What a week! We are starting to get into the lion’s den period of retailers’ earnings statements, and, as I wrote in the Robin Report back in February, the next few months are going to be a HUGE tell on the underlying strength of our industry.
This week’s biggest announcement does not portend a bright future.
Let’s get right to it.
Headline #1 — Bed Bath and Beyond plunges on falling sales (Retail Dive)
This one hurts like a donut. BBBY’s same-store sales fell 0.6% in the recent quarter, and leadership downgraded earnings expectations for fiscal 2018 to the mid-$2 range against analyst expectations of $3.07 for the year. As I type this post, BBBY’s stock has been decimated by almost 20% since the announcement.
I read the earnings report transcript and here is my quick take: frankly, I am not sure what to make of it.
CEO Steve Temares sadly begins his remarks with the usual student body right playbook of “merchant-led” retailing — pricing, org structure, sourcing unique products at a great cost, loyalty, etc — but then smartly discusses investments in point-of-sale, cloud computing, and, what I really like, the company’s initiative to reformat its stores, leveraging their Cost Plus World Market and Face Value brands (FYI — BBBY plans to reformat 11 stores within the first two quarters of this year).
My favorite legacy bricks-and-mortar reinvention of recent memory is still BBBY’s Brooklyn store, a store that is almost a mini-mall of BBBY’s numerous storefronts. It still needs a few improvements — universal POS, better social experiences — but it has promise. BBBY has so many assets, like better brands, various storefronts, and lifestage attachments with consumers that they can still leverage over their competition.
Time will tell if this announcement is pain before the gain, or if it is a strong sign that my long on BBBY retail prediction for 2018 was way off base.
Fortunately, I still have my predictions on Walmart, Wayfair, and Blue Apron to fall back on. Holla!
Headline #2 — Costco’s stock rallies after upbeat monthly sales data (MarketWatch)
Costco went the other way from BBBY. Costco crushed it last month, reporting that overall same-store sales increased 8.6% and proving that, once and again, Costco is one hell of a business.
Costco’s business model is still pretty strong. Competitors liked Boxed are nipping at their heels, trying to disrupt them, but even Boxed is trying to get acquired. For the most part, it is still quite difficult to recreate or disrupt what Costco does so well online.
Costco should still have good runway for years to come.
Headline #3 — Walmart Inks Deal With Postmates (Investopedia) and Instacart valued at $4.35 billion after latest funding round (Reuters)
In yet another sign that the war over online grocery delivery is heating up hotter than William Hurt in Body Heat, Walmart signed a new deal with Postmates and Instacart secured another $350M in funding on a +$4 billion valuation.
If you do nothing else this week, read Brittain Ladd’s wonderful article on LinkedIn — The Trojan Horse: Instacart’s Covert Operation Against Grocery Retailers. It is an awesome take that will bring a whole different perspective to your thoughts on these announcements. It stopped me in my tracks when I read it a few weeks ago.
Brittain’s take: over time third party players, like Instacart, could get into the retail business.
Think about it — it makes sense. Players like Instacart will have access to what consumers are buying across multiple retailers within many geographical areas, while a company like Walmart, for example, only knows what it sells at Walmart.
It’s not jumping the shark to think that Brittain Ladd could be onto something.
Headline #4 — Amazon spent nearly $23 billion on R&D last year — more than any other U.S. company (Retail Dive)
“Cut me, Mick,” said every battered retail CEO upon reading this headline this week. Amazon spends more on R&D than any other U.S. company and a whopping $6 billion more than even the next closest company, Alphabet (i.e. Google).
Stop and think about that for a second — Amazon, a company with its roots in retail and e-commerce, outspends Google in R&D by $6B! I will save you the time and effort too — no other “retail” company even cracks the Top 15.
R&D, as a strategy, is still not a well-understood concept across the retail industry. Rarely is it ever mentioned in earnings reports and press briefings. It is another example of why Amazon is so formidable and of why many legacy retail CEOs are still like ostriches, hoping they can just bury their heads in the sand until their tenures are over.
R&D done smartly shouldn’t be a risk at all. It is just good business.
Headline #5 — Number of food halls to triple by 2020 (Chain Store Age)
As stated in the above article, milennials spend a staggering 44% of their food dollars eating out. The younger generation wants higher quality food, and they want more variety as well.
This trend is important for retailers. Eating out is still a primary trip driver for many people, and especially for milennials who need a place to snap and post a photo of their food on Instagram (I mean seriously why else leave the house?).
In a world where the only thing to differentiate a physical from a digital commercial experience is the shear memory and delight of experiencing things that appeal to our senses, we should expect food to take on a more prominent role than ever before and begin to design new retail ideas around one of the universal truths of this new generation.
Innovations in food tastes, operations, and architectural design are important to watch as we go forward.
Be careful out there,
P.S. I will be out at Home Delivery World next week in Atlanta, desirous to learn all that I can about the future of last-mile delivery. If you are out there and want to meet up, please hit me up on LinkedIn or Twitter.
P.P.S. In case you missed it, we did a wonderful podcast interview with Slyce CEO Ted Mann this week on the future of visual search and as part of our new Omni Talk Spotlight Series. Please give it a listen and let us know what you think.
P.P.P.S. Please also remember to like and to share your thoughts about the Fast Five on LinkedIn and other social media. Your wonderful support has made Omni Talk one of the fastest growing blogs in retail. You guys rock!
Note: This article should not be construed as investment advice, it is solely the opinion of the author.