Monday, December 12, 2016
Speaker: Dana Telsey, CEO and Chief Research Officer of Telsey Advisory Group (TAG), New York
1. Macroeconomic & Consumer Environment
- Consumer spending is driven by promotions, product innovation, multichannel consumption, and currency trends
- Retailers focus on capturing millennials wallet share, represented by 27% of population with about $1.1 trillion in spending by 2035 (e.g. enhancing social media presence), capitalizing on product trends, and leveraging big data and technology
- Given their preferences and lifestyles, the millennials favor access over ownership which leads to the shift from goods to services
- Overall US retail sales growth has been insignificant, despite strong growth in selected categories (e.g. e-commerce, sporting goods, and personal care)
2. Current Retail Landscape
- Retail Sector Perspectives
- Specialty Apparel – desperate prospects due to increasing competition from fast fashion retailers
- Department Stores – losing share to off-price retailers, specialty stores, discounters; footage growth has been stagnant; multichannel platforms are key
- Off-price Retail – well positioned for shift in consumer attitude toward value; offers differentiated brands and extends categories; e-Commerce at early stages
- Hardlines Retail – solid housing trends to continue in 2017, omni-channel remains a priority
- Discounters – well positioned to meet demand from low-income households, international growth is a key for top-line performance, e-commerce at early stage of development
- Food Retail – healthy food is a new obsession
- Luxury Retail – slower industry growth, greater focus on store remodels
- Footwear – athletic footwear sales growth remains robust, better margins in 2016 thanks to stock optimization
- Activewear – impressive sales growth and share gains from regular apparel due to increasing usage for multiple occasions and social events
- Key Retail Trends
- The growth in e-commerce and m-commerce has been changing market shares – the "invisible' threat. A new generation of high-growth retailers with developed online and mobile-based business models (consignment, pureplay retail, subscription, rentals, lodging, grocery delivery) are gradually taking market shares from established players
- Omni-channel and technology are influencing consumer behavior and changing retailer priorities
- Consumers shift from goods to experiences and services – "experiential" retailers, "eatertainment", fitness; this trend is particularly visible among millennials
- The growth of activewear and athleisure continues to drive market growth and innovations – activewear is a new everyday wear
- Space is being redistributed between struggling and growing retailers
- Winning in an Evolving Retail Landscape
- Total sales growth and pace of technology involved - are the new key performance metrics
- Omni-channel distribution is a key to success – the store goes to the customer instead of the customer going to the store
- Changing demographics and focus on millennials
- Structural changes in consumer spending patterns and channels of distribution imply a greater need for speed to market – companies must invest in supply chain, integrate technology and CRM (about 40% of total capex has now been spent on systems and technology vs. opening new stores)
3. 2016 Holiday Perspective
- TAG projects a 3.3% y-o-y growth (3.8% excluding Walmart) in total sales for the 2016 holiday season,
- Decent season in sales growth and even more so in margins because inventories are lean
- Online shopping is strong, two extra shopping days between Thanksgiving and Christmas in 2016, convenience is a key, mobile shopping has been rising
- The main interest was in the following categories – electronics, apparel (denim, velvet), giftables
- Holiday winners: BBY, JCP, LULU, M, PINK (LB), TGT, ULTA
- Positive for Athleisure, Cosmetics and Home, neutral for Apparel, and negative for Jewelry
- The future of retail is determined by
- "ization" (personalization, localization, and customization),
- fast and convenient omni-channels,
- global reach – "the world is big and small",
- different brick-and-mortar business that blends off and full price, efficient store size (smaller in size and smaller in numbers) that offers new types of services and entertainment tenants
1. What are the biggest changes you see in terms of household formation? Where the consumers live: urban vs suburban?
- Millennials are expected to move from cities to suburbs over time as they have kids, similar to their parents, and we've begun to see some of that in cities around the country. The difference is that they will have more services available to involve conveniences that their parents didn't have
2. What are the product categories do the off price retailers offer opportunities in?
- One of the biggest changes with the off price retailers is the fact that they reallocate labor hours changing labor schedule in a way to reduce consumers' time in line
3. Is there any sector of the brick-and-mortar stores that could be eliminated by the online threat?
- Luxury will never be eliminated
- Basics, basic apparel – we are going to see a shrinkage of department stores because a lot of basics offered by department stores just isn't as relevant to the core consumer as it was in the past
- Food – unlikely, as people like to look and choose produce by themselves
- Electronics – is under threat, but there is an example of Best Buy that has rejuvenated themselves, what makes the difference is "brands matter"
- Office supplies – that is the category to watch the most as it does not have as much appeal to go on shopping in the store rather than have supplies delivered to you. You may see Staples and Office Depot shrink the number of stores
4. Retailers seem to go in and out of style almost like by the season, what do you think retailers need to do to stay on top?
- To stay on top retailers need to remodel, reinvent, and rejuvenate every 5-6 years, e.g. reinvest and redo the store, update website, introduce new logo, concept etc. If a retailer doesn't become more modern it becomes old, and no one wants to be old. The retailer has to be able to think "forever young"
5. You mentioned that Macy's and JCPenney were doing great in terms of traffic drivers this holiday season, what are they doing great vs other department stores?
- Macy's – major promotions, in addition, they introduced change to technology, brands, whole departments (introduced Apple department, changed apparel department concept, etc.)
- JCPenney – appliances are helping, in-store Sephora drives traffic along with updated center court area
6. Managing labor costs
- Restaurant companies have the biggest impact on labor costs and minimum wage
- Off-price retailers have a lot of hourly paid employees
- As for the rest, for the most part they are earning commission which allows them to balance the part-time and full-time sales hours
7. What do you think are the reasons for athleisure success, is there any type of behavioral change, how long will that cycle last?
- The level of same store sales growth has already been decelerating from double digit growth 3-5 years ago to mid-single digit growth for the same stores
- Continuing sales growth will depend on what functionality a retailer can incorporate in order to drive excitement – good example Lululemon