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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
US Housing Market Trails Broader Economy Wages Set to Rise at US Retailers UK Clothiers Ahead 4.9% YoY in January Cyber Security at Superfish
February 27, 2015 Weekly insights
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
FROM THE DESK OF DEBORAH WEINSWIG As has become abundantly clear, the future of retailing is fast evolving into an “anywhere, anyplace and anytime” (omnichannel) model, with the consumer calling the shots. Last week, we wrote about the preponderance of webrooming—the practice of researching online to find just the right item and then buying that item in a store. Shoppers still want to get physical when it comes to buying things, though they are armed with a lot more price and product information than was possible even just a few years ago.
The explosion in mobile apps has also been a major change agent. As a just released Harvard Business Review study put it, the next billion shoppers to move online will be making their digital decisions on mobile devices. That’s very different from how the first billion ecommerce consumers shopped. Indeed, according to a recent Flurry survey, overall mobile app usage—based on usage “sessions,” which are defined as instances of a user launching and actually using an app—climbed 76% in 2014. By far the biggest growth spurt came from using apps for retail, with the “lifestyle and shopping” category rising 174% YoY on iOS and Android. On Android alone, sessions more than tripled, for a gain of 220%.
Retailers have been spurred to action. Success requires the merging of online and offline into a single retail organization. However, with some notable exceptions (Macy’s and Nordstrom come to mind), the industry is still lagging behind in setting up even the most basic mobile-‐commerce capabilities.
At least that was the upshot of the December 2014 study from Boston Retail Partners (Figure 1), which found that only 24% of retailers surveyed had a system that worked well for a “buy online, pick up in the store” offering, while just 29% said they had successful systems for accepting returns across channels. Inventory visibility across channels, and various combinations of buying or reserving an item in one channel and picking up or shipping from another, were areas that retailers said needed the most improvement. Mobile coupons, smartphone apps, personalization and a mobile wallet were on the long list of features that retailers plan to add within the next three years. It’s time to get moving.
Figure 1. Planned Implementation of Mobile Commerce Technologies (% of Respondents)
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Digital Catalog
Mobile Coupons & Promo<ons
Product Informa<on*
Shopping List/Wish List
Prior Purchase Visibility
Smartphone App
Mobile Loyalty Iden<fica<on
Personalized Recommenda<ons
Geoloca<on
Mobile Wallet
Implemented and Working Well Implemented but Needs Work Implement within 3 Years
*Includes price, location, availability and research Source: Boston Retail Partners, 16th Annual Point-‐of-‐Sale/ Customer Engagement Survey, January 10, 2015
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
US MACROECONOMIC UPDATE Existing-‐Home Sales Declined in January to Their Lowest Rate in Nine Months
Figure 3. Existing Home Sales YoY%
• Existing-‐home sales fell 4.9% to a seasonally adjusted annual rate of 4.82 million in January (the lowest since
last April’s 4.75 million annual rate) from an upwardly revised 5.07 million in December. Despite January’s decline, sales are higher by 3.2% than a year ago.
S&P/Case-‐Shiller 20-‐City Home Price Index Closes 2014 With a 4.5% YoY Increase
Figure 4. S&P/Case-‐Shiller Composite 20-‐City Home Price Index YoY%
• San Francisco and Miami, where prices rose 9.3% and 8.4% respectively over the last 12 months, reported the
strongest gains in December, while Las Vegas led the declining annual returns with a 6.9% slump. Month-‐on-‐month, December’s comparisons were mixed, and the 20-‐city index reported a 0.1% increase.
3.2
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4.5
(25)
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04 05 06 07 08 09 10 11 12 13 14
Through January 31, 2015 Seasonally adjusted Source: National Association of Realtors
Through January 31, 2015 Sources: S&P Dow Jones and CoreLogic
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
US RETAIL TRAFFIC US Store Traffic Falls, Led by Declines at Electronics Retailers Figure 2. US Weekly Traffic
Through February 14 Source: ShopperTrak
• US store traffic decline worsened, with a 3.2% drop YoY for the week ended February 24, a 220 basis point drop from the prior week.
• Traffic at electronics retailers declined 10%. • Apparel stores continued to enjoy YoY traffic growth, rising 2% from year ago levels when severe winter
weather and snowstorms likely deterred shoppers.
US REGULAR GASOLINE PRICES
•
$ Per Gallon Change From
02/09/15 02/16/15 02/23/15 Week Ago Year Ago
2.19 2.27 2.33 0.06 (1.11)
US WEATHER ANALYTICS: WEEK OF March 1–7 March Will Start on a Warmer Note than It Did Last Year
• Warmer Start to March Last year we experienced the coldest first week of March since 1996, with near normal rain and snow fall. This year, the eastern two-‐thirds of the continent will start the week warmer than at this time last year, but cooler than is normal in many markets. Arctic temperatures will creep back in late week across the Mid-‐Atlantic and Northeast.
• The West Remains Cool The western US will experience another week of temperatures averaging below those of temperatures this time last year, although near normal. The West will also become unsettled as low pressure systems dive southeastward across the region, bringing rain and snow showers.
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10/03
10/10
10/17
10/24
10/31
11/07
11/14
11/21
11/28
12/05
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12/19
12/26
01/02
01/09
01/16
01/24
01/31
02/07
02/14
Source: US Energy Information Administration
4
February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
• Warmth Focused in the South The central south, Gulf Coast, and parts of the Southeast will trend warmer than both last year and normal. These regions will provide the strongest opportunity for spring apparel and outdoor categories.
• Active Storm Pattern Continues Wintry precipitation will continue to cause travel headaches as a series of storm systems move across the continent, bringing periods of rain, ice and snow. We are also entering severe weather season across the Deep South. A late week storm may impact the Southeast with severe weather.
Weather-‐Driven Demand: Exterior Paint +4% YoY
US PROMO HIGHLIGHTS • JCPenney featured exclusive Disney Collection Cinderella offerings online and in stores as a tie-‐in
with the movie Cinderella, in theatres March 13.
• Bloomingdale’s and Macy’s offered clearance discounts for home categories .
• Target cut its free-‐shipping minimum to $25 .
• On a YoY basis, Target offered a $5 gift card on select items in 2014 versus a $10 gift card this year; The 10% off perk for using the Cartwheel app was no longer offered this year.
March 1–7 Weather Outlook (Average Temperature vs. This Time
Last Year)
Source: Planalytics
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
Retailer Event Dates Name of Promotion Pages Promotion Details
Bloomingdale's 2/19 Chinese New Year Online • Celebrate Chinese New Year with a Lucky
8%, 18% or 18% Discount
2/19
Just Arrived: Spring 2015 Luxury Shoe and Handbag Lookbook Online • Premium Shoes and Handbags
2/22
bQuick! Online Secret Sale: Save 50–75% in Home Online • Online Secret Sale—by Invite Only
JCPenney 2/26–2/28 Super Saturday Sale 8
• Bonus Cash: $10 Off When You Spend $ 30 or More
• Doorbuster, 50% Off Worthington Apparel; • Cinderella (JC Penney and Disney) in
theaters March 13.
Nordstrom 2/16
Save Up to 40% on Dresses, Tops, Coats and More Online
• Save Up to 40% on Dresses, Tops, Coats and More
2/20 More Shoes for Less Cash Online • Style on a Shoestring
Kohl's 2/3–7/1 Sunny Side Up 20 • Outdoor Patio Lookbook
Macy's 2/25–3/1 Hot Ticket Home Sale 4
• Hot Deals on Suitcases • Buy One Pillow, Take an Extra 50% Off • Take 30% Off Blenders, Juicers, Coffee
Brewers, Espresso Makers and Food Processors
Saks Fifth Avenue 2/22
Valentino, Featuring the Watercolor Rockstud Collection Online • Valentino Spring 2015 Runway Collection
2/22 Timeless Whites, Up to 40% Off Online • Take Up to 40% Off Clean and Crisp Whites
2/23 Take $75 Off Your $300 Online Order Online • Take $75 Off Your $300 Online Order
Dollar General 2/15–2/28 Everyday Health Essentials 1
• Rexall Cold Relief and Health Supplements • $1 Dollar General Health Cough Drops,
Tissues,
Family Dollar 2/22–2/28 Save Today and Have It 12 • Family Dollar Toilet Paper • Up to $2 Off Laundry Detergent and Bleach
Target 2/22 Red Hot Buys 20
• $13.99 Bounty Paper Towels • $9.99 Laundry Care • Price Match for Qualified Items
Walmart 2/22 Gear Up Trusted Baby Brands 16
• $37.94 Pampers Diapers • Deals on Cribs and Strollers • Price Match for Qualified Items
CVS 2/22–2/28 Weekly Deals 4
• Extra Bucks for Cheerios, Sodas and Candy • $ 7.99 Nuts • Buy 1 Get 1 50% Off Maybelline Makeup
Walgreens 2/22–2/28 Weekly Deals 1
• 2 for $10 Soda; $3.99 Nuts; 2 for $5 Cheerios; $2.99 General Mills Snack Bars
• $5.99 Laundry Care • Buy One Get One Free Finest Nutrition
Supplements
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
US RETAIL HEADLINES Select Company Earnings
Company
Revenues ($ Mil.) Change
Gross Margin (%) Change
Net Income ($ Mil.)
Change YoY Store Fleet EOP
2014 2013 (%) 2014 2013 (BP) 2014 2013 (%) 2014 2013
Carter's 869 770 12.9 41.0 41.9 (93) 69 43 60.5 655 578
Dollar Tree 2,476 2,235 10.8 37.1 36.9 20 239 213 12.2 5,367 4,992
Home Depot 19,162 17,696 8.3 35.1 35.0 9 1,379 1,013 36.1 2,269 2,263
Kohl's 6,337 6,099 3.9 33.9 34.0 (14) 369 334 10.5 1,162 1,158
Lowe's 12,540 11,660 7.5 34.7 34.7 0 450 306 47.1 1,840 1,832
Macy's 9,364 9,202 1.8 40.3 40.6 (30) 793 811 (2.2) 825 841
Nordstrom 4,043 3,711 8.9 38.3 38.9 (54) 255 268 (4.9) 292 260
Target* 21,751 20,893 4.1 28.4 27.6 84 (2,640) 520 NM 1,790 1,793
Walmart 131,565 129,706 1.4 24.1 23.9 21 5,188 4,650 11.6 11,453 10,942
Source: Company reports
Walmart Announces New Pay and Training Initiatives to Support Improved Customer Experience (February 19) Walmart Conference Call • In tandem with Walmart’s 4Q earnings release, the company announced its comprehensive
approach to hiring, training, compensation, scheduling programs and a store management structure that is sustainable over the long term. To reward associates for service to Walmart’s customers and give them clearer pathways through which to pursue opportunity, approximately 500,000 full-‐ and part-‐time associates at Walmart US stores and Sam's Clubs will receive pay raises in H1 2015, ensuring hourly associates earn at least $1.75 above today's federal minimum wage, or $9/hour, in April. By February 1, 2016, current associates will earn at least $10/hour.
• Walmart and the Walmart Foundation also committed $100 million over five years to help increase economic mobility for entry-‐level workers by focusing on initiatives to better train and advance workers in the retail and other service industries throughout the US.
Macy’s Articulates Its Off-‐Price Strategy (February 24) Macy’s 4Q Conference Call • Having achieved its 14% adjusted EBITDA margin goal in FY 2014 (ended January 31, 2015) Macy’s
is turning its attention to growing its top line. Chief Stores Officer Peter Sachse’s full-‐time duty is focusing on growth, including piloting an off-‐price concept with a newly assembled team, as well as studying international opportunities, both store and digital.
• The off-‐price pilot will be “traditional;” not an outlet, which would compete with the Bloomingdales outlet concept. Macy’s expects to be able to leverage its brand relationships, the Macy’s name, and private label development with this new initiative.
TJX Companies Lifts Wages for Hourly Workers (February 25) TJX Companies’ press release • TJX Companies, corporate parent of TJ Maxx and Marshalls, followed Walmarts lead by announcing
all US full-‐ and part-‐time hourly store associates will earn at least $9.00/hour beginning in June.
• Sometime during 2016, all hourly US store associates who have been employed for six months or more will earn at least $10/hour.
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
Hudson’s Bay and Simon Property Group Create Real Estate Joint Venture (February 25) Wall Street Journal, Hudson Bay Press Release • Hudson’s Bay will contribute 42 owned-‐ or ground-‐leased properties valued at a total of $1.7 billion
to a joint venture with Simon Property Group, and will hold an 80% stake in the venture. The joint venture will then lease back the properties under triple-‐net operating leases to Hudson’s Bay.
• The agreement represents the latest instance of separating real-‐estate assets from the operations of retail and restaurant chains. Low interest rates and high yields have driven investors’ attraction to such deals. Commercial real estate, in particular, has posted stronger returns of late as property values have surged.
ASIA TECH HEADLINES Snapdeal Acquires Exclusively Brand, Will Build an Online Luxury Mall (February 18) Tech in Asia
• India’s ecommerce superstar Snapdeal announced its acquisition of luxury fashion estore, Exclusively. The founder of Exclusively commented that with growing disposable incomes, premium and luxury consumption in India demonstrates a significant upward trend.
• Snapdeal also plans to build an online luxury mall. The geographical limitations of the brick-‐and-‐mortar model, plus Snapdeal’s distribution network spanning more than 5,000 cities and towns in India, would be a strong draw for top brands.
Lenovo Admits to Security Issues With Superfish, Releases Removal Tool (February 21) Zdnet • After attempting to push the perception that Superfish was not a security concern, Lenovo
admitted that Superfish had hijacked SSL/TLS connections.
• Lenova has joined Microsoft in offering a removal tool to fix the Superfish issue. The source code for Lenovo’s Superfish removal is now available on GitHub.
EUROPE/UK RETAIL HEADLINES Germany’s Otto Announces Startup Investments
(February 18) Otto Group Press Release
• German home-‐shopping behemoth Otto Group this week announced plans to make a “high double-‐digit million” investment in startups focused on ecommerce, mobile and software. The company has been active in venture capital since 2008.
• The company also revealed that it expects its online sales to have risen by around 2.5% to €6.3 billion in the year ending February 28, 2015. Otto Group said internet growth in its home market of Germany was pulled down by weak demand for apparel, while online sales of furniture, home accessories and electronics grew strongly.
UK’s Asda Reports Fall in FY Comps (February 19) Asda Press Release
• Asda, one of the UK’s biggest grocers, posted full-‐year comps down 1.0% this week, and said that 4Q comps were down 2.6% amid strong price competition.
• Total FY sales growth came in at 0.5%, and the company said it plans to invest £600 million in stores and refreshing its brand in 2015.
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
UK Retail Sales Remain Strong in Deflationary Context (February 20) Office for National Statistics’ Data Release
• UK retail sales values grew 2.6% YoY in January 2015 (excluding automotive fuel), according to the Office for National Statistics (ONS), with grocery retailers’ sales up just 0.1% and clothing specialists’ sales ahead by 4.9%.
• In a deflationary context, total real (volume) sales growth was 4.3% YoY, the ONS said. Total shop prices (excluding automotive fuel) were down 1.6% YoY in January.
Primark Expects 16% Full-‐Year Sales Growth (February 23) Associated British Foods’ Pre-‐Close Trading Update
• Fashion chain Primark expects its sales to be up 16% YoY for the year ending February 28, 2015, according to a pre-‐close trading update from parent company Associated British Foods.
• An 11% increase in selling space and very high sales densities in stores opened during the last year helped underpin annual sales growth, despite the negative impact from unseasonably warm autumn 2014 weather.
LATAM RETAIL HEADLINES Rains During Brazilian Carnaval Bring Brief Respite to Drought (February 18) Reuters • Heavy rains during the annual Carnaval holiday offered a respite from the nationwide drought,
particularly in the Southeast.
• Despite the rain, Brazil’s drought and electricity shortages persist.
British American Tobacco Considering $3.5B Buyout for Remaining Stake in Souza Cruz (February23) Reuters • British American Tobacco (BAT) Plc is considering a purchase of the 24.7% of cigarette company
Souza Cruz SA that it does not already own.
• Souza Cruz has six of Brazil’s top brands, including Derby, Hollywood, Free and Dunhill.
Telefónica Reports Stronger Business in Brazil in 2014 (February 25) Company Reports
• Telefónica said in its 2014 earnings report that its competitive position had strengthened in Brazil, especially in higher-‐value segments.
• Moreover, the company signed up more than half of new mobile contract subscribers and 38% of the LTE wireless market.
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
EVENT CALENDAR
Event Location Date(s) FBIC Presentation
Mobile World Congress Barcelona, Spain Mar. 1–3
Wearable Technology Conference Santa Clara, CA Mar. 9–11 American Apparel & Footwear Association (AAFA) 2015 Annual Executive Summit Washington, DC Mar. 18–20
Deborah Weinswig
The 13th China Department Store Summit Jinjiang, China Apr. 18–20 Deborah Weinswig
Retail and Consumer Analytics Chicago, IL Apr. 29–May 1
CES Asia Shanghai, China May 25–27
NRF PROTECT Long Beach, CA Jun. 23–25
EARNINGS CALENDAR
Company Event Date
Gap 4Q15 Earnings Call/Earnings Release Feb. 26
JCPenney 4Q15 Earnings Call/Earnings Release Feb. 26
Tesco 4Q14 Earnings Call/Earnings Release Feb. 26
Sun Art Retail Group FY14 Earnings Call/Earnings Release Feb. 27
Convenience Retail Asia FY14 Earnings Call/Earnings Release Feb. 27
Luxottica Group FY14 Earnings Call/Earnings Release Mar. 2
Ctrip International 4Q14 Earnings Call/Earnings Release Mar. 3
Abercrombie & Fitch 4Q15 Earnings Call/Earnings Release Mar. 4
Costco 2Q15 Earnings Call/Earnings Release Mar. 5
Kroger 4Q15 Earnings Call/Earnings Release Mar. 5
Carrefour SA 1Q15 Earnings Call/Earnings Release Mar. 5
Children’s Place 4Q14 Earnings Call/Earnings Release Mar. 6
American Eagle Outfitters 4Q14 Earnings Call/Earnings Release Mar. 10
Tencent 2014 Full Year Result Mar. 18
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February 27, 2015
Fung Business Intelligence Centre (FBIC) publication: Retail Research Weekly insights Copyright © 2015 Fung Group, All rights reserved.
Deborah Weinswig, CPA Executive Director – Head Global Retail & Technology Fung Business Intelligence Centre 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] John Mercer [email protected] Lan Rosengard [email protected] Jing Wang [email protected]
