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FROM THE DESK OF DEBORAH WEINSWIG
$5 Billion: Our Number of the Week in Retail In one week, one number encapsulated several of the major trends we are observing in retail—in the US and elsewhere. As you may have guessed from the title of this week’s note, that number is $5 billion. $5 Billion at Target: Better Stores Are the Future Target management this week said that capital expenditure will be in the $4–5 billion range annually, with a focus on investments in its stores-as-hubs model—this includes new locations (around 30 per year with a focus on mid-sized stores), full store remodels (200 in 2022), fulfillment retrofits and projects to support brand partnerships. On remodels, Chief Operating Officer John Mulligan said on Target’s earnings call this week:Each year, our architects and construction crews update our plans to keep raising the bar on retail design. Following a remodel, traffic gains across the store helped drive an average 2%–4% sales lift in year one and another 1%–2% lift in year two.
Mark Schindele, Executive Vice President and Chief Stores Officer said:In the year ahead, we'll… [deepen] our trust with our guests with an experience our competitors can't match. That means clean, bright and on-brand floors that invite discovery, inspire guests with the latest products, all brought to life by an incredible team, a team that's empowered and trained across the building so they can jump in wherever our guests need us.
As we wrote in this letter a few weeks ago, when Walmart unveiled a new store format, the refocusing on the quality of in-store experiences aligns with our longstanding view on where physical retail is headed. We have pointed to stores likely clustering around one or more of four functions, as represented in our Future of Stores Matrix. Concentrating on one or more of four key functions—convenience (“need-now” purchases), collection (of online orders), discount (where shoppers are willing to trade convenience for low prices) and destination (stores that shoppers actively want to visit and spend time in)—enables brick-and-mortar stores to complement e-commerce and maintain competitive advantages versus the online channel. $5 Billion at Macy’s: Sustainability and Inclusivity Are Essentials Macy’s management announced on March 2 the launch of an enterprise-wide social purpose platform called Mission Every One. The company said that the platform focuses on three areas of impact—people, communities and planet. The company will direct $5 billion of its spending on “scaling through 2025” to programs that help build “a more equitable and sustainable future.” On inclusivity, this means investment in designers, brands and business partners, products and service providers from underrepresented backgrounds or communities, as well as diversifying its leadership and increasing its education-funding benefits and pay for staff. For communities, the company will donate over $100 million by 2025 to nonprofit organizations in the areas of emotional wellbeing, education of underrepresented youth and environmental stewardship. In sustainability, Macy’s will increase its use of sustainable materials, advance workers’ rights in its supply chain, and reduce waste and emissions. Sustainability and inclusivity are components of Coresight Research’s RESET framework for change, which provides retailers with a model for adapting to a new world marked by consumer-centricity. We continue to cover these trends extensively in our research. $5 Billion at Reebok: NFTs Are a “Nice-to-Have” Finally, privately owned brand owner Authentic Brands Group this week announced that it had completed the acquisition of Reebok from Adidas and that it is targeting $5 billion in global retail sales for the Reebok brand in 2022. That is up from between $3.7–4 billion currently, according to Bloomberg. Authentic Brands will do this by growing Reebok’s clothing offering, signing new partnerships and expanding in markets such as China, South Korea and Latin America. It will also add NFTs (non-fungible tokens) and crypto payments this year, according to management interviews with the media. The company’s NFT offering adds another major brand to those expanding into the metaverse. We tallied over 30 major Western consumer-goods brands or retailers launching NFTs in the final quarter of 2021 and this trend has continued into 2022. Other brands and retailers must begin to think about their digital presence and how to take advantage of virtual-world opportunities while the metaverse is still, for the most part, in its infancy. Metaverse expansion is another component of our RESET framework for change, and it is one that we cover extensively, such as with the first report in our Metaverse Latest series published this week. One week, one number—and reflective of a number of meaningful trends in retail.US RETAIL AND TECH HEADLINES
Kohl’s Reports Positive Fourth-Quarter Revenue Growth (March 1) Company press release- Department store chain Kohl’s reported year-over-year revenue growth of 5.8% in its fiscal 2021 fourth quarter, ended January 29, 2022. Its gross margin increased by 124 basis points to 33.2%—however, adjusted EPS decreased by 1.0% year over year.
- For the full year 2022, Kohl’s expects year-over-year sales growth in the low single digits and an operating margin of 7.2%–7.5%. It plans to spend $850 million on capital expenditure, including investments in opening hundreds of Sephora at Kohl’s shop-in-shop locations.
- Home-improvement retailer Lowe’s has launched “DIY-U by Lowe’s,” a home-improvement skill-building platform featuring live and on-demand educational resources for both adults and children. The company aims to gamify DIY with a new level of peer support to create a space where homeowners and families can share their passions, according to the company.
- Every month, DIY-U will feature two livestreams limited to 1,000 participants each—alongside in-store workshops, one for children aged 5–12 and two for adults. The hosts will be available to answer project-related questions live, with opportunities for viewers to purchase items in real time.
- Department store chain Nordstrom reported net sales growth of 23.4% year over year in its fiscal 2021 fourth quarter, ended January 29, 2022. Gross merchandise value (GMV) increased by 24.0% year over year and diluted EPS increased by 485.7%.
- For both its Nordstrom and Nordstrom Rack banners, net sales increased by 23.0% year over year. For fiscal 2022, the company expects year-over-year sales growth in the mid-to-high single digits and an EBIT margin of 5.6%–6.0% of sales. It expects diluted EPS growth of 186.4%–218.2% year over year.
- Mass merchandise retailer Target reported total sales growth of 9.4% in its fiscal 2021 fourth quarter, ended January 30, 2022. Comparable sales increased by 8.9% year over year and comparable traffic by 8.1%. The company’s adjusted EPS increased by 19.5%.
- For fiscal 2022, Target expects revenue growth in low to mid-single digits and adjusted EPS in the high single digits. The company announced that it is increasing its employee’s pay, with hourly wages starting at a minimum of $15 and ranging up to $24 in its corporate offices, stores and supply chain facilities.
- Apparel specialty retailer Urban Outfitters reported year-over-year net sales growth of 22.4% in its fiscal 2022 fourth quarter, ended January 31, 2022. The company’s diluted EPS increased by 41.4% year over year and its retail segment sales increased by 24.1%. However, its wholesale segment net sales decreased by 16.5%.
- Urban Outfitters expects supply chain costs to remain elevated for the first half of fiscal 2023. For its first quarter, the company expects sales growth in the mid-teens on a two-year basis, with mid-to-high-teens retail segment sales growth and flat wholesale segment sales growth on a two-year basis. It also expects its gross profit margin to be down 100 basis points, year over year.
EUROPE RETAIL AND TECH HEADLINES
HelloFresh Reports Strong 2021 Results; Revenue Grows 61.5% (March 1) Company press release- Germany-based meal-kit company Hello Fresh reported €6.0 billion ($6.7 billion) in total revenue for its 2021 full year, ended December 31, 2021—an increase of 61.5% year over year. In 2021, the company delivered 1 billion meals to customers located in 17 markets across four continents.
- Revenue growth was primarily fueled by strong customer growth, high order rates and meals per order in its US and International operating segments. In 2022, the company expects to achieve revenue growth of 20.0%–26.0%.
- France-based general merchandise retailer Groupement Les Mousquetaires has announced plans to acquire Belgium-based fresh grocery franchiser and retailer Mestdagh for its Intermarché brand. Mestdagh owns 87 franchise outlets of French grocery retailer Carrefour in Belgium.
- The acquisition will make the company a significant retail player in Belgium, with more than 150 retail outlets (87 Mestdagh supermarkets and 78 Intermarché Belgium stores). The company expects the takeover to complete by January 2023.
- UK-based discount retailer Poundland has acquired UK-based online discount retailer Poundshop.com for an undisclosed sum—including Poundshop.com’s intellectual property, online platform, fulfillment operations and entire customer base.
- Poundland expects to build and scale its online operations to other geographies outside the UK through the acquisition. Poundland will retain Poundshop.com’s entire staff.
- UK-based fashion retailer Primark expects sales growth of over 60.0% in its second half of fiscal 2021, ending March 5, 2022. Its operating profit margin is forecasted to be around 11.0% for the period.
- The company’s comparable and total sales growth are expected to remain lower than pre-pandemic 2019 levels, at 9.0% and 8.0%, respectively. Its US business is forecasted to outperform and deliver 2.0% comp sales growth in the same period on a two-year basis, with total sales growth of 35.0% compared to 2019.
- E-commerce fashion retailer Zalando reported €10.0 billion ($11.1 billion) in total revenue in fiscal 2021, ended December 31, 2021, up 29.7% year over year. The company registered GMV growth of 34.1%, totaling €14.3 billion ($15.9 billion) for 2021. Its net income was up 3.7% to €234.5 million ($259.6 million).
- Revenue growth was driven by continued strong online demand and increasing partner adoption of the company’s platform services. For 2022, Zalando expects GMV growth of 16.0%–23.0%, totaling €430–510 million ($476–566 million). In 2021, the company’s membership program, Zalando Plus surpassed 1 million in its membership base.
ASIA RETAIL AND TECH HEADLINES
AlloFresh Launches Operations with New Capital (March 1) TechInAsia.com- Indonesian online grocery startup AlloFresh has launched its operations with Rp1 trillion ($69.7 million) in investment from private equity firms Bukalapak and Growtheum Capital Partners, alongside Trans Retail Indonesia—a local offline retailer owned by Indonesian-based holding company CT Corp Group.
- AlloFresh will allow users to purchase over 150,000 items from 10,000 vendors, with delivery times of three hours or less. The company will also provide a 30-minute delivery option to compete with the growing number of rapid-commerce firms in the country. Customers can order using the AlloFresh app or website or using Trans Retail Indonesia’s “Click & Go” option.
- Dianxiaomi, a China-based software-as-a-service e-commerce platform and parent company of Southeast Asia e-commerce enabler BigSeller, has raised $100 million in a Series C funding round.
- The round was led by Huaxing Growth Capital and Tiger Global Management, with participation from previous investors CDH Investments, Gaorong Capital and GGV Capital. Dianxiaomi plans to use the funds for product development, talent acquisition, service enhancement and the global expansion of its e-commerce services.
- Reliance Retail Ventures Ltd (RRVL), a subsidiary of Indian conglomerate Reliance Industries Ltd (RIL), has acquired a majority stake in India-based fashion brand Abraham & Thakore Exports. RRVL aims to expand Abraham & Thakore’s presence in the fashion and lifestyle segment in the near term.
- RRVL stated that Abraham & Thakore’s Co-Founders, David Abraham, Rakesh Thakore and Kevin Nigli, will continue to guide the brand’s creative direction, expanding its footprint and bringing together fashion and lifestyle lines.
- SariSuki, a Philippines-based social commerce startup, has raised $7.1 million in a new round of funding, bringing its total valuation to $10.7 million. The round was led by Foxmont Capital Partners, JG Digital Equity Ventures, Global Founders Capital, Openspace, Saison Capital and Susquehanna International Group.
- SariSuki will use the funding to expand into quick commerce, aiming to build the country’s first end-to-end e-commerce grocery platform. The company will also expand its product offerings, bolster its warehouses and enter new geographies.
- Singapore-based online fashion retailer Zalora has announced a partnership with Walmart-owned Flipkart’s fashion marketplace, Myntra, aiming to enter the Indian fashion market this year.
- Currently, Zalora has a presence in Hong Kong, Indonesia, Malaysia, Philippines, Singapore and Taiwan. Zalora has stated that it will offer 5,000 fashion items on Myntra.