Specialty beauty retailer Sephora (2,300 stores worldwide) seems to be a bit ahead of the curve when it comes to brick and mortar retail. As this article describes, they are using technology to give control to the consumer and create a “fun” experience for them. They are reducing the role of the sales person and giving the customer the power to interact with them or not. They note that their customers tend to know more about the product than the sales person anyway.
At this point, it’s common knowledge that diminishing mall traffic is leading retailers to close stores and/or renegotiate leases with landlords. There are also some store openings going on as retailers, hopefully, find locations and configurations better suited to the fast changing brick and mortar and e-commerce world.
But relationships between retailers and landlords are not quite as cut and dried as, “Give me a lower rent or I’ll leave.”
The conference calls get shorter and shorter as Wall Street and its analysts decide the retail sector just isn’t worth their attention. I don’t and won’t invest in anything I write about but damn, this feels like one piece of putting in a bottom in the retail sector. Maybe it will take the recession to finish the process.
Zumiez had a quarter which I’ll describe as uninspiring. Like every other industry retailer, they find themselves in circumstances of declining mall traffic, sluggish demand and an uncertain future that changes faster than you can react to it.
When I report on a public company’s results, it’s always important to review the numbers. But the more I do that the more I realize my focus needs to be on how companies are trying to transition to the new retail environment in circumstances of high uncertainty. That is, they must transition to something they can’t solidly identify yet. That’s awkward.
Deckers ended their March 31st fiscal year with 160 retail stores worldwide. 96 of them were what they call concept stores and the remainder outlet stores. “During fiscal year 2017,” they report in the 10-K, “we opened 17 new stores, reclassified 12 European concession stores as owned stores, converted two owned stores to partner retail stores, and closed 20 stores.” Over the next two years, we learn in the conference call from President Dave Powers, “In regards to our global retail fleet, as we look out over next two years, we are planning to reduce our global company own brick-and-mortar footprint back 30 to 40 stores.”
These quarterly reports from retailers are getting kind of repetitive. It’s not just Tilly’s; they are all controlling inventory, slowing store openings (or closing stores), negotiating with landlords, trying to reduce operating expenses, doing omnichannel things and being generally grateful for anything that improves traffic and generates some incremental sales.
Tilly’s conference call printed out to just seven pages, with questions from three analysts. It’s just remarkable how Wall Street is losing interest in retail. Someday, this will translate into a huge buying opportunity in retail in general- kind of like Mexico right after Trump got elected.
To my mind, Amazon’s biggest strategic advantage is that they started without brick and mortar retail. The business was built for ecommerce and then, using the systems and data they’ve developed, they could look at brick and mortar making sure to have the right number of stores in the right places configured in the right way. To put it another way, their brick and mortar business, whatever it turns out to be, supports their ecommerce. With existing brick and mortar retailers, it’s the other way around.
As regular readers know, I’ve called the “omnichannel” the word that legacy brick and mortar retailers use to put a positive spin on the fact that, unlike Amazon, they have the wrong number of stores in some of the wrong places configured the wrong way.
Finally, some positive movement in the trade show space. I’ve hung back on writing about this for a few days but SIA President Nick Sargent sent out an email to all SIA members announcing and describing the deal, which is subject to approval by SIA’s premium members.
The email from Nick was labeled “CONFIDENTIAL: DO NOT SHARE OR FORWARD,” so naturally everybody in the industry who’s not in a coma now knows about it and has a copy.
Well, there you have it. At some level, it is that simple. But let me complete CFO Scott Roe’s comment in the conference call. “…we are sharply focused on fundamentals and willing to sacrifice a little growth in the near term for quality. Our efforts are clearly paying off in the gross margin line. And we believe our decisions will improve the long-term health of both our brands and the marketplace.”
They improved their gross margin 1.3% (remember that’s a mixed retail and wholesale gross margin and, unfortunately, they don’t break it down between the two). Distribution matters these days in brand building, and you can afford to give up some sales if you increase your gross margin that much. In fact, I’d suggest you get that margin increase precisely because you made some distribution decisions that improved the “quality” of your sales. Scott notes later, referring to off price business, that they’ve “…already cleaned a lot of that up.”
This morning, the Seattle Times featured this article telling us that REI wage hikes for store employee announced last summer will be costing the company $24 to $25 million. The company’s net income for its last complete year was $38.3 million.
Meanwhile, my oldest son sent me this article from Investor’s Business Daily, telling us that fast food purveyor Wendy’s will have self-service ordering kiosks in 6,000 restaurants in the second half of this year due to rising minimum wages and tight labor conditions.
I’ve been writing about the potential impact of 3D printing and other kinds of manufacturing technology for a while. Here’s my article on the apparel manufacturing system Intel plans to introduce.
People don’t like people who make them uncomfortable. And when I do it, like now, I’m pretty sure it makes it less likely I get calls for consulting. But I’m all about trying to help you to run your businesses better and think you need the bad news as well as the good. Probably you need the bad news more. But, in a sense, this news about retailers closing isn’t completely bad news. I say that because, first, it’s old news (though the acceleration of the trend this year seems significant) and, second, because it needs to happen.
I enjoy hearing from you, even when you disagree. The exchange means that I learn something, too. Leave a comment on any of my posts to contact me directly.