Author: Helen Thomas

February 18, 2014

Unusually severe weather conditions across much of the nation along with continued concerns over the cost and availability of labor and lots caused builder confidence in the market for newly-built, single-family homes to post a 10-point drop to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index, released today.

“Significant weather conditions across most of the country led to a decline in buyer traffic last month,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “Builders also have additional concerns about meeting ongoing and future demand due to a shortage of lots and labor.”

“Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry,” said NAHB Chief Economist David Crowe.  “The weather also hurt retail and auto sales and this had a contributing effect on demand for new homes.”

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales expectations for the next six months as “good”, “fair” or “poor”.  The survey also asks builders to rate traffic of prospective buyers as “high to very high”, “average” or “low to very low”.  Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Looking at three-month moving averages for regional HMI scores, the West was unchanged at 63 in February while the Midwest registered a one-point decline to 57, the South registered a three-point decline to 53 and the Northeast posted a four-point decline to 38. 

More information on housing statistics is available at housingeconomics.com.

Source: National Association of Home Builders

February 12, 2014

At a press conference this week, the National Retail Federation called for widespread adoption of chip-and-PIN payment card technology by U.S. retailers and their partners.

“The chip validates that it’s the real card,” said Tom Litchford, VP retail technologies for NRF.  “The PIN provides two levels of validation.”

Litchford said that while an encrypted microchip makes creating a counterfeit card impossible, the PIN number makes it much harder for a thief to impersonate a customer using a stolen card.  Litchford and fellow panelists Mallor Duncan, senior VP and general counsel, NRF and David French, senior VP government relations, NRF, all agreed that only verifying a chip-enabled card with a customer’s signature does not go far enough to take advantage of the chip technology’s capabilities to prevent card fraud.

Whether the U.S. retail industry adopts chip and PIN or chip and signature, migrating to chip-based cards will not be cheap.  Duncan estimated that switching to either form of chip-based card verification would cost the U.S. retail industry $20 billion to $30 billion during a period of several years.  This includes costs of installing and upgrading hardware and software, as well as costs of the chip cards themselves, which run to a few dollars per individual card.

The NRF wants banks, acquirers, card issuers and other partners in issuing and accepting payment cards to share costs associated with migrating to chip-and-PIN technology.  Duncan said that while technically the acquiring merchant bank usually has to pay any costs associated with card fraud, the costs often wind up getting shifted back to retailers after the fact.

“Our goal is to start migrating right away,” Litchford said in urging retailers not to wait for the upcoming October 2015 shift in card fraud liability.  At that point, any U.S. retailer that experiences card fraud relating to a customer using chip-based cards must assume any costs if they do not have equipment that can process chip-based card payments.

Looking ahead, Litchford said he expects that eventually, retailers will use contactless payment technology.

“We can easily provide contactless capability,” said Litchford.  “Chip cards would also have an NFC chip.  It’s ‘tap and go’ payment where you don’t swipe a card.  It will probably migrate faster on mobile phones than cards.  Isis, Visa and Square are all involved in contactless payment.”

Source: Retailing Today

February 6, 2014

2013 was a challenging year for retailers that concluded with one of the most interesting holiday seasons on record.  Looking ahead in 2014, the economic outlook is strengthening and the moderate growth seen during the second half of 2013 should provide greater confidence as we move further into the new year.

NRF expects retail industry sales (which exclude automobiles, gas stations and restaurants) for 2014 to increase 4.1 percent over the previous year – slightly higher than the preliminary 3.7 percent growth the industry garnered in 2013.  Digital channels will also experience solid growth this year, with online sales expected to increase between 9 and 12 percent, the same pace as the preliminary 10.3 percent gain in 2013.*

But before wee look ahead, let’s look at 2013.  The economy progressed slowly early in the year but gave way to stronger results in the second half.  Specifically, the overall economy grew a mere 1.1 percent annual rate during the first quarter last year, rising to 4.1 percent in the third quarter and moderating to 3.2 percent in the fourth quarter.  And, job creation, still very much needed in this economic recovery, had an average monthly growth rate of 182,500 last year, seen by many as ‘unspectacular.’

The pace of retail sales growth was only 4 percent faster than it was in 2012, based on the three-month moving average, year-over-year.  And though that appears steady, we know that retail spending throughout 2013 was incredibly volatile, falling off in the spring to just 3.2 percent year-over-year average growth.

Consumers started the year faced with higher taxes, surging gasoline prices and federal budget cuts, and while these factors eventually evened themselves out in relation to the impact on consumer spending, interest rate increases in May and June, and the Federal policy impasse in the fall pulled the economy in the opposite direction.  Despite these challenges, consumer spending remained resilient and continues to contribute greatly to the current momentum.

Although early reports for the holiday season came in blurry, American consumers gave the economy a boost in the final months of the year.  It was a tricky holiday season to navigate by retailers and consumer alike; initial concerns about a hangover from October’s federal government shutdown, a shortened holiday season calendar and unusually strong winter storms all proved to be quite challenging for companies looking to make the most of consumers limited discretionary budgets.  As early as October, intense promotion and discounting ensued, continuing well into the season. 

Looking ahead to 2014, while the economy looks better for retailers, consumers could be conditioned to expect a continuation of holiday promotions and discounts, putting pressure on many retailers’ bottom lines once again.  Some of the fundamental building blocks for the year ahead are:

• Economic growth is expected to be above its long-term historical average.  The baseline estimate for growth in the economy as measured by real GDP is between 2.6 and 3 percent, a noticeable improvement from the estimated 1.9 percent rate for 2013, and the fastest pace in the past three years.
• The labor market is expected to continue its modest recovery, averaging approximately 185,000 jobs per month, helping drop unemployment to near 6.5 percent or lower by the end of 2014.
• Inflation as measured by the CPI is predicted to inch higher to as much as 1.7 percent in 2014.
• The housing sector is expected to continue to improve in 2014, and stronger household and business confidence should spur more consumers spending overall.

While we are cautiously optimistic, we cannon discount the unexpected possibility of a replay of the last two years.  Though government headwinds subsided i part due to the bipartisan budget agreement, there are other issues creating uncertainty.  The expired Emergency Unemployment Compensation, the debt ceiling, and other regulatory uncertainty pose downside risks to the outlook.

Regarding Federal Reserve monetary policy, the data outlined above is consistent with their decision to reduce asset purchases.  However, their challenge is to bring about a normalization of short-term interest rates without creating undue market volatility, letting inflation get out of control and undoing all the positive effects of their multi-year efforts.  Of course, geo-political issues are ever present.  Slower global growth, a tightening of financial conditions or a pop in oil prices are all major risks to the outlook.

Bottom line: given the strong performance of recent economic data and the appearance of a healthier consumer and business outlook, 2014 could finally be the year that the recovery gets traction.  While we are confident in the economy’s progress, the pace is not expected to reduce the slack that accumulated during the recent recession.

*NRF forecasted 3.4 percent increase in retail sales for 2013 and online sales to grow between 9.0 and 12.0 percent.  Final 2013 revisions will be available from the U.S. Census on or about April 30, 2014.

Source: National Retail Federation

February 12, 2014

Against the backdrop of a growing national debate over the minimum wage and part-time versus full-time workers, Home Depot has begun a huge seasonal hiring surge in preparation for spring.

The nation’s largest home improvement retailer said it planned to hire approximately 80,000 seasonal employees, many of whom are part-time, the same day that President Obama was expected to sign an executive order unilaterally increasing to $10.10 the minimum wage the federal government pays contract workers.

“Spring is our peak hiring season, giving us the opportunity to find some of the best associates who are passionate about customer service,” said Tim Crow, EVP human resources.

Job seekers can research openings and begin applying now at www.careers.homedepot.com.  All applicants must apply online.  Job opportunities are available on a market-by-market basis, based on individual store needs and geographical variance in climate.  The company encourages college students, retirees, veterans and reservists to apply.

Source: Retailing Today

February 13, 2014

Consumers leveled off post-holiday shopping ans spending in the beginning of the year due in part to severe winter weather in much of the country.  According to the National Retail Federation, January 2014 retail sales, excluding automobiles, gas stations and restaurants, were flat seasonally adjusted month-to-month, yet increased 3% unadjusted year-over-year.

January retail sales released by the U.S. Census Bureau, which include categories such as automobiles, gas stations, and restaurants, decreased 0.4% seasonally adjusted month-to-month, yet increased 2.6% year-over-year.

Other findings from the January retail sales report include:

• Building material and garden equipment and supplies dealers stores’ sales increased 1.4% seasonally-adjusted month-to-month and 3.3% unadjusted year-over-year.
• Clothing and clothing accessories stores’ sales decreased 0.9% seasonally-adjusted month-to-month, yet increased 1.4% unadjusted year-over-year.
• Electronics and appliance stores’ sales increased 0.4% seasonally-adjusted month-to-month, yet decreased 4.9% unadjusted year-over-year.
• Furniture and home furnishings stores’ sales decreased 0.6% seasonally-adjusted month-to-month, and 2.1% unadjusted year-over-year.
• General merchandise stores’ sales decreased 0.1% seasonally-adjusted month-to-month, yet increased 1.4% unadjusted year-over-year.
• Health and personal care stores’ sales decreased 0.6% seasonally-adjusted month-to-month, yet increased 3.1% unadjusted year-over-year.
• Non-store retailers’ sales decreased 0.6% seasonally-adjusted month-to-month, yet increased 6.5% unadjusted year-over-year.
• Sporting goods, hobby, book and music stores’ sales decreased 1.4% seasonally-adjusted month-to-month and 1.5% unadjusted year-over-year.

“Following a solid holiday sales season, it seems that many consumers decided to take a break from the stores and shopping malls this January in an attempt to avoid the winter weather,” NRF president and CEO Matthew Shay said.  “While the dip in retail sales was somewhat anticipated, it is concerning that both jobless claims came in above projections and that consumer spending was flat in January; it’s not the way to kick off a new year.”

Source: Retailing Today

February 11, 2014

CVS Caremark’s fourth-quarter results came in at the high end of expectations and helped produce a record year; however, one of the key topics analysts discussed was the company’s recent decision to stop selling tobacco products in all its stores by October 1.

“Last week we announced our decision to exit the tobacco category, a category that we believe is inconsistent with our growing role in the changing healthcare marketplace,” Larry Merlo, president and CEO, told analysts.  “Simply put, this was the right decision at the right time.  There is a far greater focus emerging on health outcomes, managing chronic disease and reducing costs, and exiting the tobacco category more closely aligns us with the goals of patients, clients and providers, positioning our company for future growth.”

Merlo made note of the overwhelmingly positive response across an array of key constituents, including customers, prospective and current clients, benefit consultants, legislators and policymakers, and public health and Medicaid officials.  “All of whom see the health benefits, as well as the role that pharmacy can play in advancing smoking cessation and better managing chronic disease,” Merlo said.

As reported, the move is expected to result in a loss of approximately $2 billion in revenues on an annual basis from the tobacco shopper.  The $2 billion represents about 3% of earnings.

“When you look at that eight feet to ten feet that tobacco commands today, there will be something replacing that space, and to be clear, it is not going to make up $2 billion in revenues, but it will be something.  And there are some things that are being tested as we speak,” Merlo said when asked about its plans at retail and the steps it would take to help offset some of the loss.

“We are seeing this tobacco decision as an opportunity to connect even more consumers as an expert in health and beauty and to build our loyalty with them.  As we focus specifically on the front store, it is really around driving what we will call ‘smart growth’ and I think ther it has three elements: taking ExtraCare to the next level, the second is focusing on our core strength in health and beauty, and the third is driving our store brand penetration,” added Helena Foulkes, president of CVS/pharmacy.

During the quarterly call with analysts, Merlo also provided analysts with a broad-reaching business update including:

• The impact of the Affordable Care Act and the role CVS Caremark can play in serving new customers and supporting health plans.
• Its joint venture with Cardinal Health to form the largest generic sourcing entity in the United States.  The venture will help spur innovative purchasing strategies with generic manufacturers and is expected to be operational by July.
• The 2014 selling season, which has resulted in net-new wins of about $2 billion, excluding attrition in the Med D business.  Merlo said that while it is too early to provide an update on the 2015 selling season, the company is “well-positioned” to both retain business and gain share.
• The specialty pharmacy business, which posted a revenue increase of about 22% year over year.

Merlo added that the company expects to see significant growth in the specialty space and is well-positioned to capitalize on the opportunity.  Enter its acquisition in January of Coram, the specialty infusion services and enteral nutrition business unit of Apria Healthcare Group.

“This provides us with a new set of capabilities to manage not just the cost of infused drugs, but also to reduce the length of hospital stays and to help patients move from higher cost sites of service, like hospital outpatient centers, to more cost-effective locatons, such as the patient’s home or a physician’s office,” Merlo said.

Furthermore, its new Specialty Connect offering is on schedule to roll out in 2014.  Analogous to the Maintenance Choice program, Specialty Connect integrates mail and retail capabilities to provide both greater choice and convenience for members.

CVS Caremark’s MinuteClinic business posted a revenue increase of more than 10% during the quarter and reached a milestone with 800 total clinics in 28 states and Washington, D.C.

Net revenues for the three months ended December 31 increased 4.6%, or $1.4 billion to $32.8 billion, up from $31.4 billion the year-ago period.  For the year, total revenue rose 3% to $126.8 billion compared with $123.1 billion last year.

Revenues in the retail pharmacy segment increased 5.6% to $17.2 billion during the quarter.  Same-store sales rose 4%, with pharmacy same-store sales up 6.8%.  Front-end same-store sales decreased 1.9% due to softer traffic, which was partially offset by an increase in basket size, the company stated.  For the year, total revenue in the retail pharmacy segment rose 3.1% to $65.6 billion.  Same-store sales increased 1.7% for the year, with pharmacy same-store sales up 2.6% and front-end, same-store sales down 0.5%.

Income from continuing operations attributable to CVS Caremark for the three months increased 12.4% to $1.3 billion, compared with $1.1 billion in the year-ago period.  Adjusted earnings per share from continuing operations attributable to CVS Caremark for the three months ended December 31, 2013 and 2012 was $1.12 and $0.96 respectively, at the high end of guidance.

Income from continuing operations attributable to CVS Caremark for the year increased 18.8% to $4.6 billion.  Excluding a gain from a legal settlement and the loss on early extinguishment of debt, adjusted EPS increased 15.7% in 2013 to $3.96, at the high end of guidance.

“I’m very pleased with our fourth-quarter results, with adjusted earnings per share coming in at the high end of our guidance at $1.12 per share, capping off a terrific year,” Merlo said.  “For full year 2013, we delivered strong growth in revenues, gross margins, operating margins and earnings across the CVS Caremark enterprise.”

Source: Retailing Today

February 6, 2014

Walmart is marking the 20th anniversary of its entry into Canada this year by spending big bucks to expand physical stores and distribution capacity while devoting a much smaller portion of a $500 million budget to e-commerce.

Walmart said it would spend close to $500 million in Canada this year with $376 million of that amount dedicated to 35 supercenter projects totaling one million square feet of new selling space.  Walmart currently operates 389 stores in Canada, of which 247 are supercenters.  By year end it expects to have 395 stores of which 282 will be supercenters.

To support the expanded food footprint, $91 million of the $500 million capital expenditure budget will be used for new and existing distribution center projects.  Getting the short end of the cap-ex stick is Canadian online operations where $31 million, or slightly more than 6% of the $500 million, is allocated for e-commerce projects.

“Customers in every region of Canada are looking to save money on their entire list of shopping needs,” said Shelley Broader, Walmart Canada’s president and CEO.  “Delivering on our commitment to help lower the cost of living is our top priority, and our growing network of supercentres and our expanding walmart.ca offering enable us to do just that.”

Source: Retailing Today

February 10, 2014

Sears has launched a new service powered by the chain’s Shop Your Way mobile app that enables customers to pick up their online purchases at any Sears store within five minutes of arrival.  The service allows members to pick up purchases without leaving their cars, hence its name: In-Vehicle Pickup.

“The In-Vehicle Pickup option takes our ‘Free Store Pickup – Ready in 5’ guarantee even further and out to the parking lot,” said Leena Munjal, SVP, member experience and integrated retail, Sears Holdings.  “In-Vehicle Pickup on this scale is an industry first and another example of how we are constantly innovating and adding benefits that make shopping a more convenient experience for our members.”

To take advantage of the new service, Shop Your Way members shop online, completing their purchase via computer or tablet.  At check-out, they choose In-Vehicle Pickup and input details of the vehicle they will arrive in, then sign in to their Shop Your Way mobile app and enable location services before leaving for the store.  Upon arrival at their local Sears, members pull up to the In-Vehicle Pickup spots located conveniently outside of the merchandise pickup location; use the Shop’In feature in the Shop Your Way mobile app to initiate In-Vehicle Pickup – a timer will start on the phone; and five minutes later or less an associate takes the purchase to the car and verifies it by using the payment method used online.

“When the transaction is complete, members can easily provide instant feedback on their experience through the Shop Your Way app,” Munjal said.  “This feedback is extremely valuable as it helps us further enhance our capabilities across all channels.”

Source: Retailing Today

February 10, 2014

The Home Depot has opened a new direct fulfillment center (DFC) in the Locust Grove suburb of Atlanta. 

It is the first of three new DFC’s the company will open across the U.S. in the next two years, adding more than 3 million sq. ft. and approximately 1,000 jobs to its supply chain. The new distribution centers will increase the number of orders the company can ship the day they are received, increasing the speed of delivery for HomeDepot.com orders.

The company is also enabling faster order picking and shipping through new warehouse management and material handling systems. 

“This is a significant investment in our ability to say yes to customers with confidence,” said Mark Holifield, SVP, supply chain.  “Yes, you have access to our entire inventory to fulfill your order.  Yes, you can expect a speedy delivery.  And yes, you can rely on information updates about your delivery.”

The DFC’s will stock approximately 100,000 products, extending The Home Depot aisle beyond the 35,000 products typically available at the average physical store.

The Locust Grove DFC will initially employ approximately 125 people, and will eventually employ approximately 300.  Future DFCs are scheduled to open in Perris, California and Troy, Ohio.

The Home Depot has 2,263 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.  In fiscal 2012, The Home Depot had sales of $74.8 billion and earnings of $4.5 billion.  The company employs more than 300,000 people.

Source: Retailing Today

December 12, 2014

The Home Depot reportedly plans to invest $300 million on technology and supply chain upgrades during its fiscal year 2014, which begins in February 2014.  According to the Wall Street Journal, the results will include three new fulfillment centers in California, Atlanta and Ohio by 2016, as well as same-day shipping for some online orders.

The new centers will dramatically increase the number of orders the chain can ship the same day they are received, which significantly expands the number of orders it will be able to deliver within two days or less.  With this same day shipping capability, these centers are geographically positioned to leverage parcel freight carriers’ networks to deliver 90% of customers’ parcel orders within two days, using economical ground service.  For example, when the network is complete, most customers will be able to order on a Wednesday by 5 p.m. with the product delivered by Friday, according to Home Depot.

Home Depot’s total sales are expected to reach $79 billion during fiscal 2013, aided by a boost in online sales.  Other new programs for the upcoming fiscal year may include expanded in-home assembly and installation services.

Source: Retailing Today