Goldman Sachs is holding its 25th Annual Global Retail Conference in New York City this week. Below are our top takeaways from the webcast presentations.
- Buy online, pick-up in store (BOPIS) is gaining momentum as a customer experience differentiator.
- Multichannel customers are the most important consumers for beauty spending.
- Retailers are partnering with Amazon and viewing it as another channel for business.
- Carter’s launched the age up initiative, adding two new sizes with anticipated revenue of $100 million per size.
- E-commerce shoppers increasingly expect free, next day and same day delivery.
Goldman Sachs is holding its 25th Annual Global Retail Conference in New York City this week. Below are our top 10 takeaways from the webcast presentations.
1) Buy Online, Pick-up in Store (BOPIS) Is Gaining Momentum as a Customer Experience Differentiator
Retailers’ webcasts throughout the day highlighted the implementation of BOPIS as a customer experience differentiator. The Michaels Companies, Inc. CEO, Chuck Rubin, reported that the company implemented BOPIS at the end of the first quarter in 2018 to make it easier for consumers to shop, and that the Michaels consumer is responding well to the convenience. About one-third of Michael’s e-commerce sales in the second quarter were picked up in stores, and consumers are also purchasing additional items when they come to the store to pick up their order. The TJX Companies, Inc. President, Don Unser said that the company has implemented click and collect, and 45% of its e-commerce orders are picked up in store. Carter’s, Inc. Chairman and CEO, Michael Casey said that its retail team is investing in BOPIS, and that 15% of consumers that shop online opt for BOPIS. Carter’s, Inc. is also offering other enhanced capabilities such as shipping items for free. Casey said that the goal is to make the customer in-store shopping experience more efficient and more enjoyable.
2) Multichannel Customers Are the Most Important Consumers for Beauty Spending
Mary Dillon, Ulta Beauty CEO, said that the company has found that its most loyal customers are its most engaged customers, both online and offline. The company has 30 million beauty loyalists in its beauty program that comprise one third of the company’s share of wallet. Ulta studies its Ulta Beauty loyalty data carefully to determine how and where its members are spending. The physical consumer remains very important for Ulta beauty, and the younger shopper still want to shop in physical stores for beauty. They want to touch and feel, see, and try on the product. Very few Ulta Beauty guests are shopping online only, but many Ulta Beauty guests discover items in store, and then become an online shopper, becoming more engaged over time. Last year, e-commerce comprised 9% of Ulta’s business. An e-commerce shopper is spending over 2.5 times than the consumer who is shopping in store only and has more than twice the number of transactions a year. And when this shopper comes in store, they come more often, often in response to post they saw in an email or something they saw on the website.
3) Retailers Are Partnering with Amazon and Viewing it as Another Channel for Business
Casey said that Carter’s strengthened its e-commerce capabilities by launching “Simple Joys” brand exclusively for Amazon Prime customers. Casey said that Amazon approached Carter’s after Amazon saw the brand’s collaborations with Target and Walmart, and asked Carter’s to partner on a private label brand. Casey said that Carter’s has a long history of understanding how to bundle multipacks and baby sets, which is necessary in selling in an online environment. Casey reported that the Carter’s Amazon partnership is its most successful of all of its collaborations and that e-commerce has been the company’s fastest growing and highest margin business. Casey attributed this to the fact that the consumer knows how Carter’s products will perform and has a long history with the brand, so there are very low returns. The company reported it expects Amazon will grow to be one of Carter’s largest customers in the next 5 years and together with its wholesale customers, the company expects to achieve $1 billion in online revenue of brands next year.
4) Carter’s Launched the Age Up Initiative, Adding Two New Sizes With Anticipated Revenue of $100 Million per Size
Casey further said that the company launched Age Up this summer based on consumer feedback that store associates received from customers, wishing that their child could stay with the brand longer. Age Up will add two new sizes to the Carter’s brand, size 10/12 and size 14. Casey reported that the last time the company added a new size two years ago, it generated $80 million in sales. He anticipates the addition of these two new sizes will generate approximately $100 million in sales, per size.
5) The Relationship between Retailers and Vendors Has Never Been Better
Edward Stack, CEO of Dick’s Sporting Goods, commented that the company’s relationship with vendors such as Nike, Adidas, North Face, and Under Armour, among others, has never been better even though these vendors are also engaged in direct-to-consumer sales. These vendors still express in interest in ensuring that Dick’s omnichannel business remains healthy and are doing everything possible to help the company drive that business by sharing information what is happening in marketplaces and in their own direct-to-consumer business.
Dick’s almost commented that the company has better access to higher quantities of key, hot products in the footwear and apparel categories than in the past. These brands are carefully selecting the brick-and-mortar and omnichannel vendors with which they want to do business.
6) Supply Chain Speed and Agility Continues to be Important Investment Area for Retailers: Home Depot to Spend $1.2 Billion
At this year’s conference, there was more discussion than in previous years about improving the efficiency of the supply chain to speed up the delivery of products in order to keep up with increasing consumer expectations and demand for online ordering. Executives from Home Depot discussed the company’s $1.2 billion investment in its supply chain, which is taking place over the next five years. The company will open up 170 new distribution facilities across the US, with the goal of being able to reach 90% of the country’s population in one day or less. Craig Menear, chairman, CEO and president, and Carol Tomé, executive vice president, Corporate Services and CFO of Home Depot, commented on the company’s success in its upstream supply chain—moving products to the stores and direct fulfillment centers for consumers through offerings like Buy online, ship to store.
More recently, however, it has undertaken significant expenditure to build its downstream supply chain, or delivering to customers directly, said Menear. The goal is to send goods from its distribution facilities and stores directly to shoppers’ homes or job sites. According to Menear, the downstream approach will improve the store experience by removing store staging while freeing up employee time from picking orders to providing more customer-facing experience. Home Depot is also adding pickup lockers to make in-store pickups and transaction more efficient.
7) E-Commerce Shoppers Increasingly Expect Free, Next Day and Same Day Delivery
During a keynote presentation, Niraj Shah, CEO of online home furnishings retailer Wayfair, discussed how consumers, specifically e-commerce shoppers, increasingly expect free shipping and “the world is evolving to next and same day delivery expectations.” The company has taken steps to better control its logistics network, from manufacturers’ inbound supply links to the middle mile network, as well as home delivery. Shah noted that Wayfair operates 25 of its own last-mile delivery facilities, and can cover about 63% of its U.S. network. The company is seeing positive customer ratings since taking control over 90% of its large parcel orders, processing them through its network of consolidation centers. Shah said the net promoter scores for the company reached an all-time high during the first half of 2018, which he called a great endorsement of what they are doing. The company delivered 6.5 million online orders in the second quarter ended June 30, surging 51% from the year-ago period.
In a separate keynote, meal kit company Blue Apron told the audience that there is a significant friction point for a lot of customers in the subscription business. According to CEO Brad Dickerson, the current ordering model—which requires consumers to order their meals six days in advance—does not fit some consumers’ expectations for immediacy and for those with busy lifestyles. In order to target these shoppers, Blue Apron plans to roll out an on demand offering that would allow shoppers to order a Blue Apron kit and have it delivered within a few hours. The company, Dickerson said, will test the product in a still to be named West Coast and East Coast city.
8) Growth Continues for Home Improvement and Home Furnishings Retailers
The ongoing US housing recovery is making the home improvement space one of the best retail segments to be in. The macro environment has benefited this sector: home values are rising, existing home sales are steady, while wages, gains in disposable income and tax cuts have led to record-high house net worth. Several executives at the conference noted furniture and home furnishing retail sales are growing at about 5% annually, outpacing the retail industry.
Home Depot has benefited from continued demand for building materials from contractors and from the construction of new homes while tight supply continues to fuel contractor demand for building materials. According to Menear, private fixed residential investment as a percentage of GDP is a great indicator for consumer sentiment towards home investment. Menear said this figure is 4%, almost fully recovered from the 20 year average of 4.2% and has recovered over 90% from Great Recession peaks. Home equity values have increased over 120% since 2011 in the US, according to Menear. The company recently reported second-quarter same-store sales up 8% from the year-ago period and raised its full-year guidance.
Wayfair has also benefitted from strength in the home industry. The company reported e-commerce sales up 49.1% in the second quarter, reaching $1.64 billion. The company also touched on its push into private label brands, a recurring theme at the conference. Wayfair has about 75 exclusive brands across product categories, which account for 60% of their revenues.
9) There Are Numerous Private-label Grocery Opportunities for Driven by Innovation Rather than just Copying International Brands
Grocer Sprouts Farmers Market has increased private-label penetration by 100 basis points a year by adding 200 net new items annually, taking the total to 2,400 currently. Loyalty has ticked up as well, as the company adds more SKUs. Management noted that it is achieving these gains not through knocking off international products, but rather through focusing on quality, including using clean ingredients, a superior taste profile and exciting and inviting packaging.
Sprouts, in particular, has focused with small, innovative food manufacturers that produce unique items, while at the same time working with large manufacturers who grant the company a certain period of exclusivity. Ultimately, Sprouts’ strategy is not just to expand its private-label assortment but rather to offer products that the customer wants. This strategy has enabled the creation of some interesting categories, including some in which the penetration of certain private-label products exceeds that of national brands. Moreover, customers who purchase the company’s private-label brands tend to have larger basket sizes and better experience.
10) The Buying and Selling of Vehicles Is Moving to Mobile Devices
KAR Auction Services, which offers end-to-end platform supports whole car, salvage, financing, logistics and other ancillary and related services, has developed an app called TradeRev that enables dealers to execute vehicle purchases and sales via a smartphone app. TradeRev’s ease of use enables dealers to dispose of inventory in a quick and straightforward manner. KAR launched it initially on both US coasts and it has received a positive reception from the dealer community, enabling them to dispose easily of excess inventory. The company collects fees from both the seller in the process. The company acquired the remaining 50% of the company last year and is dramatically increasing its investment in the platform in order to stay ahead of competitors as it completes a nationwide rollout.