Hello, Omni Talk readers, on this fine week to close out February!
This week was a little less active on the headlines front, but some of the news still ranked pretty high on the omnichannel impact scale, an official measure sanctioned and governed by the Weyland Corporation, whose motto is, “If the xenomorphs don’t get you, our automatons surely will.”
This week we saw big news from many different walks of life. We had important news out of the cosmetics industry, another “I don’t get you, but I don’t know how to quit you” press release out of Walmart, Macy’s earnings report, and some news out of Seattle that had nothing to do with Amazon.
Thank the heavens — finally!
While I expected Macy’s headline grabbing earnings report to nab the top spot this week, the real McCoy was something completely unexpected, so let’s get right to it . . .
#1) Startup launches scaleable Amazon Go-like system for retailers — Food Dive
A scaleable Amazon Go-like system? Two words — cancel Christmas!
If this press release is real, I haven’t been this excited to see something since I was 11 years old, and the new kid in Cub Scouts smartly hid a certain periodical in his rucksack (great word) for my fellow scouts and me to ogle at for the first time, away from the purview of our unsuspecting and naive Den Mother, Mrs. Thurston.
Word is AiFi, pronounced however the hell you want, is a startup visual recognition company that has partnered with an unnamed grocer to develop a 50,000 square foot installation (holy shit, that is big), whose opening date will be announced sometime later this year.
If the installation lives up to the hype, it could be a game changer. I already have so many questions, like . . .
- Who the hell is the grocer?
- Are there any product limitations?
- How frictionless is the experience?
- Does it really work at scale?
- Do they need a candid and frank omnichannel consultant on the project?
I am a little skeptical that current technological capabilities can be used at the scale AiFi is claiming, as the cost of the hardware seems prohibitively expensive both to use and to operate on a consistent basis, but maybe they have cracked the code.
If they have unlocked the secret, we should expect some tight-enough-to-make-diamonds asses within legacy grocers’ c-suites once the store opens.
Blue Nile, please pick up a white paging phone.
#2) Macy’s Q4 earnings, comp-sales top Street; to sell part of Chicago flagship — Chain Store Age
Trees could fall in the woods, and I would never know, nor would I really care. I know it happens, but, ok? So, what?
I am starting to feel the same way about Macy’s. Macy’s released their Q4 earnings this week, and the market responded positively, but I do not understand why the market reacted in the fashion that it did.
From my understanding, companies are supposed to be valued based on a forward looking assessment of their growth prospects. How has Macy’s legitimately buoyed our outlook for them?
I read the transcript of Macy’s earnings call and much of it was devoted to their real estate transactions. According to their CFO, Macy’s booked $544 million in real estate gains for 2017, $368M of which came during the fourth quarter, which had to have propped up Macy’s earnings performance.
But here is the more concerning point — Macy’s implied store comps (which they don’t report — and we need to change this across the industry!) were likely still decidedly negative, despite being obfuscated by a reported total level positive comparative sales number.
As I showed in the Robin Report, Macy’s online business in 2016 impacted its total comp performance for the year by approximately 275 bps (a number that is likely still growing too). For our purposes, let’s call it 300 bps for simple math going forward.
Macy’s total comparable sales, on an owned basis, and as reported on macysinc.com, over the last four quarters in 2017 were -5.2% (Q1), -2.8% (Q2), -4.0% (Q3), and +1.3% (Q4).
These figures imply that Macy’s store level comps by quarter, using the annual online comp impact estimate from 2016, were roughly -8.2%, -5.8%, -7.0%, and -2.3%. So, in the fourth quarter, Macy’s stores were still negative!
Digital is more important to the total in Q4 as well, so -2.3% is likely the best Macy’s stores did last quarter too. The real figure (which again retailers shy away from giving us) is probably more in the range of -3.0% or -4.0% at best.
So, again, why has the future gotten brighter? Macy’s has a business model predicated on driving traffic to its stores, and year-over-year this metric continues to get worse, and statistically its trend line does not appear to be moving much either.
We still don’t know the full story.
Step back, from 30,000 feet, and we have to ask, “How are we more bullish on any mall-predicated businesses?”
Let’s face facts — malls are dying. They used to mean something. They used to be part of our social fabric. Now they are just inconvenient monoliths. The American consumer has better options for how to spend his or her time. So called anchor tenants, like Macy’s, are not so much moorings as they are true tethers, weighing down the evolution of American retail and pulling us deeper into a darker sea.
For those unfamiliar, Glossier is a startup beauty brand and retailer, started by Emily Weiss, and loved by millennials. In only three years, Glossier has skyrocketed due to its transparent and open relationship with its evangelist user base, a relationship that began first with Weiss’s blog — Into the Gloss.
I first came across Glossier when I heard Emily Weiss speak at a WWD conference in September 2015. She was different. She spoke about a new zeitgeist of social and omnichannel retailing in a manner I had never heard before. Admittedly, I didn’t understand everything she was saying, but I have been impressed by her and her company ever since.
A couple of months ago, I had the chance to visit her first store in New York too. Here is a really bad photo I took of my experience:
My crappy photo doesn’t reveal much, but it does pretty much capture the store. It is a tiny, yet packed store, with rabid, devoted fans and expert sales staff everywhere you turn (the photo almost shows the entire store). Frankly, I had no idea what I was looking at. I did not get it, but as I learned back in 2015, it isn’t for me to get — it’s for Glossier’s customers to get, and clearly, they not only get it, they love it.
Weiss has clearly found something. $52 million deserves our respect. We may be looking at the woman and the company that will change the playbook for cosmetics, CPGs, and maybe even retail companies for years to come.
From the world of what is quickly becoming my weekly, “Walmart, WTF?” diatribe, Walmart has been heavily in the news again this week, talking up all its new apparel and home brands.
Seriously, Walmart, we get it at this point — you are trying to be innovative. But, you are hitting the PR gas pedal WAY too hard. It now feels canned. You are losing credibility with me every week. This week’s announcements only stoke the flames of my Walmart discontent.
Your new brand, Allswell, will not end well. Here’s why:
First, just ask Don Corleone, it is never good to go to the mattresses.
Second, slapping a cool brand name, like Allswell, on bedding or some other cool name on an apparel idea might sound cool inside your own echochamber, but at the end of the day the only difference between them and the thousand other bedding and apparel products out there in the world, and on the everything store, is the freaking name.
Companies that employ this strategy are, over the long-term, just fortifying Amazon’s strategic position. They are basically giving Amazon a One-Eyed Willie mass-market roadmap for product development. Amazon can simply copy all the designs the retailers invest millions in developing, put them on their website for cheaper, and over time poach sales based on lower prices for the same quality. Bezos gets the punchline to the joke and the universal truth that customers will just gravitate towards lower prices over time.
All this focus on proprietary brand development is therefore a road to nowhere. It is activity over accomplishment, like in the movie the Sixth Sense, where Bruce Willis spends concerted effort helping a scary-as-hell, bowl-cutted, Haley Joel Osment, only to learn that he has been dead upon arrival the whole damn time, on top of what had to be an exhausting, dead or alive, thinning hair, combover routine every morning too.
#5) Nordstrom family reportedly near take-private offer — Retail Dive
I end this week’s Fast Five with this article on Nordstrom because it is the exact right approach within the current retail environment. Amazon is too formidable to compete against publicly anymore based on their different set of expectations with Wall Street. Public pressures are why we see silly PR announcements, whip saws in sentiment and stock prices, and leaders uncomfortable to take bigger risks.
It’s why I am short legacy retail, and long on upstarts and privately held companies. They will be the ones who have the length of the rope to chase new ideas and to carve out niches against the Amazon flywheel.
Legacy companies, on the other hand, will still be caught up in public perception, short-term stock holder expectations, and traditional methods of return-on-investment analysis that rarely lead to breakthrough innovative ideas and true entrepreneurship.
Be careful out there,
P.S. The CUE4 Masters Workshop is right around the corner on March 28th in Minneapolis. Tickets can still be purchased here. I will be conducting a seminar on thriving in the next generation of retail innovation. It would be cool to see some of you there!
P.P.S. Sorry for all the “maths” in this one.
P.P.P.S. If you liked this week’s Fast Five please forward it to your colleagues at work and encourage them to subscribe. I also mentioned last week that Retail Dive is a great follow. Here is the subscription link to Retail Dive again. I also recommend The Hustle and Retail Executive too.
This article should not be construed as investment advice, it is solely the opinion of the author.