fit individuals' unique nutritional needs.
"We built a platform that uses 3D printing to create food microstructures that allow food texture and body absorption to be customized on a personal level," Rhee said in a press statement. "We think that one day, people could have cartridges that contain powdered versions of various ingredients that would be put together using 3D printing and cooked according to the user's needs or preferences."
In Rhee's research, he and his team re-created the physical properties and nanoscale texture of real food and figured out how to turn carbohydrate and protein powders into food with microstructures that can be adjusted to control texture and absorption by the body.
Take this concept, match it with the DNA results of nutritional tests from Habit or 23andMe and we might be 20 steps closer to what nutraceuticals were meant to be.
Inventory Management: Out of Time for Out-of-Stocks
Retailers rethinking approach to inventory management to satisfy consumers' expectationsBy Natalie Taylor on Jul. 09, 2018
In today’s volatile retail climate, grocers are burdened with seemingly endless challenges of adapting to the evolving needs and expectations of the consumer. From e-commerce and meal kits to mobile payments and social interactions, retailers are constantly testing new ways to improve the total shopping experience. Yet one key factor is often overlooked.
Out-of-stocks are more than just a nuisance to retailers’ inventory management operations. They are perhaps the single most important factor when it comes to the customer’s shopping experience that ultimately impacts their bottom lines. Regardless of a store’s merchandising, promotions or omnichannel efforts, if shoppers are unable to find a desired product or brand, more often than not, they’ll leave to find it elsewhere.
Despite this daunting fact, the out-of-stock rate for years has hovered at an average of 8%, according a report by Food Marketing Institute (FMI) and Grocery Manufacturers Association (GMA) titled Solving the Out-Of-Stock Problem. Worse, out-of-stocks for promoted items often exceed 10%, which means retailers are essentially guaranteed revenue loss of 8% to 10% or more in an industry that’s already rife with challenges. Yet, many seem to have concluded that this rate is an inevitable aspect of grocery business operations because of its complexity and consistency. “But the problem is not going to be able to be swept under the rug anymore, because it’s becoming more and more exposed online,” says Jason Wirl, director of solutions consulting at inventory optimization software provider Itasca Retail Information Systems, based in West Des Moines, Iowa.
Shock to the System
With the ever-growing threat of Amazon, retailers are increasingly expanding their online offerings to keep up with consumers’ newfound expectations for accurate and expedient grocery delivery. “Amazon is top of the line in all grocers’ minds,” says Eric Smith, president of global consulting firm Supply Chain Optimization LLC based in Lake Forest, Calif. “They know that they need to change the way they’re doing things.” Walmart Inc., for instance, recently announced plans to expand its online grocery delivery service to 100 markets this year, with eyes on offering delivery to more than 40% of U.S. households, while Smart & Final Stores Inc. in April launched a new delivery app in partnership with Instacart.
Offering online grocery delivery for many retailers is an obvious next step to survive the Amazon-driven battle for convenience. But implementing these services can cause more harm than good for retailers without real-time in-store inventory management, says James Tenser, principal with retail consulting firm VSN Strategies, based in Tucson, Ariz. “When a shopper orders online or on mobile, they see a catalog of items theoretically carried in the store,” he says. “But they don’t see any visibility to the actual goods that are available in the moment,” which often results in order complications such as item substitutions, delayed delivery or cancelled orders—or, ultimately, an unsatisfactory customer shopping experience.
In as few as five to seven years, 70% of consumers will be purchasing groceries online, according to research from FMI and Nielsen, with an estimated $100 billion annual spend expected to occur as soon as 2022. As such, retailers have neither the time nor the affordability for complications in order fulfillment, on both in-store and digital levels. Shoppers cite product availability as one of the top three reasons for choosing where they shop, according to research by FMI and GMA. Yet on any given shopping trip, one out of every 12 items on the shopper’s list, and one out of every 10 promoted items, is unavailable on the store’s shelf, which causes consequences beyond lost revenue and shopper dissatisfaction. Data from the Solving the Out-Of-Stock Problem report revealed a “three strikes and you’re out” pattern among consumers:
Strike 1: On the first occurrence of an out of stock, the shopper will substitute the desired item 70% of the time.
Strike 2: On the second occurrence, the shopper may substitute the item, not make a purchase or go to another store.
Strike 3: The third occurrence results in the shopper going to another store 70% of the time, meaning even greater loss of future revenue.
Still, most retailers have been slow to adopt inventory optimization solutions due to failed experiences with related software in the past. “As many say, ‘The well has been poisoned,’” says Smith, who in the mid-1990s spearheaded Hy-Vee Inc.’s deployment of a computer-generated ordering (CGO) forecasting and replenishment system, which remains central to the company’s operating systems today.
At the time, Smith says, CGO was gaining traction but left many retailers frustrated with unsuccessful implementation, in part due to discrepancies between the store-level and retail-level forecasts. “I concluded, ‘Why is the store creating one forecast and then the warehouse creating another forecast?” he says. “Rather than a store ordering one day ahead with one-day lead time, and a buyer at the warehouse ordering three days ahead with a three-day lead time, why doesn't the store just order what they need four days ahead since they have a forecasting system?” Doing so resulted in a 60% decrease in Hy-Vee’s inventory and often, 100% sale rates for many vendors, Smith says. “It was absolutely successful.”
Debunking Inventory Optimization
Pains from the past have left many retailers feeling intimidated by inventory optimization, which can seem complex and overwhelming. But as their scars continue to fade, and pressure to improve the shopping experience intensifies, a necessary shift in retailers’ traditional inventory mindset is beginning to unfold—and today, the technology is there to support it.
Retailers have long maintained the practice of managing inventory via a pull-based system in which the store orders independently from the warehouse and supplier, often in bulk to carry “safety stock” in an effort to prevent stockouts, as well as beef up shelves for display purposes. But safety stock often lingers unsold in retailers’ backrooms, affecting profitability, and adds additional costs of labor for staff members to manage backroom inventory. Plus, this practice discounts the shopper’s in-store experience, where consumers decide what to purchase based not only on their predetermined shopping lists but also based on what they see in-store. “If it’s not available, they can’t buy it,” says Tenser. “There are some things that are really important to have in your assortment, and they need to be available when people need it.”
Picture this:A shopper is prepared to splurge for an impressive holiday dinner, such as a loin of beef. With a popular recipe in mind, that shopper is also seeking a dry mustard powder that’s often sold in conjunction with that piece of beef. If the $3.50 jar of mustard powder is unavailable during that shopping trip, the shopper may have second thoughts about purchasing the $54 piece of meat, Tenser says.
Inventory optimization is designed to match inventory supply to expected consumer demand to prevent this very problem, which affects both the shopper’s experience and the retailer’s profitability. The days of “stack it high, watch it fly” are over; new technology from companies such as Itasca enables retailers to generate forecasts based on historical POS information to order inventory via a demand-based system in which the forecasts between the store, warehouse and supplier are all connected. “It’s not just about eliminating out-of-stocks, although that’s one of the main benefits of the system,” says Wirl. “As we go forward, we see that one of the biggest benefits is a lowering of inventory.”
From basic product management through promotional planning and execution, Itasca’s Magic software provides a real-time perpetual inventory, advanced consumer demand forecasts and sophisticated ordering algorithms designed to improve retailers’ service level, inventory turns and handling costs while reducing inventory-related labor requirements. By adopting inventory optimization software, Itasca’s retail clients, including Wegmans, Raley’s, Carlie C’s and Price Chopper, have experienced benefits such as same-store sales increases of 2% to 3%, reduced out-of-stock rates to less than 1%, reduced inventory by 10% to 20% and reduced shrink by 25%, according to the company.
“We have been successful in reducing out-of-stocks and reducing shrink as well,” says Mack McLamb, owner of Dunn, N.C.-based Carlie C’s IGA. “We have already had to abandon one automated ordering project that we had invested thousands of dollars in. But we see the next-generation inventory management is not to get you ahead of the competition, but just really to remain competitive.”
Hands-Off Approach to Perpetual Inventory
Perhaps retailers’ biggest barrier to adopting inventory optimization software is their inevitable change in approach to placing orders. Retailers have traditionally ordered inventory manually, based generally on a gut feeling. And with most stores averaging 35,000 SKUs or more, that leaves a huge opportunity for error. “Human intervention is not that trustworthy here,” says Tenser. “When you study the problem, you learn that 95% of those decisions, of those 35,000 items, come down to a binary choice.” As such, retailers must adopt a more systemic process to streamline the order process and increase efficiency.
“The most significant shift for us was to go from being reactive to being proactive around inventory,” says McLamb. “On a day-to-day basis, the majority of our inventory was ordered after it was sold. We now manage the inventory much more effectively.” With Itasca Magic, associates in-store are provided with a handheld device to mark out-of-stocks immediately in the application, which then automatically generates the inventory order, eliminating human judgement and error from the ordering process.
Daisy Intelligence, based in Concord, Ontario, offers a similar solution that utilizes artificial intelligence to consider all effects that make inventory optimization a challenge, such as the changing relationship between products, promotions, seasonality and forward-buying effects. “Retailers today are challenged to manage inventory with forecasts having errors ranging from 40% to 60% plus,” says Daisy CEO Gary Saarenvirta. For a discount retailer with approximately $1 billion in annual revenue, Daisy was able to increase forecast accuracy on promotional products by week to less than 15%, compared to the industry average of a 38% promotional forecast error, Saarenvirta says. The company also delivered regular inventory forecasting at the product store day level, improving accuracy from 60% error to less than 30% error and enabling the retailer to maintain less safety stock and reduce capital tied up in inventory.
One of the benefits of adopting inventory optimization software that is often overlooked is the improvement of the shopper’s experience, says Gary Hawkins, CEO at Center for Advancing Retail & Technology (CART). Kroger and Dunnhumby, for instance, created customer segments that provided a lens through which to view their business, analyzing the products and brands shoppers prefer in order to determine product assortment and inventory on a store-by-store basis. “If the retailer is able to get the product assortment right and then the inventory right, chances are that the product the customer is going in the store looking for is actually going to be on the shelf and not out of stock,” Hawkins says.
Optimizing Online Orders
Implementing real-time in-store inventory management software enables retailers to efficiently integrate online ordering by connecting store-level perpetual inventory data with the e-commerce website or mobile app, as evidenced by Walmart.
Rather than ordering from a virtual product catalog that doesn’t reflect that availability of items in-store, shoppers can virtually select the store that will fulfill the delivery and view accurate real-time inventory to provide the same shopping experience as if they were physically in the store. “A bad digital experience reflects badly on the brand as a whole,” says Tenser of VSN Strategies. “If you don’t have a store-level perpetual inventory, which is one of the essential elements of an ordering optimization solution, then you don’t really have information to pull into the digital site.”
However, fulfilling online orders can be harmful to a retailer’s operation, creating out-of-stock issues and complications on the floor between an online customer’s personal shopper and an in-store customer competing for the same product. As such, some experts predict the notion of “dark stores,” which are growing in Europe, to soon begin developing in the U.S. “At some point, it’s going to make sense for [retailers] to close a store and use that dark store to do all the fulfillment for e-commerce orders instead of impacting the stores that are open for customers,” he says. “That e-commerce business has to be factored into the optimization work.”
Private Label Increases Market Share across Europe
By CPGmatters Staff
Retailer brands keep gaining popularity across Europe. The latest Nielsen data shows that market share for private label increased last year in 12 of 19 countries. It now stands at 30% or more in 17 countries.
Private label reached an all-time high in Europe’s largest retail market, Germany, with its market share there climbing to over 45% for the first time. Market share also increased to its highest levels ever in six other countries: The Netherlands, Belgium, Sweden, Norway, Hungary and Turkey.
“What accounts for this growth is the continued weakness of national brands,” Brian Sharoff, president of the Private Label Manufacturers Association told CPGmatters in an interview in Amsterdam at the recent PLMA International trade show where the association’s coveted Salute to Excellence Awards for wine were announced.
“Look at all of the different companies and countries here at the show,” he said. “Small companies feel they can compete in categories where there are big national brands. It’s partially due to retailers changing who can be on the shelf and knocking out certain companies. Add to that the spectacular growth over the last couple of years of Aldi and Lidl offering 90% private label. They know how to build traffic in their stores. That’s the catalyst in the marketplace.”
Private Label’s gains in Europe have come even in countries where store brands already had very high penetration. Market share for retailer brands climbed in the United Kingdom, Germany, Belgium and Portugal, where share was more than 40%.
In the UK, where supermarkets are investing in their private label programs to meet competition from the discounters, market share climbed to more than 46%.
Private label still accounts for half of the products sold in Spain and Switzerland. Market share in France remained above 30%, but declined as some retailers reduced their price entry brands and moved toward more premium products.
The biggest market share gain was posted in Turkey, where private label climbed by 3 points to nearly 26%. In Greece, retailer brands still account for one of every three products sold in the country.
In Scandinavia, there were gains in Sweden, Norway and Finland, with market share in all three countries above 30%. Private label share also was at 30% or above in four central and eastern European countries—Poland, Hungary, Czech Republic and Slovakia—led by Hungary climbing to 34%. Market share remains above 40% in Austria.
Market share stayed at or above 20% in Italy for the sixth consecutive year, but declined by a point last year. Prospects for retailer brands look to improve as Aldi with its strong private label program enters the country.
Meanwhile, at the trade show in Amsterdam, 28 retailers from 10 countries were named winners of PLMA’s 2018 International “Salute to Excellence Wine Awards.” The awards aim to recognize supermarkets, hypermarkets, discounters and other grocery retailers for quality and value of their private label wines. In all, 58 wine awards were announced in categories covering reds, whites, roses, sparkling, and fortified wines.
The importance of food retailers in wine sales has emerged as trade statistics reveal that more than 50% of wine purchased in the United Kingdom, France, Germany, Spain and Italy is bought at a supermarket, hypermarket or discounter.
Sharoff of PLMA said, “This is resulting in a significant growth of private label wines in all categories as these retailers are well-known for their private label food, snacks, beverages, health and beauty and household products. According to Nielsen, private label sales in these categories is already more than 40%-50%.”
The awards demonstrate that private label wines are succeeding in all price ranges and varieties. “It is not a situation where consumers are shopping for cheap wine. It is clear from the awards that shoppers are looking for quality and good value. That is why the awards reflect both best quality and best value,” Sharoff said.
Analyzing the wine awards by country or format, discounters, such as Aldi and Lidl, won 12 awards, which is a continuation of a trend found at other wine competitions over the past few years. By country, retailers in France won 12 awards, retailers in the UK won 8 awards, retailers in Spain and Portugal won 7 awards, retailers in Italy won 6 awards, retailers in The Netherlands won 5 awards and retailers in the US won 4 awards. The top score in red wines for Best Quality was Albert Heijn’s AH Excellent Selectie Côtes-du-Rhône Villages. The top score for Best Value was Auchan’s Pierre Chanau Cahors Malbec. Among white wines, top score for Best Quality was Central Food Retail in Thailand for its Joy Rhein Riesling. Top score for Best Value was Aldi Süd’s Mario Collina Pinot Grigio Valdadige.
More than 300 wines were submitted or purchased for judging. Panels were composed of approximately 18 wine professionals, Masters of Wines, sommeliers, wine writers, and industry experts. Each panel was led by a Master of Wine.
Hershey Figures Out What Prompts Impulse Purchases in Stores
By Pat Lenius
Everybody knows that impulse sales happen every day in supermarkets. But marketers may not know what makes a consumer to pick up an item that was not on the shopping list.
To find out, The Hershey Company researched the evolution of impulse purchases. The iconic candy maker came up with “eight human truths” that it is using as a platform to help retail partners execute in-store promotions.
Renee Balliet, Senior Manager, Shopper Insights, for Hershey discussed these human truths in a workshop at the Shopper Insights & Retail Activation Conference recently in Chicago. The event was hosted by KNect 365, an Informa company.
Here are the eight human truths and some questions she invited attendees of her workshop to consider:
INDULGE. Shoppers seek permission to “give in” to the guilt. They know they can’t be good all of the time and really don’t want to be. Where can retailers and CPG companies capture consumers inside the store to make them stop and savor?
DELIGHT. Sometimes shopping becomes mundane. There is too much noise. There are no surprises. What can retailers and CPG companies do to make consumers feel a sense of happiness? What can they do to reach and delight online shoppers? New flavors? New packaging? An exciting retail display? “Find something that breaks the rules,” Balliet suggested.
SCORE. Help shoppers feel they are sticking it to the Man and beating the system. Give them a sense that they have won or that they found a great deal. Make it fun to follow an impulse.
RECHARGE. Shopping is a task and it can be hard work. Sometimes the consumer needs a break to boost energy or improve his or her mood. As an example, Balliet suggested selling Cliff bars at the front end.
REMIND. Many consumers write a shopping list before going to the store. But what happens when they forget something on the list or even forget to put something on it? This is where retailers, CPG companies and category managers can come to the rescue, suggesting impulse items. “But when you can’t fall on the safety net of the front end, how can you remind customers about what they forgot?” Balliet asked.
INSPIRE. Savvy merchandisers can make consumers stop short during their shopping trip. They may try to cause customers to stop in front of a product or category that they might not normally visit. How do they do this? By inspiring shoppers with a mental picture of what they could do with this product. “It's about what you want rather than what you need,” Balliet noted. “Amplify that want.”
GESTURE. Even when parents take an authoritarian approach toward their children while shopping, there can be times when they have to sweeten the deal by compromising or finding a distraction. When a parent sees a meltdown about to happen, the primary goal is to prevent a tantrum and the accompanying stress. A retailer who can suggest a smart way for parents to manage a challenging situation with their kids will win their gratitude.
INCENT. Hershey’s consumer research revealed that shoppers appreciate ideas that suggest simple, easy ways to express kindness and caring. They want to feel like a hero to their family and friends. Customers appreciate the opportunity for an impulse purchase that offers a small yet touching way to connect with their loved ones. “We need to come up with different conceptual plans for what happens when the front end goes away,” Balliet said.
Some of this information has been quantified by Hershey. The company’s extensive research included shop-alongs and expert interviews. There are some differences among shoppers, she admitted.
What surprised Balliet from the shopper research was the honesty of their answers. For example, she was impressed by those parents who spoke about needing help dealing with a child’s unruly behavior in a store. It’s not unusual for the child to be soothed with an impulse item from the front end.
Asked about how Hershey prioritizes the eight behaviors or human truths, Balliet said, “As an organization, Hershey looks at this holistically. Priorities might be different with different retailers.” For example, a shopper at Walmart may respond differently than someone at Target or the Dollar Store, she explained.
Shopping struggles: These 11 retailers may not survive 2018
Motley Fool Staff, The Motley FoolPublished 2:20 a.m. ET July 10, 2018 | Updated 11:22 a.m. ET July 10, 2018
CLOSE
As traditional retail continues to die, some malls are changing with the times by bringing in fitness-focused business. USA TODAY
Many North American retailers were wiped out in the “retail apocalypse” which started in 2010. Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) growth, the rise of fast fashion retailers, reserved spending habits after the Great Recession, and dying malls crushed countless retailers.
Some retailers survived the downturn by closing stores and expanding their e-commerce presence, but others weren’t as lucky. Let’s examine eleven retailers which could struggle to remain relevant this year.
Sears Holdings (NASDAQ:SHLD) is the poster child of the retail apocalypse. The parent company of Sears and Kmart lost over 95% of its market value over the past decade as mall traffic dried up and it lost customers to e-tailers and superstores.
CEO Eddie Lampert, who took over the top job in 2013, couldn’t counter those industry shifts. Lampert closed stores, sold its Craftsman brand, and spun off its real estate holdings and other brands. Those moves softened Sears’ earnings declines, but its revenues kept declining.
Lampert’s latest “turnaround” plans -- which include a partnership with Amazon and mini-Kmarts inside Sears stores -- aren’t impressing investors. Wall Street expects Sears’ revenue to tumble 26% to $12.4 billion this year, and for its earnings to remain deep in the red. That’s a bleak situation for a company that finished last quarter with $3.5 billion in long-term debt.
Sears spun off Sears Hometown and Outlet Stores (NASDAQ:SHOS) in 2012. Its four banners sell home appliances, lawn and garden equipment, mattresses, apparel, sporting goods, and tools.
Unfortunately, the new company fared just as poorly as the original Sears. Sears was once a top destination for appliance buyers, but it was surpassed by Home Depot and Lowe’s over the past five years.
The company’s stock lost 95% of its value over that timeframe, due to a consistent streak of revenue declines and losses. Its comparable store sales plunged 10.5% last quarter as it desperately shuttered stores to stay afloat. It closed 21 stores during the quarter, and plans to close up to 100 of its Hometown stores during the current quarter. That’s a desperate move for a retailer that only has 882 locations left.
J.C. Penney (NYSE:JCP) was battered by the same headwinds that blew Sears off course. A disastrous “turnaround” effort by former CEO Ron Johnson between 2011 and 2013 -- which alienated the retailer’s core customers with inconsistent discounts -- exacerbated that pain. But for a while, it seemed like J.C. Penney would avoid Sears’ fate.
Marvin Ellison, who took over as CEO in 2014, expanded the retailer’s business with furniture, appliances, athletic apparel, and more women’s apparel. The company’s sales growth stabilized, and it didn’t aggressively shutter stores like Sears. Unfortunately, those efforts hit a brick wall during the first quarter.
After three quarters of positive sales growth, its sales growth turned negativeagain with a 4% drop. Its comps rose just 0.2%, and it posted an adjusted net loss of $69 million. Ellison blamed supply chain issues, markdowns for apparel, and adverse weather conditions for the weak numbers. But Ellison abruptly resigned after the report, leading investors to believe that J.C. Penney’s turnaround was falling short of expectations.
Barnes & Noble (NYSE:BKS) is still the largest brick-and-mortar bookseller in the United States. However, direct competition from Amazon wiped out 65% of its market cap over the past three years. Barnes & Noble closed stores, expanded its digital business with its Nook reader, and spun off its education unit as Barnes & Noble Education (NYSE:BNED) in 2015.
These moves helped it tread water, but they didn’t counter its long-term threats. As a result, Barnes & Noble’s revenue tumbled for 15 straight quarters, and its bottom line remains in the red. Its comps dropped 4.1% last quarter, with a 4% decline in retail sales and a 22% drop in NOOK sales. Analysts expect its sales to slip 2% this year.
In early July, the company announced that it had fired CEO Demos Parneros for “violations of the company’s policies” without disclosing any additional details. That news, along with Amazon’s plans to render the retailer obsolete, casts a dark cloud over its future.
Office Depot
Office Depot (NASDAQ:ODP) is another company being rendered obsolete by Amazon and other e-tailers. It tried to counter the competition by merging with its rival Office Max in 2013, but combining two losers didn’t make a winner. Staples tried to buy Office Depot in 2015, but the merger was abandoned in 2016 due to antitrust concerns.
Office Depot’s stock lost more than 70% of its value over the past three years. It broke a multi-year streak of sales declines with 6% sales growth during the first quarter, but that growth was padded by its acquisition of CompuCom, a provider of IT managed services, infrastructure solutions, and consulting services.
Meanwhile, its retail comps stumbled 8.4%, its operating margin contracted and its adjusted EPS was cut in half. It generated $170 million in free cash flow for the quarter, but it’s still shouldering $1 billion in long-term debt. Analysts expect Office Depot’s revenue to rise 6% this year, thanks to CompuCom, but for its earnings to tumble 31%.
GNC
For decades, customers bought vitamins and nutritional supplements at GNC’s (NYSE:GNC) brick-and-mortar stores. However, the rise of superstores, warehouse retailers, and e-tailers started rendering GNC’s business obsolete. In recent years, several lawsuits which questioned the efficacy of its ingredients also tarnished the brand’s reputation.
As a result, GNC’s stock tumbled more than 90% over the past three years. Its revenue declined for nine straight quarters, and analysts anticipate a 5% drop this year. Its earnings, which face pricing pressure from its competitors, are expected to plunge 66%.
GNC believes that expanding into overseas markets like China, improving its loyalty program, and partnering with Amazon might get its business back on track. Unfortunately, it’s doubtful that these moves can help the specialty retailer defend its niche against big rivals like Costco.
GNC’s top rival, Vitamin Shoppe (NYSE:VSI), was torpedoed by the same problems that sank GNC. Its sales tumbled for six straight quarters, and analysts expect it to post a 5% sales decline and a net loss for the full year.
Vitamin Shoppe’s stock tumbled more than 80% over the past three years. The company’s current turnaround strategies include an expansion of its e-commerce ecosystem, new delivery services, higher marketing investments, and “retooled” pricing and promotion initiatives.
Unfortunately, those efforts sound generic, expensive, and don’t really counter the growing threat of superstores and Costco. Its ongoing store closures might soften the impact on its margins, but it also weakens its brand presence against GNC. There are persistent rumors about GNC merging with Vitamin Shoppe, but combining two losers won’t make a winner -- as we saw with Office Depot.
Vitamin World
Privately held Vitamin World, which competes against GNC and Vitamin Shoppe, isn’t faring any better than its rivals. The company filed for bankruptcy last November, and announced plans to close 124 of its stores and sell the remaining 210 locations.
There’s a glimmer of hope that GNC or Vitamin Shoppe might buy the company, but both companies would probably prefer to see this vanquished competitor simply disappear.
Foot Locker
Foot Locker (NYSE:FL) was once a top destination for footwear and athletic wear shoppers. But in recent years, leading footwear makers like Nike, Adidas, and Under Armour opened their own brick-and-mortar stores and promoted their own e-commerce platforms. Department stores, superstores, and larger sportswear chains also took a bite out of Foot Locker’s sales.
Foot Locker actually posted year-over-year sales growth over the past two quarters.
But if we exclude the impact of a soft dollar, its sales would have declined last quarter. Foot Locker’s comps also stayed negative for the past two quarters -- due to slumping store traffic and weak direct-to-consumer sales.
The company believes that closing stores, securing premium products from leading brands, and fresh e-commerce investments will get its growth back on track. However, its gross margins are stuck in a downward trend, and its so-called partners are becoming its biggest competitors.
Payless ShoeSource filed for bankruptcy last April and subsequently closed about 900 stores worldwide to reduce its store count to about 3,500. Payless’ downfall came in two stages.
First, its core business was crippled by weak mall traffic and competition from larger retailers. Second, private equity firms acquired Payless’ parent company in 2012 for $2 billion and left the chain drowning in debt. Payless’ bankruptcy filing listed liabilities between $1 billion to $10 billion, compared to just $500 million to $1 billion in assets.
Payless entered restructuring agreements to reduce its debt load by about 50%, lower its annual interest costs, and gain access to additional capital. It also secured up to $385 million of debtor-in-possession financing, which gave the company up to $120 million in incremental liquidity during the Chapter 11 process. This means that Payless is on the ropes, but it isn’t going down for the count yet.
Charlotte Russe
Many apparel retailers bounced back this year, but privately-held Charlotte Russe was left out in the cold. The apparel retailer, which targets female shoppers in their teens and twenties, was left behind as fast fashion retailers conquered the market.
To avoid bankruptcy, Charlotte Russe completed an out-of-court restructuring in February. The move reduced its term loan debt from $214 million to $90 million, cut its interest expenses by around 50%, and extended its maturity date by five years. But in return, the lenders received 100% of the company’s equity.
Charlotte Russe plans to reinvest its newfound liquidity into its brick-and-mortar stores and bolster its online presence. S&P Global upgraded its debt after the restructuring, but warned that it still faces “intense competition in the specialty apparel space, lower store traffic, and our expectation for some disruption in supply chain related to the uncertainty around the recent financial restructuring.”
