weekly insights january 16, 2015 · !!3 january 16, 2015 fbic publication: retail & technology...

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January 16, 2015

FBIC publication: Retail & Technology research weekly insights

January 16, 2015

Big data, inventory centralization and the cloud got a lot of buzz at the NRF’s Big Show 2015 this week

Traffic rose for the second week in a row, lifted by gains at apparel stores

US household finances continued to improve in 3Q

Acquisition news for Dollar Tree and Home Depot; Target exits Canada and consumer spending in China expected to slow in 2015

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r - H e a d G l o b a l R e t a i l R e s e a r c h a n d I n t e l l i g e n c e F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m N e w Y o r k : 6 4 6 . 8 3 9 . 7 0 1 7 S u p p o r t e d b y T e r e s a L a m F u n g b u s i n e s s i n t e l l i g e n c e c e n t e r – H e a d A s i a D i s t r i b u t i o n a n d R e t a i l t e r e s a l a m @ f u n g 1 9 3 7 . c o m H o n g K o n g : 8 5 2 . 2 3 0 0 . 2 4 6 6

Weekly insights

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January 16, 2015


FROM THE DESK OF DEBORAH WEINSWIG We’ve been in a state of perpetual motion for the past two weeks, first attending the Consumer Electronics Show (from January 4-‐8) and then the NRF's BIG Show soon thereafter (from January 11 to 14). Not surprisingly, the typical buzz words—omnichannel, integration and mobile— popped up a lot again this year. Omnichannel wasn’t even a word five years ago. Now it virtually defines retailing, spurred by the relentless advance of mobile shopping. Retailers are at various stages of figuring out the best way to deliver the seamless, always-‐on, always-‐open shopping experiences their time-‐starved, no-‐compromise customers are demanding.

Giving shoppers great product, great service and great shopping experiences is still the industry’s Job One. But technology will get them there. On that front, three main themes kept popping up everywhere we went: big data, inventory centralization, and the cloud. These are the foundational technologies for the industry’s future innovation and evolution.

• Big data hits the big time. Data analytics will continue to drive the advancement of omnichannel strategies, as a source of actionable insights that support retailers’ efforts to bring greater personalization to their marketing campaigns and inform their inventory and assortment planning across the entire organization. If retailers know which items have sold well, and when they have sold, they can plan their purchase lifecycles more effectively. Even better, they can use this data to evaluate back-‐up products with similar attributes and, thus, can serve as replacements if they are unable to stock the item the customer is seeking.

• Siloes are out, single-‐view is in. Today, the consumer is calling the shots and will go elsewhere if a retailer can’t give them what they want, when they want it, or at least be able to track their purchase. Success in this new retail world will require a single, seamless cross-‐channel merchandising, marketing and inventory-‐management structure (Macy’s is in the vanguard here!). Distributed order management (DOM) solutions and advanced radio-‐frequency identification (RFID) technologies are likely to play a major supporting role. In a DOM solution, all fulfillment channels have access to the information, allowing the retailer to appropriately allocate the inventory depending on stock levels, demand requirements and timing of fulfillment—no matter where that inventory resides in the supply chain. Big data ties in heavily here, as retailers increasingly base their inventory planning on data and analytics.

• Mission-‐critical operations move to the cloud. Even though many retailers still prefer an on-‐premise version of software, many mission-‐critical applications are now in—and will continue to move to—the cloud. Software suppliers are rushing to meet retailers’ demands for cloud technology for inventory management, data analytics, fulfillment and replenishment, transportation management, warehouse management and an assortment of other applications. The advantages: on-‐premise models require lots of maintenance, whereas cloud-‐based applications allow retailers to rely more on their IT investments and free up time and resources to pursue other projects.

There isn’t enough room here to capture all we’ve heard and learned from Retail’s BIG show 2015. Check out our daily coverage on these and other topics gathered from Retail’s BIG Show, as well as our final wrap-‐up report due early next week.

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January 16, 2015


US WEEKLY TRAFFIC AND SALES

First Back-‐to-‐Back Traffic Gains Since January 2013

Figure 1: ShopperTrak Weekly Traffic

Through January 9, 2014 Source: ShopperTrak

• Following last week’s 5.8% gain, traffic continued to rise this past week, albeit at a slower 0.7% pace

• This was the first back-‐to-‐back gains in traffic since January 2013 • Traffic picked up strongly at apparel stores and fell modestly at electronics stores

RETAIL HEADLINES OF THE WEEK

Dollar Tree Proposes Divestiture of 300 Stores to Buy Family Dollar Company press release (January 12)

• Discount chain Dollar Tree said it expects to divest fewer than 300 stores to satisfy anti-‐trust regulations in its effort to acquire Family Dollar Stores. Dollar Tree has identified potential buyers and expects to close the acquisition by March

• Analysts speculate that Walmart and Target are on the list of potential buyers, given their interests in small-‐format stores

• Family Dollar shareholders are scheduled to vote for the Dollar Tree offer on January 22

Home Depot Completes Acquisition of HD Supply Hardware Solutions Company press release (January 12)

• Home Depot completed its acquisition of HD Supply Hardware Solutions Business

• HD Supply is one of the largest industrial distributors in North America, with a customer base of approximately 500,000. It specializes in maintenance, repair, operations, infrastructure, power and specialty construction sectors

UK’s Top Supermarkets See Market Share Declines Quartz (January 13)

• Top UK grocery chains Tesco, Sainsbury, Asda and Morrisons lost market share during the holiday season (the 12 weeks ended January 4) to German discounters Aldi and Lidl.

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• In response, these grocery stores have taken different measures: Tesco announced a restructuring plan, Sainsbury is cutting 500 jobs cuts and Morrison sacked its CEO Dalton Philips

• Discounters Aldi and Lidi had respective sales gains of 23% and 15% during that same period

Top Supermarkets Groups in the US, 12 weeks to January 4, 2015

Target Exits Canada WWD (January 15)

• Target announced that it is exiting its Canada business, which now has 133 stores, citing the difficulties generating profits. As a result of the move, the company expected to book a pretax loss of $5.4 billion in its Q4, which ends this month.

• Target first opened stores in Canada in 2013—its first international expansion—but the operation has struggled to turn a profit from the start.

• Target’s news comes on the heels of store-‐closing announcements from Macy’s and JP Penney in recent weeks.

• Target shares rose nearly 2% in morning trading following the announcement.

Figure 4. US Regular Gasoline Prices

$ Per Gallon Change From

12/29/14 01/05/15 01/12/15 Week Ago Year Ago

2.30 2.21 2.14 (0.07) (1.20)

Source: US Energy Information Administration

0 10 20 30

Iceland Lidl Aldi

Waitrose The Co-‐operagve

Morrisons Asda

Sainsbury's Tesco

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The Co-‐operagve Morrisons

Asda Tesco

Sainsbury's Iceland

Waitrose Lidl Aldi

Figure 2. Market Share Figure 3. Year-‐over-‐Year Growth

Through January 4, 2014 Source: Kantar Worldpanel

Through January 4, 2014 Source: Kantar Worldpanel

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January 16, 2015


US MACRO ECONOMIC UPDATE

US Household Debt to Disposable Income Ratio Near Record Low in 3Q

Figure 5. US Household Debt as a Percent of Disposable Income (Percent)

• Total household debt service came in at just under 10% of disposable income in 3Q, a record low level and down from the 13% recession peak

• The consumer debt services currently account for a little more than half of the total debt services, while mortgage debt services account for less than half. Leading up to the Great Recession, mortgage debt represented a substantially larger portion of the total ratio. With falling interest rates and declines in mortgage debt (mostly due to foreclosures), the mortgage debt ratio has declined significantly.

• These data suggest that household cash flow is in much better shape today

US WEATHER ANALYTICS: Week of January 18 ─ 24, 2015

Warmer but Stormy Weather to Disrupt the Recent Seasonal Demand Boost

• Milder Temps Move Into the Interior and East. The stubborn Arctic chill will finally exit and be replaced with warmer temperatures versus last year, diminishing the recent momentum for cold-‐weather items.

• Most Western Regions Will Trend Colder. Demand for portable heaters, winter apparel and hot consumables should remain strong. Temperatures in the South will be similar to those of last year, and should help support consumer demand.

• Week to End Stormy for Most of US. The pattern will continue to promote stormy weather across the US, specifically in eastern regions. Wintry conditions are likely to be focused in the northern tier.

• Weather-‐driven Demand: Hats & Gloves -‐13% YoY

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Total Household Debt Service Rago Consumer Debt Service Rago

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Jan. 18 2014—Jan.24 2015 Weather Outlook

(Average Temperature vs. Last Year)

Through September 30, 2014 Source: Federal Reserve Board

Source: Planalytics

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January 16, 2015


CHINA HEADLINES OF THE WEEK

Consumer Spending Growth Expected to Slow in 2015 Hong Kong Economic Times (January 8)

• China’s consumption growth is expected to slow in 2015 or be on a par with 2014, reflecting a slowing economic activity and income growth.

• As consumption upgrade takes time, the government’s anti-‐corruption campaign is expected to continue to impede high-‐end retail spending. Meanwhile, ongoing urbanization is likely to lead to faster growth in affordable consumer product sales.

• The Chinese Academy of Social Sciences estimated that China’s economy can grow 7% in 2015, versus an estimated 7.4% in 2014.

China Allows Foreign E-‐Commerce Ownership in Shanghai Free Trade Zone TechInAsia (January 14)

• China’s Ministry of Industry and Information Technology announced a loosening of its regulations governing its Shanghai Free Trade Zone, saying that it will now permit wholly foreign-‐owned companies to operate within that zone in the “online data processing” and “transaction handling” industries. The announcement specifically states that this includes e-‐commerce companies.

• Foreign investors previously required a Chinese joint-‐venture partner to operate an e-‐commerce firm in China. The pilot scheme could provide an easier route for overseas companies to enter one of the world's biggest e-‐commerce markets.

Amazon China to Unveil International Brands on Website Ebrun (January 7)

• Amazon China recently introduced 60,000 or more men’s apparel and footwear items from more than 400 international brands such as Haggar, Calvin Klein, Dockers, Rockport, Clarks, Cole Haan, Perry Ellis and TUMI on its cross-‐border direct sales platform.

• Amazon China aims to boost sales by expanding its product offerings during China’s Spring Festival shopping season.

Lancôme to open a flagship store on Tmall Ebrun (January 13)

• French luxury beauty brand Lancôme has set up a flagship store on Tmall, offering skin care, makeup and fragrance to online shoppers.

• LancÔme joins other luxury brands, such as Burberry, Estée Lauder and Hugo Boss, which have already established a storefront on Tmall. Industry analysts expect sales growth of China’s luxury market to continue to slow in 2015, after falling from 6% growth in 2013 to about 2% growth in 2014. Luxury brands have to diversify their sales channels to meet this challenge, they said.

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January 16, 2015


COMPANY CALENDAR

Company Event Date

World Duty Free Analyst Meeting Jan. 15

Unilever PLC Q4 14 Earnings Call Jan. 20

eBay Inc. Q4 14 Earnings Call/Earnings Release Jan. 21

Coach Q2 15 Earnings Call/Earnings Release Jan. 22

Family Dollar Extraordinary Shareholders Meeting Jan. 22

EVENT CALENDAR

Event Location Date(s) FBIC Presentation

New Partners for Smart Growth (NPSG) Baltimore, MD Jan. 29 -‐ 31 Deborah Weinswig

NRF Retail Industry Leaders Dinner Los Angeles, CA Feb. 4

NRF Retail Industry Leaders Dinner San Francisco, CA Feb. 5

MAGIC Show Las Vegas, NV Feb.17-‐19 American Apparel & Footwear Association (AAFA) 2015 Annual Executive Summit Washington, DC Mar. 18 -‐ 20 Deborah Weinswig

NRF PROTECT Long Beach, CA Jun.23-‐Jun.25

Deborah Weinswig, CPA Executive Director – Head Global Retail Research and Intelligence Fung Business Intelligence Centre Global (FBIC Global) New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Marie Driscoll, CFA [email protected] Christine Haggerty [email protected] John Harmon, CFA [email protected] Amy Hedrick [email protected] Fong Lau [email protected] Lan Rosengard [email protected] Jing Wang [email protected]

weekly insights january 16, 2015 · !!3 january 16, 2015 fbic publication: retail & technology...

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