If you’ve been in a checkout line – either one with a cashier or a self-checkout one – you’ve probably experienced the hassle of waiting in line, sometimes for what may seem like forever if coupons, checkbooks and the like are being fished for. One of the successful strategies employed by Amazon is its ability to reduce if not eliminate transaction friction. Through the use of cameras, sensors and payment technologies, Amazon has taken the notion of self-checkout to the next level with its cashierless stores. Some will fret this will cost jobs, and while that may rattle certain unions it will foster job creation of another kind. If successful, this could also take a bite out of not just small format grocery and convenience stores but potentially quick service restaurants as well.
Currently, there are roughly 155,000 convenience stores in the U.S., with 122,500 of them combined with gas stations, according to industry group NACS. This means the purported 3,000 figure for Amazon would be relatively small on a relative basis, and that has me wondering if Amazon’s longer-term strategy is to make the underlying technology available to other retail settings, grocery and convenience included. That would follow the same development pattern as Amazon Web Services. Just saying…
Amazon.com Inc. is considering a plan to open as many as 3,000 new AmazonGo cashierless stores in the next few years, according to people familiar with matter, an aggressive and costly expansion that would threaten convenience chains like 7-Eleven Inc., quick-service sandwich shops like Subway and Panera Bread, and mom-and-pop pizzerias and taco trucks.
Chief Executive Officer Jeff Bezos sees eliminating meal-time logjams in busy cities as the best way for Amazon to reinvent the brick-and-mortar shopping experience, where most spending still occurs. But he’s still experimenting with the best format: a convenience store that sells fresh prepared foods as well as a limited grocery selection similar to 7-Eleven franchises, or a place to simply pick up a quick bite to eat for people in a rush, similar to the U.K.-based chain Pret a Manger, one of the people said.
Shoppers use a smartphone app to enter the store. Once they scan their phones at a turnstile, they can grab what they want from a range of salads, sandwiches, drinks and snacks — and then walk out without stopping at a cash register. Sensors and computer-vision technology detect what shoppers take and bills them automatically, eliminating checkout lines.
The challenge to Amazon’s plan is the high cost of opening each location. The original AmazonGo in downtown Seattle required more than $1 million in hardware alone, according to a person familiar with the matter. Narrowing the focus to prepared food-to-go would reduce the upfront cost of opening each store, because it would require fewer cameras and sensors. Prepared foods also have wider profit margins than groceries, which would help decrease the time it takes for the stores to become profitable.
Plain and simple, we are seeing more American retail and brand companies from Starbucks to Walmart tie their growth prospects to the rising middle class in Asia, and China in particular. We here at Tematica are not surprised given prospects for discretionary spending to be had compared to here in the US where debt service is taking a greater and greater bite out of disposable income for consumers that are undersaving as they live longer.
Pretty much a no brainer as we see the cross roads of our Cash-strapped Consumer, Aging of the Population and Rise of the New Middle Class investing themes. What we’re seeing is a Harvard Business case study in the making.
American retailers are heading east: They’re opening the doors to brick-and-mortar stores in China, while listing on China’s dueling marketplaces — Tencent and JD.com. Walmart, for example, brought a small-format supermarket to the city of Shenzhen as the popularity of “small retail” grows in China.
And, like many retailers in China, Walmart’s small-store rollout comes with a digital payments option. Shoppers can pay for items using a program within Tencent’s WeChat while shopping.
Walmart is hardly alone in its brick-and-mortar and eCommerce efforts. Brands from L Brands — which counts Victoria’s Secret in its portfolio — and Ralph Lauren, as well as Starbucks, are bullish on China. Here are their executives on how they plan to build their brands in the country.
Earlier this week we shared that Lord & Taylor partnered with Walmart, and just a few days later Calvin Klein shared a new relationship with Amazon as part of its Amazon Fashion efforts. We expect to see the lines become increasingly drawn over the coming weeks as months as retailers and branded apparel companies look to leverage these two digital commerce platforms. As they increasingly embrace this aspect of our Connected Society investing theme, we continue to have a bearish view on brick & mortar retail and the REITs that invest in them.
Calvin Klein is teaming up with Amazon Fashion to open pop-ups and sell some items only on Amazon this holiday season.The two companies have launched Calvin Klein X Amazon Fashion, a holiday retail experience that includes pop-ups in New York City’s SoHo area and Santa Monica, Calif., as well as an online brand store on Amazon.com.
The pop-ups will sell Calvin Klein Underwear products, including men’s and women’s underwear and loungewear offerings. The online site will also offer an expanded selection of Calvin Klein jean products. The stores and site will include some new, exclusive styles that will not be available in any other channels.Visitors to the pop-up shops can purchase in store, or they can scan a bar code in the Amazon App to have their items delivered to their home. The fitting rooms will contain Amazon Echo devices, which will allow shoppers to ask Alexa various product questions as well as control the lighting and play music of their choice.
It’s starting to accelerate, the shift to digital commerce from brick & mortar that is part of our Connected Society investing theme, and it’s giving way to some interesting partnerships and business models. In this case, it’s Walmart, traditionally a retailer that meshes with our Cash-Strapped Consumer investing theme, partnering with Lord & Taylor, a retailer that spans our Rise & Fall of the Middle Class and Affordable Luxury themes. Both are looking to leverage the other to drive traffic and sales, but the new business model resembles the “store within a store” model being utilized by Macy’s and Dick’s Sporting Goods.
Given that Lord & Taylor will keep its own e-commerce platforms, it seems this linkage with Walmart.com is more a test-bed for Lord & Taylor, while Walmart hopes to court other retailers and branded apparel as it looks to position itself firmly against Amazon.
One way or another, odds are this is just the beginning for these kinds of linkages and tie-ups.
Walmart and Hudson’s Bay-owned department store Lord & Taylor just announced an interesting partnership — Lord & Taylor will start selling its catalog of high-end fashion merchandise on Walmart.com this Spring.Of
Lord & Taylor will have its own “flagship store” on Walmart.com — which essentially will be a section on Walmart’s website dedicated to goods sold by Lord & Taylor.
For Walmart, this partnership is a way to drive traffic from customers looking for high-end items that otherwise may not be shopping on Walmart.com.
And for Lord & Taylor, the deal is also about traffic — department stores are struggling, and opening a store on Walmart.com will give them a bunch of new eyeballs (and potential shoppers) they otherwise wouldn’t have gotten. It’s almost like the modern-day version of renting retail space on 5th Avenue in NYC. Lord & Taylor will keep their existing e-commerce site at lordandtaylor.com, so this new store is really just to attract new customers that wouldn’t otherwise shop with them online.
A new report from Moody’s reinforces the negativity surrounding department stores like Macy’s (M), JC Penny (JCP) and Nordstrom (JWN). Unlike most that focus on the shift to digital commerce that is part of our Connected Society theme, Moody’s adds a perspective that meshes extremely well with our Cash-Strapped Consumer and Rise & Fall of the Middle Class investing themes — consumers embracing off-price retailers such as TJ Maxx, Marshalls, and HomeGoods all of which are part of TJX Companies (TJX) as well as Ross Stores (ROST).
One interesting observation is the expanding footprint of these off-price retailers beyond apparel and into home products, which offers additional challenges to Macy’s and other department stores that have home products and furnishings. This move also means additional challenges for Pottery Barn (owned by William-Sonoma (WSM)), privately held Crate and Barrell and Bed Bath & Beyond (BBBY).
Off-price retailers will remain among the top performers in the U.S. retail industry during the next 12 to 18 months.
That’s according to a new report from Moody’s Investors Service. The outlook is not as positive for department stores, which will continue to struggle as they seek to level the playing field with both off-price and online vendors.
Moody’s expects operating income in the off-price sector to grow 6.9% in 2017 and 5.4% in 2018. Department stores will see operating income decline 9.3% this year and 2.7% in 2018.
“Off-price retailers continue to outperform other sectors of the U.S. retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for,” said Moody’s analyst, Christina Boni. “Off-price stores are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand.”
Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody’s said. Off-price vendors also outperform the broader universe of U.S. apparel-focused retailers.
While apparel sales make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category. Moody’s estimates that home product sales at off-price stores grew 9.9% in 2016, compared with 7.8% for the off-price sectors overall growth.
We’ve talked a quite a bit about rising consumer debt levels despite stagnant wage growth over the last several months. Now we’re starting to see the fallout when consumers rack up too much debt and they can’t make their monthly payments – rising delinquency rates. In our view, this makes an already challenging situation for Cash-Strapped Consumers even more so and poses an additional risk to already struggling retailers. Keep in mind, we’re already seeing rising sub-prime auto loan defaults. Taken together, this paints an ominous picture for the upcoming holiday shopping season and is a reason to think Deloitte’s retail holiday sales forecast of up 4%-4.5% year over year could be overly optimistic.
According to a news report in The Wall Street Journal, Capital One, Synchrony and Alliance Data Systems have all seen the rate of delinquencies among credit card holders increase as a percentage of their overall loans during the last few months. The three companies, noted the Wall Street Journal, provide credit cards to consumers with less-than-stellar credit histories. Synchrony and Alliance Data are focused on the store-branded, private label credit card market.
The Wall Street Journal stated that Capital One is seeing loans that are more than 30 days delinquent increase to 4 percent of overall loans in August. In April, that rate was at 3.5 percent, noted the report. For Synchrony, the rate increased to 4.5 percent from 4.1 percent in the same time period and 5.3 percent from 4.7 percent for Alliance Data. The Wall Street Journal said the levels are among the highest the credit card market has seen in some years. For Alliance Data, the rate is at the highest since Feb. 2011.