Shopify Declares No eCommerce Acceleration From Covid As Consumers Spending Shifts Back And Inflation Drags On Earnings
Source: Wunderkind Market Outlook
Inflation and recession. How can we stop inflation without hurting customer demand. Both hurt record retail profits.
Overall retail sales were flat when adjusted for inflation, despite reports of it rising 1%. “The 1.0% [month-over-month] rise in retail sales in June isn’t as good as it looks, as it mainly reflects the boost to nominal sales values from surging prices,” wrote Andrew Hunter, senior U.S. economist at Capital Economics. “Accounting for the surge in prices, however, real consumption looks to have been broadly stagnant in June.”
“June’s numbers show consumers are powering through price pressures, but inflation is eating away at savings built up during the pandemic and is wiping out recent income gains,” NRF Chief Economist Jack Kleinhenz said. “Inflation remains a challenge to consumers trying to make ends meet and will continue to be an issue even if it cools down in the months ahead. Despite that, consumers are holding up notably well and continuing to spend.”
Adidas cut its 2022 outlook on slower China recovery and overall concerns of a slowdown. It forecast revenues for the company to grow at mid-to-high single-digit percentages in 2022, compared with previous growth estimates of 11-13%. Bath & Body Works lowers outlook as well, reversing a small single digit growth outlook to expecting sales to be down 6-7% this year.
Source: Yahoo Finance Walmart
Walmart’s earnings shook market confidence this week. Walmart cut earnings projections citing not only compressed margins but also shoppers spending more on food and less on electronics and other high margin discretionary categories. It projected adjusted earnings to decline 11-13% vs. previously projecting just a 1% decline. Amazon, Target and other retailer shares also dropped on the news.
Walmart is marking down existing inventory. On the same day as earnings guidance, a leaked Walmart memo tells store managers to immediately drop prices on summer items to make way for back-to-school and holiday.
One reason may be that warehouses are operating at limited capacity creating a logjam for seasonal transition. Many are reporting capacity at just 1%. “It’s really incredible,” said Ben Hagedorn, CEO of Warehouse Quote. “We’ve also seen a 20% year-over-year rate increase for warehouse space, so we are seeing significant inflation there. We are also reporting seven consecutive quarters of positive net absorption. Warehouse capacity for imports remains to be an issue across the U.S.” This makes holiday demand flexibility more precarious than ever.
Source: Yahoo Finance Mattel
One area that remains strong is toys. Mattel reported a 20% jump in sales with record $1.2 billion in revenue that helped the toymaker swing to a $66.4 million profit. “We really shifted from being a manufacturing company that was making items to an I.P.-driven company that is managing franchises,” CEO Ynon Kreiz said. “Our company is now in growth mode.” Hasbro revenues grew 1% YoY even as operating profit surged 14%, with key growth in franchise IP like games and content franchised like Dungeon’s And Dragons. Toys are brand IP catalogs as much as physical items these days.
The Shift Back To “Normal” Shopping Behaviors As Shopify Declares No eCommerce Acceleration From Covid
Source: Retail Dive
Consumer habits are indeed shifting. Similar to Walmart’s indications, shoppers are shifting from costlier restaurant spending to grocery. Grocery sales rose 8.3% in June even as prices spiked, a 0.6% MoM growth. “[T]he 40-year high inflation does mean consumers are much more strategic about their grocery and restaurant trips. That means cooking-from-scratch one day and leaning on value-added or deli-prepared solutions the next,” IRI’s Jonna Parker said. “Likewise, we’re seeing consumers seamlessly switching between value and premium — creating a complex pattern of marketplace trends.” In the June sales data, electronics and appliances were the largest YoY drop, but 2021 was red hot, so this represents more of a reversion to the baseline.
One category suffering from a discretionary shift downwards is prestige beauty, whose online sales dropped 14% according to 1010data. 1010data mitigated the report saying that more sales are happening in store, so the decline may be smaller.
It turns out that consumer spending habits are more ingrained than most analysts thought. As macroeconomic and lifestyle environmental factors normalize, we revert to a set of behaviors – and in-store is the biggest benefit of this in late 2021 and 2022 (as we predicted in our 2021 retail predictions).
Source: Yahoo Finance Shopify
Perhaps this is best captured by Shopify in their recent earnings announcement with this stunning statement: “”2022 will end up being different, more of a transition year, in which ecommerce has largely reset to the pre-COVID trend line and is now pressured by persistent high inflation.” Remember all those pundits who said eCommerce had accelerated 10 years in 5 weeks? I do. How about not at all! Shopify stock is down 80% in the last 12 months.
Source: Shopify Earnings Announcement Jul 2022
Amazon Buys One Medical To Expand Into Health And Telehealth
With retail growth uncertain, especially eCommerce, Amazon is looking elsewhere for new growth. Amazon bought primary healthcare provider One Medical for $3.9 billion, fulfilling Scott Galloway’s 2020 prediction. The healthcare industry is still rapidly growing with high spending per customer. If they couple One Medical subscription with Amazon Prime, it will be the largest medical subscription service overnight.
“We think health care is high on the list of experiences that need reinvention. Booking an appointment, waiting weeks or even months to be seen, taking time off work, driving to a clinic, finding a parking spot, waiting in the waiting room then the exam room for what is too often a rushed few minutes with a doctor, then making another trip to a pharmacy – we see lots of opportunity to both improve the quality of the experience and give people back valuable time in their days,” said Neil Lindsay, SVP of Amazon Health Services, in a statement.
Personalization is the retail topic du jour, but ask someone what “personalization” means for the in-store experience and you often will get muddled answers.
How computer vision makes it possible to message in-store by demographic
How IoT and AI will enable product level personalization in the shopper journey
How mobile will connect personal profiles and purchase history with wayfinding and at-the shelf intelligence for product discovery
Why a new wave of data will empower brands and retailers to continuously improve the shopper experience
The Latest Retail Technology News
Every week we cover the top retail technology news in the industry. Brick-and-mortar retail has often been overlooked and is experiencing a technology renaissance from the ways products are sourced, managed, inventoried, merchandised, marketed, sold and delivered. New technologies are being delivered from computer vision, QR codes, RFID, loyalty programs, lift and learn sensor technologies, smart shelves and electronic shelf labels, supply chain management, in-store analytics, personalization and payments. We believe in the bright case for the future of brick-and-mortar retail, and we highlight the technology underpinning it all. And if you are looking to the future check out our annual Retail Industry And Technology Predictions from our CEO Trevor Sumner.
Best Buy has opened a smaller footprint store with a digital+physical experience at the heart of it. It looks a lot like an Apple Store. Shoppers inside the Monroe, North Carolina store can interact with digital displays, showroom products that are stocked in the back and not on the shelves but can be scanned and added for pickup at checkout via QR code, use mobile self-checkout and connect to live expert advice via call, chat or video. It will focus on the top categories like home theater and audio, computing, headphones, wearables, fitness, cell phones and smart home, but not major appliance or larger products.
The delivery wars continue to heat up. In a parallel the evolution of the ride sharing platforms like Uber and Lyft, where driver incentives became the key to winning markets, Instacart has now launched a loyalty and incentive program called Cart Star for its drivers that include gas and auto service discounts, discounts for home care at Care.com, and more. This is a more measured approach than the steep incentives Uber and Lyft offered drivers to create winner-take-all markets. It also is a reflection of the challenges in the economics of delivery and the lower appetite for steep losses in the current economy. Instacart recently cut its valuation by 38% , the second double digit percentage drop this year.
CropOne has launched the world’s largest vertical farm in Emirates, spanning 330,000 square feet capable of growing 2 million pounds of greens annually. Vertical farming startups have raised $1.6 billion in funding last year according to Pitchbook. Vertical farms are attractive because they don’t use pesticides, don’t erode the soil and they use 95% less water, but the water is circulated which requires substantial energy.
Uber has announced its most comprehensive updates to its grocery ordering service since its launch in 2020 as the delivery wars heat up. Users will now be able to place orders from grocery stores after hours, schedule deliveries, track orders from store shelves to their homes, select product replacements for pickers and shop for items by weight. With grocery shoppers ever more price sensitive, will delivery growth be sustained amidst unrealistic delivery economics? Or is Uber playing the long game as it waits for autonomous delivery trucks?
With the rise of retail media networks, which we cover in depth with original research in this webinar video and you can download the slides here), brands are struggling with managing advertising across retail networks. CitrusAd has launched its GroceryOne platform for managing advertising across multiple grocers. This will help drive competition and better compare performance across retailers. “CPG advertisers now have a platform designed around the grocery industry. An easy execution to reach millions of shoppers generating higher visibility in the shopper mindset with closed-loop analytics that measure ROI in real-time by retailer,” said Lauren Malaguti, VP of GroceryOne media sales at St. Petersburg, Fla.-based CitrusAd. “Relevant, retail media is working. Short-term it is helping brands impact regional online and in store sales. Longer term it is helping grow lifetime customer value in a vast omnichannel manner.”
Walmart Connect, the closed-loop media business for Walmart, has partnered with CommerceIQ to manage and automate its sponsored product listings and brand advertising to allow the $2.1 billion advertising business to optimize its retail-aware and share of voice algorithms and provide self-services reporting tools for advertising.
VST and dunnhumby have announced the launch of a new software platform for CPG brands to access planogram data for their retailer partners, which has become an increasing challenge in the age of localization. “Most CPGs have more than 250 different planograms associated with their products,” says Nick Theodore, CEO at VST.
The Tennessee Titans’ have partnered with Zippin to launch five checkout free stores for the new NFL season. “Fans are demanding quick and easy access to top quality food and drink that enhances their experience at the stadium,” said Gary Jacobus, SVP of Business Development. “Forward-looking venues like Nissan Stadium are fast adopting innovative technology, like Zippin’s, and they recognize that the maximum ROI of checkout-free is fully realized with multiple stores located throughout the venue.”
Amazon announced its second drone delivery pilot location in College Station, TX, home of Texas A&M. Being a college town has an advantage in concentration of ordering and product types and partnership with the university. It also announced rolling out “thousands of Amazon’s custom electric delivery vehicles in more than 100 cities by the end of this year—and 100,000 across the U.S. by 2030.” What’s interesting is less the electric vehicle side – although it’s a huge win for the environment. The new delivery vehicles sport a variety of technology to make delivery smarter including embedded technology for delivery workflow, enabling seamless access to routing, navigation, driver support, better safety features and adaptive cruise control.
Clinique has opened a new retail concept called Clinique Labs at Macy’s Herald Square. “Right now, in retail, there’s a tension between in-person and digital experiences, as well as self-shopping from shelves. This embraces all three,” said Sameer Agarwal, vice president of marketing at Clinique North America. “If you want our staff, that’s there. If you want people with a digital interaction, that’s there. If people want to self-shop from our shelves, that’s there. This design brings it all together.”
Stories To Share At The Retail Water Cooler
Supply chains are shifting increasingly to the East Coast despite it costing $9,900 to transport a container from China to the East Coast, versus $7,400 to the West Coast – a 33% increase. “We are seeing more shifts coming over here,” a spokesperson from Port Authority of New York and New Jersey told Yahoo Finance. “We are handling right now 33% more containers that we have when we were in pre-pandemic 2019 in the same period.”
Amazon is suing administrators of over 10,000 Facebook groups for coordinating the posting of fraudulent reviews for money or free items. This is welcome news, as fake reviews on Amazon have proliferated despite attempts to use machine learning to identify them and purge them. Is it too little too late?
Gap has launched its Yeezy product line at its Times Square flagship , marking the first step for the collection in physical stores. “At this stage, it is almost as if Gap wants to become cool again by associating with the popular kid. Just as that rarely works in high school, so it rarely works in fashion. To be successful, Gap needs to develop a relevant and compelling identity of its own,” said GlobalData’s Neil Suanders. “And that means not just partnering with Ye, but ensuring their very traditional corporate culture embraces some of the creativity that he and his business embodies.”
File under urban kitsch. JW Anderson has launched a clutch bag that looks like a street pigeon for $900. Somehow I don’t see how any fashionable woman wants to be a seen as a street bird lady, but that’s just me.
This seems to be the week for odd product launches. Salt & Straw has partnered with Josh Meyer to launch a fragrance that doubles as an ice cream topping. “I’m leaning 51% more toward the food pantry, because that’s where it really is revolutionary. I’m hoping that you’re pouring it on your olive oil and, while you’re at it, spritzing it on your wrist, too,” said Sal & Straw’s Tyler Malek. 80% of flavor is olfactory, but the price points for perfume ($60-100) don’t match up with ice cream toppings.
Publishers are struggling to turn content into commerce. Hearst’s luxury e-commerce play “The Tower” is off to a rocky start according to Glossy with its chief brand officer leaving. Vogue has reported eCommerce sales up 68% YoY and average order increasing 55%, as more luxury items are being bought, but the volumes are lagging. Qurate should be dominating social shopping and video content but has largely been absent in the conversation. Will publishers be able to translate audience into eCommerce sales in the long-term?
Mattel is partnering with Elon Musk’s SpaceX to produce a line of toys. “As space exploration advances more quickly than ever before, we are thrilled to work with SpaceX and help spark limitless play patterns for the space explorer in every kid,” said Nick Karamanos, Mattel’s senior vice president of entertainment partnerships, in a news release.