Author: Chad Symens

February 19, 2014

Due largely to unusually severe weather across much of the nation, housing starts fell 16 percent to a seasonally adjusted annual rate of 880,000 units in January, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Meanwhile, single-family permits, which are often a harbinger of future building activity, posted a modest 1.3 percent decline to a seasonally adjusted annual pace of 602,000 units.

“Cold weather clearly put a chill on new home construction last month and this is also reflected in our latest builder confidence survey,” said Kevin Kelly, chairman of the National Association of Home Builders and a home builder and developer from Wilmington, Delaware.  “Further, builders continue to face other obstacles, including rising materials prices and a lack of buildable lots and labor.”

“Though the decline in starts is largely weather related, it is worth noting that on the upside, housing production for the fourth quarter was above 1 million for the first time since 2008 while single-family permits held relatively steady,” said NAHB Chief Economist David Crowe.  “The less weather sensitive permits data suggests that our forecast for solid growth in single-family housing production in 2014 remains on track, as pent-up housing demand is unleashed.”

In January, single-family housing starts posted a 15.9 percent decline to 573,000 units while multifamily production fell 16.3 percent to 307,000 units.

Regionally, single-family housing starts activity rose 10.7 percent in the West and 2 percent in the Northeast and fell 13.8 percent in the South and 60.3 percent in the Midwest.

Overall permit activity fell 5.4 percent to 937,000 units in January.  The decline was due primarily to a pullback in buildings with five units or more, where permits fell 13 percent to 309,000 units.

Regionally, overall permit issuance was down 10.3 percent in the Northeast and 26 percent in the West, but rose 8.6 percent in the Midwest and 3.4 percent in the South.

Source: National Association of Home Builders

February 20, 2014

Walmart knew fourth quarter results announced Thursday morning were going to be bad and its outlook weak, so it gave investors something more substantial to digest by announcing plans to double the number of small format stores it will open this year and an increased omnichannel focus.

Just four months after announcing plans to open between 120 and 150 small format stores under the banners of Walmart Neighborhood Market and Walmart Express, the company upped its growth target to a range of 270 to 300 units.  Walmart currently operates 346 Neighborhood Market stores and 20 Walmart Express stores, which it said continue to deliver positive same store sales and traffic each quarter.  Last year, comps for the Neighborhood Market format rose 4% and were driven by fresh food and pharmacy, according to the company.

The greater than expected expansion of the small formats – Walmart maintained its forecast of 115 new supercenters in 2014 – required the company to increase its capital expenditure budget for the Walmart U.S. division by $600 million to a range of $6.4 billion to $6.9 billion from a forecast provided last October that called for spending between $5.8 billion and $6.3 billion on U.S. growth.

“Customers’ needs and expectatons are changing.  They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” said Walmart U.S. president and CEO Bill Simon.  “Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips.  By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through ecommerce, we provide our customers with anytime, anywhere access to our brand.”

Walmart has been methodical, to put it mildly in its approach to small format expansion, considering the first Neighborhood Market stores opened in the late 90s.  However, Thursday’s announcement marks the beginning of an era of accelerated growth for a format viewed as a key element in Walmart’s omnichannel approach to serving shoppers whose expectations are evolving rapidly.

“Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail.  This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash,” Simon Said.  “In addition to providing best-in-class one-stop shopping at supercenters, we believe that accelerating our small store expansion will also strengthen our market share and create greater effieiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience.”

News of the small format expansion helped soften the blow of Walmart’s worst financial performance in recent memory and an inauspicious beginning to Doug McMillon’s tenure as president and CEO of Wal-Mart Stores.  McMillon assumed his current responsibilities on February 1 after former president and CEO Mike Duke stepped down and McMillon was elevated from his role as president and CEO of Walmart International.

Total company sales during the fourth quarter increased 1.4% to $128.8 billion, including a $1.8 billion negative impact related to foreign currency translation.  Net income fell 21% to $4.4 billion while earnings per share fell 19.8% to $1.34 from $1.67 in the fourth quarter the prior year.

For the full year, Walmart’s sales increased $1.6 billion to $473.1 billion, including a $5.1 billion negative impact from foreign currency translation.  Net income declined 5.7% to $16 billion and earnings per share fell 3.2% to $4.85 from $5.01 the prior year.

Those numbers, while bad, had been previously announced several weeks ago when a portion of the weakness was legitimately attributed to terrible winter weather and a greater than anticipated sales impact resulting from a reduction in the federal government’s Supplemental Nutrition Assistance Program.  That left McMillon free to look forward and offer a more positive view of the future and initiatives to drive growth.

“Comp sales improvement is a key priority, and we’ll focus on being even stronger item and category merchants, delivering value and improving our service level.  We’ll remain focused on our expense structure, and innovate to improve productivity and aid our ability to deliver every day low prices.  Our EDLP approach earns trust with customers and helps us keep our cost structure low,” McMillon said.  “We’ll invest aggressively in e-commerce and increase our small store rollout in the U.S., as we’ve done in several other countries, to deliver value and convenience.  The combination of supercenters and smaller formats closer to customers’ homes, along with e-commerce and mobile commerce, will enable us to increase our relevance for the Walmart brand around the world.”

In the meantime, Walmart anticipates challenging market conditions in the first quarter and year ahead, which could cause profits to fall below prior year levels.  Same store sales at the Walmart’s U.S. stores and Sam’s Club are expected to be flat as the new fiscal year got off to a rocky start with more bad weather.

“We expect economic factors to continue to weigh on our outlook,” said Walmart CFO Charles Holley.  “Some of the factors affecting our consumers include reductions in government benefits, higher taxes and tighter credit.  Further, we have higher group health care costs in the U.S.  These concerns, combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or faster rate than sales.”

He indicated a 3% to 5% increase in sales during the current fiscal year that was forecast last fall now looks overly optimistic and said the company expects to be toward the lower end of that forecast.

Source: Retailing Today

February 19, 2014

More Americans this year are expected to put their tax returns in the bank.  According to the National Retail Federation’s Tax Returns Survey conducted by Prosper Insights & Analytics, 46% of those expecting a refund this year will put their money into savings, up from 44% last year and the highest percent in the survey’s history.

Two-thirds (66.6%) of those surveyed are expecting a refund this year.  As for other ways consumers will use their refunds, 37.7% will pay down debt, and one-quarter (25.3%) will use it toward everyday expenses.  One in ten (10.7%) will treat themselves and invest in a major purchase, and 12.8% will spend their refunds on a vacation.

Young adults between 18 and 24 are most likely to save their tax returns, with nearly six in ten (57.7%) planning to contribute to their savings accounts, higher than any other age group.  They are also the most likely to use their refunds for everyday expenses (34%) and to purchase a big ticket item such as a new television or piece of furniture (18.3%).  Three in ten (30.2%) will use their checks to pay down debt, second to last behind those 65 and older (27%).

“Financial security is top of mind for all Americans, and refunds can play a huge role in helping achieve that,” said NRF president and CEO Matthew Shay.  “Whether consumers use a refund to pay down debt, bulk up their savings, or buy that big ticket item they’ve been saving for, a check from Uncle Sam, large or small, goes a long way these days.”

Source: Retailing Today 

February 19, 2014

A week after rival Home Depot announced plans to hire 80,000 seasonal spring employees, Lowe’s announced its plans to hire approximately 25,000 seasonal employees at its U.S. stores for the busy spring season.

Seasonal jobs available are focused on customer support and include cashiers, lawn and garden employees, loaders and stockers.

The number of hours worked per week will vary based on the needs of individual stores, but, on average, seasonal employees could work an estimated 20 or more hours per week.  The length of the seasonal employment varies; however, seasonal employees are most needed in spring and summer months, typically from February until September.  The company plans to hire and train new seasonal employees first in areas where the climate has begun to warm, and continue on a market-by-market basis by climate and geography.  Hiring has already begun in Florida, south Texas, Arizona and southern California where warmer, spring-like temperatures are arriving.

“Warmer temperatures stir homeowners to get started on projects they’ve planned during winter and they are often challenged when choosing the right products and solutions for their homes,” said Scott Purvis, VP, human resources, operations.  “As spring arrives, our stores are stocked with popular new tools, lawn and garden, paint and patio products.  We want our stores staffed with knowledgeable employees who provide exceptional service and make shopping and selection easier for our customers.”

Source: Retailing Today

February 20, 2014

The Conference Board Leading Economic Index for the U.S. increased 0.3 percent in January to 99.5, following no change in December, and a 0.9 percent increase in November.

“The U.S. Leading Economic Index continues to fluctuate on a monthly basis, but the six-month average growth rate has been relatively stable in recent months, which suggests that the economy will remain resilient in the first half of 2014 and underlying economic conditions should continue to improve,” said Ataman Ozyildirim, Economist at The Conference Board.  “Correspondingly, the U.S. Coincident Economic Index, which measures current conditions, has continued rising steadily.”

“The increase in the Leading Economic Index reflects an economy that is expanding moderately, although the pace is somewhat held back by persistent and severe inclement weather in most parts of the country,” said Economist Ken Goldstein.  “If the economy is going to move on to a faster track in 2014 compared to last year, consumer demand and especially investment will need to pick up significantly from their current trends.”

The Conference Board Coincident Economic Index for the U.S. increased 0.1 percent in January to 108.1, following a 0.1 percent increase in December, and a 0.4 percent increase in November.

The Conference Board Lagging Economic Index for the U.S. increased 0.3 percent in January to 121.6, following a 0.4 percent increase in December, and no change in November.

Source: The Conference Board

February 19, 2014

Ace Hardware’s unique value proposition allowed it to withstand strong competition from Home Depot and Lowe’s in 2013 and grow annual sales by 8.2% to a record $4.2 billion.

“We outperformed our operating plan, exceeding $4 billion in consolidated revenues and $100 million in net income for the first time in our history,” said president and CEO John Venhuizen.

Net income was $104.5 million for fiscal 2013, an increase of $22.7 million, or 27.8%, compared with $81.8 million in fiscal 2012.

The results for fiscal 2013 included a charge of $6.2 million related to the estimated costs to close the Toledo, Ohio Retail Support Center, while fiscal 2012 included a charge for the loss on the early extinguishment of debt of $19.9 million.

The results for fiscal 2012 also included a $7.0 million gain on the sale of paint assets, net of acquisition and disposition costs.

Total revenues for the fourth quarter of 2013 were $1.0 billion, an ancrease of 12.1%.  Net income was $23.4 million for the fourth quarter of 2013, an increase of 4.5% from the $22.4 million earned in 2012.

“Ace retailers also had a very good year,” continued Venhuizen.  “Comparable-store retail sales were up 3.5% in the fourth quarter and up 4.3% for the year, with 75% of retailers surveyed reporting record net profits.”

The December 2012 acquisition by Ace of WHI Holdings Corporation, the indirect owner of the 85 store Westlake Ace Hardware retail chain, resulted in the consolidation of WHI’s financial statements into Ace’s financial statements for 2013.  This affects the comparability of the 2013 and 2012 financial statements and results in a reduction of reported wholesale revenues, as wholesale revenues from Ace to WHI are now eliminated.  This elimination totaled $83.7 million in wholesale revenues for all of 2013 and $21.6 million for the fourth quarter of 2013.

Ace added 152 new domestic stores and canceled 85 domestic stores in fiscal 2013 for a net increase in store count of 67.  This brought the company’s total domestic store count to 4,171 at the end of 2013.

Source: Retailing Today

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