EP233 - Q2 2020 Retail Earnings and News

EP233 - Q2 2020 Retail Earnings and News 

US Census Data US Census Retail Data website Quarterly Retail E-Commerce Sales 2nd Quarter 2020 (PDF) St. Louis Federal Reserve Tool (FRED) Google Public Dataset Tool Retail Earnings Updates Walmart Comp sales up 9.3% E-commerce up 97%. Transactions down 14%, basket up 27% Target SSS up 10.9%, E-Commerce up 195%. 75% e-commerce fulfilled from stores. Home Depot SSS up 25%, e-commerce up 100% (60% BOPIS) Lowes US Comp sales up 35.1%,  E-commerce up 135%  Kohls – net sales decrease (22.9%) TJX – Net sales came in at $6.67b v $9.78 billion YoY ($214M Loss) 2020 Q2 E-Commerce Scoreboard Target 195% (same day 300%) Etsy 147% Lowes 135% HomeDepot 100% Walmart 97% Shopify 97% E-commerce overall (US census): 44.5% Amazon: 41% overall, 44% US, 3PM grew 53% eBay 26% Other News Simon (SPARC) buys Brooks Brothers, (Aéropostale, Forever 21, Lucky Brand) JCP suitors – Amazon and Simon Shipping sur-charges

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Episode 233 of the Jason & Scot show was recorded live on Wednesday, August 19th, 2020.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:24] Welcome to the Jason and Scott show this is episode 233 being recorded on Wednesday August 20th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host
Scot Wingo.

Scot:
[0:40] Hey Jason and welcome back Jason Scott show listeners.
Today on the show we’re going to take a break from the summer of Blue Chip guest and we are going to catch you up on the news,
we did have our hot take on Amazon’s results so that was one of the big news items that we covered about three episodes ago now.
And today we had the US Census Bureau they put out their quarterly e-commerce data so that’s exciting and Jason I’m excited to learn from you because this data always is super confusing to me.
And in fact there’s been a lot of,
you know some people have said online that this data proves that we’re not seeing this 10-year acceleration and oh my God the economy is doing terrible or we’re in a V shape so everyone’s kind of.
Able to look at this data and draw wacky conclusions.
Well it’s start with a primer I know you kind of have a really good grasp of this data and I just kind of see it scroll by so.
Primer asan this or a segment I like to call Jason explains the US Census Data so that even Scott can understand it.

Jason:
[1:48] Oh God I didn’t realize the bar was that high.

Scot:
[1:51] It is US Census Data for dummies I’ll go ahead and put that out there and I’m the dumb.

Jason:
[1:56] All right I accept the challenge.
If you can’t understand it for the record the US Census Bureau is probably doing something wrong which could be the case but yeah so to me.
This is a really exciting data set and ever it comes out monthly or much of it comes out monthly and I am always eagerly anticipating it.
But then right after it comes out I’m always disappointed because everyone on Earth quotes it.
And it’s so easy to misunderstand and misquote and people aren’t careful about how they attribute what the reporting that per your point every month you see you like.

[2:33] Two people alleging they’re using the same data and coming up with wildly different conclusions so,
in a nutshell the US Census Bureau does a monthly survey of retailers and they asked those retailers to report their sales and.

[2:52] Legal obligation to comply with a portion of the census and I may have this wrong but I want to say.
They’re legally obligated to report their sales on a quarterly basis to the US Census Bureau and then the US Census Bureau.
Asks them to report a subset of their sales on a monthly basis which is voluntary.
And so basically they use that voluntary data to come out with sort of a monthly hot take and so this is this has higher standard deviation it has a higher likelihood of error.
But this is the freshest data and so it comes out about 15 days after the close of a month you get the July data usually on like August 14th so that’s exactly when we got the monthly data this.
Month and so that product is called the advanced monthly retail trade report and it’s sometimes called Mart’s which is monthly Advanced retail trade report.
Then separately the parse out that quarterly data into monthly data and it’s more accurate but it’s slower so usually the same time they report the advance monthly retail report for say.
July they’ll report the monthly report which is more reliable but the freshest data in it is likely to be June so it’s usually like 45 days behind.

[4:17] People although if you really cared and if you were talking about like years worth of performance you should totally be looking at the monthly report not the advanced monthly report in our industry.
People almost exclusively look at the advanced monthly report because they like that freshness.
And then there’s a third product so both of these products the advanced monthly report in the monthly report,
break the data down into a bunch of segments so you can see just a parallel or just department stores or just Sporting Goods for example,
and one of the segments is called non store sales and the biggest piece of non store sales is e-commerce sales.
But there are other things that are in on store sales if there any catalogers with they would be in on store sales that’s what this category was originally for was for people that did mail catalogs auction houses are still in the non store sales.
And the way that e-commerce is counted in on store sales is kind kind of imperfect so there’s some definite wiggle room when an omni-channel retailer like like Walmart or even more.

[5:31] If Target was perfectly responding to the census survey the e-commerce sales that they collected and fulfilled from the Fulfillment center which is only about 25% of targets e-commerce sales.
Would be non store sales and the sales that they fulfilled from a store which would be a 75% of all of their e-commerce would actually look like retail sales and not e-commerce sales.
And so.
The non-star sales number is a very imperfect surrogate for True what you and I would think of as e-commerce like because we would probably Define it as anybody that paid their money online.

[6:08] So that those are those are these monthly data sets there’s the advanced one and there’s the monthly one,
and then that the data is broken out into a bunch of things there’s the categories,
and the categories are frankly imperfect so for example there’s a category for automotive and automotive parts for a variety of reasons you and I might want to take.
Car Sales out of an out of the number but we probably would prefer not to take car parts sales out of the number but we can’t break those two out in their category so people kind of imperfectly mess around with a categories.
They also have three versions of the data they have unadjusted data which is the raw monthly data they have what they call seasonally adjusted data where they try to normalize the data for the,
the traditional holiday spikes that we have in retailgeek.
And so when they with seasonally adjusted data the number that they give for March isn’t the actual number they got for Marge it’s adjusted by some normalization Factor so that it could be compared with December and that same year
and then there are some people than adjust the numbers for inflation,
so there’s inflation-adjusted numbers so when someone says Hey the US Census Bureau came out with data last month and retail sales were up.
Six percent.

[7:29] There’s a bunch of things you need to know you need to know is that a seasonally adjusted number that’s up six percent is that a adjusted for inflation number that’s up 6%.
Which retail number is it is it.

[7:42] The retail trade Class A lot of the retail definitions include restaurants for example or is it retail without restaurants is it retail without Automotive which is another category that they have
so you need to know when they say retail what they mean you need to know if it has one of these adjustment factors,
and you need to know whether it was the regular monthly data or the advanced monthly data and so for all of that those varieties.
Three people will all you know go to the US Census Bureau on Wednesday morning when the data comes out they’ll pull a different number and they’ll quoted and on Twitter you’ll go huh there’s three.
Different numbers for the same thing and it’s because none of those three people explained all the details behind which number they chose to.

Scot:
[8:27] Is the monthly Advanced report does that mean Advanced as in more detail or advanced in years.

Jason:
[8:33] Sooner it’s a pretty it’s a less accurate pre view of the data will have next month.

Scot:
[8:40] Right and if they ever revealed what in is like how many businesses are they talking to is this like for and in Tuscaloosa or is this.

Jason:
[8:48] Yes so for the actual census data that businesses are legally obligated to comply with they do disclose exactly how many,
businesses are in that number I don’t know what it is out of the top of my head,
the advanced one is more variable from month to month so they generally don’t do that but what they do if you’re a statistician is they have an uncertainty factor that they,
show you for each number so you can kind of like you can see when the uncertainty factors are high because they have a smaller sample set that month for example.

Scot:
[9:23] Is it always the same stores or is it very.

Jason:
[9:26] No it could like so you know a store again could just like the guy responsible for filling out the survey could just miss a month.

Scot:
[9:35] Does Jeff Bezos fill out the survey for Amazon.

Jason:
[9:38] Yeah and that’s a so you could imagine and the US Census people are trying really hard to get they worked really hard and this is a super valuable service that they provide say for free we all pay for it through a tax as,
the you can imagine that who feels responsible for filling out this survey.
While the impact how they interpret the questions and respond to them right and even though like some of these are like legal requirements.
You can imagine that people imperfectly respond and if you’re a small business and you imperfectly respond you can imagine that no one’s going to get around to enforcing that right and then so to make the data more accurate they sometimes.
Proactively fill in data when they don’t get data right so if Walmart doesn’t report they might go ask Walmart for the data but if you know Joe’s Star Wars memorabilia doesn’t report they’re obviously not gonna.

[10:35] Proactively go get that so they do their best to make it accurate they have very valid mathematical model that they’re pretty transparent about if you’re into that sort of thing but my big plea is.
Just.
Understand what you’re looking at the advanced look the monthly look there’s another called the quarterly that we’ll talk about in a second understand whether it’s seasonally adjusted for inflation sometimes the inflation adjustment they call the real.
Retail sales which is annoying,
and then if it’s you’re going to see it in one of two ways it’s either going to be a percent or it’s going to be dollars if it’s dollars it’s the sales they think that happened that month.
If it’s a percent it’s that’s the percent change and then the next thing you have to know is are they talking about month-over-month change or year-over-year change right so.
We just got the July data in the advanced report.
Is that percent from June to July or is that percent from July 2019 to July 20 20 and side note.
The month-over-month is almost never useful or relevant in retail.

Scot:
[11:45] Yeah yeah I gotta look at your.

Jason:
[11:46] So lots of people report month-over-month I could care lest its really hard to accurately seasonally adjust for a single month.
Like you can seasonally adjusted over the course of a year but you could make the numbers really say whatever you want if you start messing around with trying to compare month-over-month and Retail so way more valid number is that.
That year-over-year number and it also someone posted an awesome graphic that I’ll try to put in the show notes this is.
A version of this comes up in covid right now right and so you know people will publish like month-over-month testing to show or month-over-month negatives to show how well we’re doing.
And so someone took a baseball box score and posted it inning over inuk and.

[12:29] One team won the game 10 to nothing but in the inning over inning stats it looked like a tie right because they each had one good inning but the,
the one good ending for the one team was wildly different than for the other team I’m not explaining that very well but anyway all of this data is free it’s all available on the US Census website I’ll put a link to it in the show notes
so you can download it you can read a PDF where they try to analyze it for you and they do a pretty good job,
you can download an Excel file if you want all of these slices you’ll have to download a bunch of files they have an API you can exercise if you want to,
pull the data yourself and they do even have like a pretty good interactive charting tool so you can kind of.
Click the options you want pull a data set and then graph it visually all.

[13:17] On the free census.gov website so I’ll put a link to that.
There are other tools you can use to pull the data there is a the st. Louis fed has have this really good website that they call Fred and Fred is an acronym for something,
but they pull a bunch of public data sources one of which is this US Census Bureau
so they have like a free reporting tool that uses that API and it lets you slice and dice the data.
I use a commercial tool called ycharts which is you have to pay for it but it lets you slice and dice the data pretty quickly and easily and then Google has a really advanced,
data visualization tool and they will the data in the Google which is cool,
the one bomber is the Google tool is not real time so if you want to slice and dice it the morning the data comes out.
Like it’s probably going to be a week or two before the data makes it to Google and I don’t know why that is it seems like Google should be able to get real-time data from the API.
So lots of ways to slice and dice the data the data is super useful I promise I’m going to shut up in just a second and talk about what the data is telling us right now which is super fascinating but there’s one other US Census report that people should know about,
so I mentioned that that non-store sales in these monthly products is not a very good surrogate for e-commerce even though a lot of people.
We’ll wrongly just call it an e-commerce number and.

[14:41] It’s a separate category so they’re showing non-store sales is a different category than department stores is a different category from sporting goods and you may say but Jason,
there’s e-commerce sales in sporting goods and department stores and I would say gosh you’re right Scott it would be great if they if they pivoted the data and showed the e-commerce data for each category.
And so the good news is about a year ago the US Census Bureau started trying to do that they said in addition to these two monthly reports.
On a quarterly basis we’re going to try to more accurately report just e-commerce sales without the auctions and these other things in them and we’re going to try to report it on a.

[15:23] E-commerce on a category by category basis and we’re going to try to include,
the sales fulfilled from stores and the sales fulfilled from a fulfillment center so we have imperfect data the law doesn’t require people to report everything we need to report that but we’re going to do our best to
do this experimental quarterly e-commerce report and so we now have received four of those,
quarterly e-commerce reports the most recent one of which came out yesterday,
so it’ll be three months before the next one and so in addition to this monthly data we also get this quarterly e-commerce report and,
you know somewhat annoyingly you can’t compare the monthly non-store sales number to the quarterly e-commerce number because they’re both a different time period and a different measurement methodology of that make sense.

[16:15] So now you know about all the products and you know about some tools you could use to get them right so.
Here’s why I’ve been excited about the data it you know it’s one of our best real-time reads on how covid is affecting,
the retail economy you’ll recall we did a show a couple months ago,
and we had a spirited debate about what shape the recovery would take you were an optimist and said it would be v-shaped and I think I said it would be kind of check mark shaped or swoosh shape,
that would dip very bad and then it would take a more gradual time to recover.

Scot:
[16:49] Five years I think you said 2030.

Jason:
[16:50] Yeah yeah I’m not sure I put a Time Horizon on it but I said it would not be symmetric,
to be honest people have been misusing this monthly data to sort of make both cases and so it’s been so I the the monthly data for June the advanced monthly data for July came out late last week,
I pulled it off and tried to do some processing and so by processing what I mean is there are certain categories that we don’t think are.
R
normally associated with retail so I took automobiles out I took restaurants and bars out which are in a lot of the,
the US Census bureau’s definitions of retail they often call it retail and food service for example and it’s not going to shock you but like.

[17:38] Automobile sales were one of the most impacted by covid at least for a short period of time and restaurants and bars have been the most impacted by covid for a very long period of time so when you look at the numbers with those in.
It looks like covid had a very severe effect on on retail in fact it makes it look like we had the deepest dip we’ve ever had and that it’s lasting a fairly long time because.
We still have a big huge dip in restaurants and bars for example but so when I pull all of that out and I just look at what I’m going to call Core retail so us,
Commerce is definition of retail – Automotive gas,
and restaurants and bars but other but including other food like grocery the numbers are way better than your hearing from a lot of sources and they frankly like.
To me demonstrate pretty clearly that retail has had a very v-shaped recovery.
Which is annoying because it means that you were right but like most people I’m thrilled that you were right since you were the The Optimist.

Scot:
[18:49] I’m grinning ear-to-ear I’ve got my Cheshire Cat grin on right now if you can’t see me.

Jason:
[18:53] Yeah but so on this core number which again is adjacent calculated number it doesn’t the u.s. you can’t just download this,
there was only one month where year-over-year sales were negative in April year-over-year sales were down six points,
12% which is the deepest decline since they started recording this so that’s a very deep recession but the month before that,
sales were up,
6.75% and the month after that sales were up 3.1 7% and to put things in perspective the historical average over the last 30 years is that the sales tend to be up between three and a half and four percent every month.
The year-over-year data on average retail grows at about three and a half or 3.75 percent
the month before April the March number was abnormally large number and the main number was back to normal and then June and July have been way above normal they meant eight percent in June and,
eight point six percent in July so we had a historic low but it was only for one month,
and I said well gosh we talked a lot about the 2008 recession what did that look like.
Then Peak was almost exactly the same we were down 6.02 percent so we bear covid barely beat the 2008 recession but for all intensive purposes.
We’ll call them the same depth but in 2008 we were negative for 15 straight months.

[20:20] Covid unless we have a new a new industry emergence we were only down for one month so this is a wildly.
Fast recovery / v-shaped recovery for retail which is.
Generally great news we’re going to talk about that through another lens of all these earning reports in a minute like that being said there are clear winners and losers and there are categories that have been absolutely blitzed.
By this and and haven’t quickly quickly recovered right and so you know people still aren’t buying gas people you know still aren’t going to bars and restaurants department stores are still down 13% like people haven’t they peaked it down 50%
and they’re still at- 13 percent right so there are some clear losers in here but
you know when you roll it all up and you kind of create the synthesized core retail number it’s actually a much better story than what I think you’re generally Hearing in the mainstream sort of retail press.
Does that surprise you Scott or is that.

Scot:
[21:25] It doesn’t I has got it predicted I’m excited that the data shows what what it kind of felt like from the the cheap seats.

Jason:
[21:34] So one last thing then so then this quarterly e-commerce number it came out yesterday and the key thing to take away from that is in Q2 so.
April May June of 2020,
e-commerce sales as counted by the US Department of Commerce the US Census Bureau was up 44.4% year-over-year so cue to 2019 of Q2 2020.
44.5% so.
A historically High increase in e-commerce which should shock no one a bunch of stores were closed and out of convenience a bunch of people.
People extra people wanted to flock to e-commerce so it’s not shocking that it’s a huge number.

Scot:
[22:21] Prior to that we were kind of at a there at like a 12 to 15 kind of like comscore and all those other guys is that is that right.

Jason:
[22:27] Yeah so close call yeah so generally call it like 15 percent so very healthy quarter for comparison using the same data set at the same time retail was down 3.4% for that quarter.
So that’s where the peak of that dip happened and so you know at a time when retail lost ground e-commerce tripled down.
And based on the u.s. departments definition of retail which does include things like Automobiles and gas.
That the e-commerce sales represented 15.1 percent of all retail so.
Dramatically like I think q1 might have been like 12 percent if memory serves so 15% e-commerce penetration is good but a lot of people quickly look at that 15% and say,
huh I feel like I’ve seen a McKinsey report that said 36 percent of all retail sales were e-commerce during covid-19.
What the heck like why is this number so much you love her and a bunch of contrarians like use this data to say like oh all the people saying that like e-commerce you know got jump-started by 10 years from covid are full of it.
You know fifteen percent is kind of a nothing Burger.

[23:48] And and so again the devil is in the details it’s it all depends on your definition of retail so we just talked about like gases in that number which there’s very little e-commerce sales for gas there’s a little bit,
if you go back to Jason spreadsheet for core retail then about 20 we peaked at about 26 percent of core retail was e-commerce during covid so.

[24:12] More healthy and if you use Foresters definition of retail and their data which is what this this popular Mackenzie chart used.
Forester has the most digitally friendly definition of retail so they include things like.
Pay-per-view video ticket and event sales which I know those are not very much right now but normally they’re you know meaningful number and all the apps purchased from the App Store and you know tickets,
video downloads and apps are a hundred percent e-commerce right so,
when you add three healthy size categories that are a hundred percent e-commerce it’s going to juice that number right so the,
so Jason’s core number of 25 to 26 percent,
using that Forester methodology starts to feel like 31 to 35 percent they’re actually all based on the same data it just matters what your including or excluding from your.
Your definition of retail and I would highly encourage everyone to remember that these are all wildly imperfect numbers with wildly imperfect methodologies for collecting them so they’re interesting from a directional standpoint but I.
I certainly wouldn’t take any of these numbers to the bank which is why in some cases I’m talking about ranges.

Scot:
[25:28] Cool thanks for a I got in a Twitter battle with someone in that makes sense now.

Jason:
[25:33] Awesome yeah so we’ll post some of this hopefully that clarifies it a little bit I know it’s kind of hard to follow on a podcast sometimes,
but when you understand that it’s super interesting and so my big takeaway
man retails doing better than we feared and there is like pretty valid evidence that not like not shocking but e-commerce was the huge star that that you know contributed meaningfully to that,
that recovery.

Scot:
[26:00] Again it’s helpful to kind of so we’ve been talking about earnings and we’re going to cover a bunch here in a minute and it’s kind of.
It’s helpful to have this this Baseline so the you know the way I think about it is the.
The water level is 44.4% and you’re if you’re above that in your taking share of online and if you’re below that then you’re losing share right so,
so it may have felt good to have a 30% growth in your e-commerce business but actually that was not good enough to effectively lost share if you may be in Prior quarters you were losing share but if you were,
you know that felt good coming off maybe 15 but you actually if you weren’t north of 44 you actually lost share which is which is interesting.

Jason:
[26:42] Yeah and even more nefarious there’s a bunch of small specialty retailers that normally grew their e-commerce by like 10% quarter,
and this quarter they grew it by 30% and so what they reported is we tripled our e-commerce growth we’re killing it.
We went from 10 to 30 percent but prettier point the whole Market went 44 percent so you actually like gate wash are and underperformed the market.
But it doesn’t sound like that when you say you tripled your e-commerce growth.

Scot:
[27:16] Cool let’s jump into so that’s a good macro review let’s jump into some earnings the two big ones are Walmart and Target and I know those are near and dear to your heart so why don’t you walk us through what they reveal.

Jason:
[27:28] Yeah I will spoiler alert it it was the greatest quarter in the history of Walmart and Target so it was pretty phenomenal so at what.

Scot:
[27:39] Turns out when the government shuts down your competitors and keeps you open it’s good.

Jason:
[27:44] Yeah and when they send a bunch of money at all your customers it’s,
it’s super helpful so sin all your customers a big check scare the bejesus out of everyone that they’re you know that everything’s going to shut down and they’re not going to be able to buy food next month and then close all your competitors,
life can be good and it was so so Revenue at Walmart for the quarter was up 7.6%.
Way more importantly so that’s like sort of comp sales was up 7.6% normally you know Walmart’s been performing really well and it’s like 4% or something so so 7.6 is a big number,
super interestingly and importantly gross profit was meaningfully up at both so sort of gross profit hit like about 25% for Walmart which was.
Like a 63 basis points so that’s like it’s hard to move the profitability number and we’ll talk more about that in a minute,
in the u.s. comp sales which is Walmart’s most robust Market come sales were up 9.3% and e-commerce was up 97% so per our test before,
the market was up 50 porpoise 4% Walmart’s e-commerce was up 97% and Walmart’s been outperforming the market for.

[29:02] I think now like 9 or 10 consecutive quarters and this is obviously by far the biggest number.
So so that’s a monster quarter across the board in that profitability is particularly important because.

[29:15] Historically and it was certainly too in q1 of this year a bunch of sales transition from the stores to e-commerce
and the story on e-commerce was that it was wildly less profitable than stores and so the gross profit goes down when the mix shifts to e-commerce,
and gross profit also goes down when the myth shifts to these essential food items that people tended to by the beginning of covid so in cute,
to for-profit to go up at the same time the e-commerce went up so much is really indicative of Walmart and others.
Being able to operationalize their e-commerce scale and get profitable thing in e-commerce which is something a lot of people speculated they would never be able to do and they kind of demonstrated it,
this quarter now part of that is.

[30:07] Fewer people bought stuff there were less transactions transactions at Walmart in-store and online were down 14 percent.
But basket size was up 27% and so what’s going on there is,
when every visit to the store feels like a health risk and could potentially get you sick you want to make as few visits as possible so you consolidate trips you go less often and you buy more stuff.

[30:32] And that behavior contributed to all these good results but it also significantly contributed to the profitability if that becomes a permanent Behavior,
that’s a very favorable trend for Walmart the,
Debbie Downer on Walmart stock after like just reporting and all these were way wildly above expectations the analyst totally missed how good a quarter retail was going to have by the way,
so so huge beat huge his numbers of all time at Walmart it’s all green lights except,
the Walmart get you know is giving no guidance for the future and they’re saying like we’re really concerned about the near future we don’t know what’s going to happen we’re particularly concerned about Q4,
and we feel like a lot of our results were the beneficiary of a lot of government subsidies that have now ended and it’s not clear whether they’re going.
To resume or not and so they’re the kind of story here is retail had a v-shaped recovery but Walmart and other retailers are very worried that the consumer has not had a v-shaped recovery,
and that could impact Walmart in the form of a very soft holiday and we’re already in the,
the very first throws of holiday in this back-to-school period in the early indications are that people are being conservative and not spending and and Walmart talked about the fact that.

[31:52] You know when parents aren’t sure if their kids are going back to school in person or not they were much more conservative with their spending so that’s the one Debbie Downer and all this is the sort of concern for the future.

Scot:
[32:03] Did they opine on back to school or even start reading the tea leaves on holiday.

Jason:
[32:07] They did so they like said that it’s been a very unusual back to school and that that spending has been slower for back-to-school and they explicitly said that they’re worried about holiday.
And they mostly like just joked that they don’t know and can’t predict like an analyst ask them a question,
and Doug mcmillon answered like we’re laughing because we’re looking at each other and we were hoping you could tell us what’s going to happen and Q4 because we have no idea.
So the you know they’re not giving guidance they don’t know but they are worried that they’d been the beneficiary of a bunch of you know consumers that were artificially bolstered by federal programs,
and that that gravy train is potentially not going to continue and so their word what that could mean in terms of tightening of belts of their core consumer and the story Target was pretty similar also,
their best quarter ever their Q2 comps were up 24.3% same-store sales were up 10.9%,
and their e-commerce crushed it even more e-commerce was up a hundred and ninety-five percent and one thing I always like to remind people about with targets e-commerce and this was more acutely true this time.

[33:21] The overwhelming majority of all Targets e-commerce orders get fulfilled from their stores so they do ship from stores they have a system to ship products from every store,
they do a lot of curbside pickup via they’re shipped acquisition and they do a lot of home delivery from the stores which is all e-commerce,
via ship and so this quarter they said hey 75% of all our e-commerce was fulfilled from the stores,
and so just a thing to think about this wildly different between Walmart and Target,
Walmart is trying to be an everything store in so you know 40 million items mostly ship from fulfillment centers and from their Marketplace Partners which is increasingly important part of their business,
Target is mostly trying to sell the stuff that they have on the shelves in the store and so they’re very different approaches.

[34:08] The target approach helps profitability a lot Target was a classic example of they had great sales in q1 but poor profitability and so in Q2
again their profitability was way up,
thirty percent for the quarter year over year and there what was particularly fast runner was same day services so ordering stuff online and either picking it up that day or having it delivered that day,
so same day services at Target were up two hundred and seventy three percent,
which debunks a lot of people that are like customers don’t really want stuff that fast and then one other Jewel that came out of targets earnings was that,
a new brand that we’ve talked about a store brand and I frequently talk about Target being one of the best product brand builders in all of retailgeek,
they wants a new food brand in September of 2019 called good and gather and they announced that the last quarter it that brand surpassed a billion dollars in sales.

[35:05] So that’s phenomenal to be able to launch a new brand and sell a billion dollars in the in the first nine months and I pointed out on Twitter and maybe even started a little Twitter feud.
That you know no cpg or D2 C has been able to duplicate that kind of success in that.
Spurred all kinds of good dialogue and a couple of sort of personal attacks but it is what it is.

Scot:
[35:27] Yell at people get really hung up on definitions around these thinks it’s kind of funny.

Jason:
[35:33] Yeah yeah I mean that like any of these models can be successful in their examples of success at all of them they can also fail like.
People look you know looked at my good and gather number and they’re like oh well yeah it’s easy for a retailer like they have all this traffic and all this audience built right in and I’m like yeah but you don’t say that when they’re that the store brand of shoes way underperforms Nike or when,
the Best Buy brand of cables doesn’t sell as well as Monster Cables or you know stuff like,
Brands beat store brands all the time so it’s not a given that a store can launch a brand,
and frankly there’s a bunch of stores out there that are desperately trying to launch Brands and not having any success so I feel like you got to give your props to Target that’s that has a very consistent track record of doing it really well.

Scot:
[36:18] Yeah and then you know the thing I know you hit on this but I just want to put a kind of fine point on this is,
so these guys so so the brick-and-mortar guys that have online that had this weird thing whereas as e-commerce has increased its hurt their profitability.
We didn’t see that this time do you have a theory on why that is.

Jason:
[36:39] Yeah it’s so it’s a combination the the I think there is proof in these numbers that they are able to leverage volume to be more efficient so when they get more orders as these numbers grow,
they are being able to be more efficient which improves profitability they also the the.
The shift the reduction in transition in the increase in basket size is very favorable to eat to profitability right so you put,
you know you ship fewer boxes and put more stuff in each box and e-commerce that’s cheaper like you you pick more items per order and and have fewer you know separate picking sessions.
That’s cheaper and then particularly in the case of Target when you’re mostly fulfilling this stuff same day.

[37:28] That’s actually cheaper a Target charges money for that so they make money on it,
but then be there they’re not paying shipping costs on all this stuff and they’re not paying separate Warehouse cost sent like these are all like items that are sitting on the target shelf and they’re selling the someone the e-commerce but they’re fulfilling it
you know much like they would in the store so a combination of all those things I think are helping profitability but my big takeaway from those two retailers is,
that there is a future where a very significant portion of their sales are digital and they are able to be profitable there and I actually think that’s bad news,
for a bunch of slightly smaller retailers that have not proven they can be able to be profitable because if these guys give a few big players get over the hump and get profitable in the rest of the industry doesn’t,
it’s just another differentiator that causes the the rich to get richer and sort of opens up a bigger gap on the competition.

Scot:
[38:25] Yet it could also.
Yesterday you can see these guys going to investors and saying hey we’ve proven we can get this profitable now we’re going to go through a an investment phase
and really start to kind of shoot it Amazon they’re so far away they would never get there but you know you could see this emboldening kind of Target and Walmart specifically.
To really kind of double down on this and kind of know the model now and take a much bigger swing it catching up with Amazon it’ll be interesting to see if that’s kind of a 2021 theme that we see.

Jason:
[38:57] For sure and one area where it’s totally clear that’s going to happen is grocery because that is a place where they can catch Amazon right like Amazon’s arguably already behind Walmart and grocery Target,
has aspirations and grocery but hasn’t been super strong but that’s an area where like for sure you’ll see them invest because that that is a white space that you know Amazon still struggling to win as well.

Scot:
[39:19] Did you sew so previously you had kind of suggested that Walmart was kind of making a lot of their bombers numbers by rolling out grocery and more places specifically the curbside pickup,
is there any breakdown you’ve seen of was that.

Jason:
[39:35] They did and it was unhelpful because it was all so awesome so so historically like a lot of e-commerce growth has come from grocery
it appears this quarter like the e-commerce gross growth was was distributed much broader across all categories so grocery was up and you know up significantly
but general merchandise was also up more significantly and so the the mix had shifted to a more
profitable broader basket of,
e-commerce sales and even apparel which is like the big dog and all of this like and by dog I mean the worst-performing category even apparel was up at Walmart and Target which was not the case in q1.

Scot:
[40:20] It’s all of us that have gained our covid-19 pounds needing some sweatpants.

Jason:
[40:24] Exactly you need sweatpants either way but yeah for sure like a few people are writing the Peloton everyday and need a smaller sweatpants and a bunch of people are enjoying more cheesecake and need bigger sweatpants.

Scot:
[40:36] Yeah and curbside groceries boom put that cheesecake right in my trunk.

Jason:
[40:41] Yeah so another category of retail that seems like they’re doing really well and covid is the Home Improvement guys.

Scot:
[40:48] Yeah yeah let’s so Home Depot also announced their revenue total revenue was up 23% same store sales 25%.
And not to be outdone their e-commerce was up a hundred percent and they announced 60 percent buy online pick up in store,
so these guys have really gotten some religion around this and and you know you’re seeing really material but this numbers which is interesting.
All solos and another macro trend is one of the guests we’ve had on the show calls it hooning were since we’ve all been in our homes here for so long due to covid-19.
A lot of people are kind of looking around and saying you know it’s time for me to patch that hole in my wall that I had there for six months in my office and I wasn’t spending time in my office and I’m actually looking at a hole that needs to be patched.
So I think that’s part of this cyclical thing in addition to covid is for our because they’re spending so much time at home they’re investing in Home Improvement.
So not impaired loans also came out Lowe’s Home Improvement and their their sales were up 35 percent overall and their e-commerce was a hundred thirty five percent.
So just some amazing numbers coming out of those retailers as well.

Jason:
[42:02] Yeah yeah good time to be in those categories and they tend to be both pissed because a lot of their products are harder to ship and so again like Target they tend to mostly sell the store inventory.

Scot:
[42:11] Yeah that is a feast or famine so that was the feast and what was over on the famine side.

Jason:
[42:18] So I mentioned apparel right so that’s been the tough category,
Cole’s this is interesting right Cole’s had a net sales decrease now they were there non-essential and they were forced to close for for portion of the quarter.
So their net sales were down almost 23% 22.9% which was actually better than the analysts estimated right so the analysts were expecting really gloomy Corridor and.
Cause cause we lost money but they was less than analysts were expecting
and then they came out and said but we’re not even going to tell you what our same-store sales are was because it’s so messed up from covid and all these store closings which that was a big red flag to analysts and their their stock
really took a dive and then next to them was TJ Maxx reporting and TJ Maxx is interesting because while all of apparel is struggling.
TJ Maxx is one of the retailers that you generally talked about as being better situated because they’re so value-oriented they,
you know in theory of consumers are more concerned about the economy and they’re spending less than you know more of their wallet should go to TJ Maxx and in the past they’ve been more resilient to dips in the apparel Market than other retailers.
They came in at 6.67 billion for the quarter versus like almost 10 billion last quarter so they they lost two hundred million dollars on the quarter and.

[43:46] A couple of interesting things there they said by the way same-store sales are going to drop 10 to 20% next quarter,
and one of the things we’ve seen is briefly when the store is reopened we had a big spike and people a bunch of pundits were talking about this that that you know
as soon as T.J.Maxx open they filled back up so you know all this is coming back quickly for example and you know I think you shared some viral pictures of it
full TJ Maxx they kind of said that like we’ve really seen our traffic Wayne after you know a sorts a short surge after they open and so.
I think if the strong apparel retailers are issuing warnings like that and having performance like that it really bodes poorly,
for the entire apparel category in the fact that,
Target and Walmart we’re kind of up and apparel people are consolidating trips like being a specialty apparel retailer just really sucks right now and the worst thing in the world is to be a specialty apparel retailer in a mall.

Scot:
[44:45] Yeah the one exception that was Lululemon I don’t have their quarterly numbers handy but you know I think people are kind of like if I’m going to be stuck at home I might as well get me some yoga pants so I know you.

Jason:
[44:54] They also just happen to have some weird gravity-defying magic juice.
Um which yeah more props to them I don’t I don’t remember their numbers off hand but they’re yeah they’re total outlier and you know I had to go to a mall last weekend and get my phone fixed my iPhone I unfortunately drop,
and yeah most of the stores are closed stores there were clothes had no one in them and then there’s a line of 20 people waiting to get into the Lululemon and the Apple Store.

Scot:
[45:21] Are Apple stores aren’t even open set.

Jason:
[45:22] Ah yeah that would have been a bummer with my broken phone.

Scot:
[45:26] Yeah he would have had a week cook well this is a so now we’re kind of at this part in the quarterly reporting where we can put together a sort of a leaderboard,
so let me start at the bottom here so
eBay had a really good showing at 26% prior to that they were they were significantly below e-commerce so e-commerce was at 15% preak Ovid and eBay was kind of one or two points on their GMB growth.
I’m so here now again we have this this Watermark of 44 and a half percent so eBay didn’t quite get there but definitely you know surprised a lot of folks with how well they did.
And then if we take Amazon I would say Amazon was in line so Amazon grew 41 percent overall but chapter remember a good forty to fifty percent of their business is international if we just look at the u.s. it was 44 percent which.

[46:17] To me gives Credence to the US Census number if Amazon was way out of bounds with that because they are such a large part of prestige of e-commerce,
it would make you can’t scratch your head and go what was that and then inside of Amazon the third party which I care the most about group 53 percent so,
a little bit faster than e-commerce.
The walking up that that tree the next one is a big step up so now we have 44 and a half which is kind of the where the tide is.
And then effectively double their rate you have Shopify and Walmart tied at 97% e-commerce growth.
And then just above that Home Depot at a hundred percent and then we get into the rarefied air so we now have lows at a hundred and thirty-five percent.

[47:04] So we’re fat of if we’re at a base of 44 and they did 135 that’s a easily a 3X,
and then A step above that is Etsy at 147 and Etsy had this huge win because they have all these makers that make masks so,
when masks became mandatory everyone was tired of wearing the boring you know pale blue surgical mask and a lot of people want to statement on their masks or have a themed mask or a branded mask,
Star Wars yes or whatnot that really benefitted Etsy so they were up a hundred and forty seven percent,
and then at the very tippy top of this leaderboard we have Target at a hundred ninety-five percent overall e-commerce but then if we if we kind of peel out the same day at three hundred percent and I’m sure that’s from a small base but still,
it’s really interesting to see how all these things compare.

Jason:
[47:56] Yeah it’s amazing I mean this you know I I think all of this
illustrates that yeah we have had a huge shift to e-commerce I think I think it’s kind of undeniable when you look at these numbers in totality.
It’ll be interesting to see how much of it sticks like what revert as people go back to their old habits if they ever do or or are they you know permanently more digital shoppers.

Scot:
[48:20] One of the things and this my information on this is three or four years old one of the things I would always hear it retailers is that the store people would always say,
yeah e-commerce is strategic and important but it’s really only like three stores and we’ve got 3000 you know it’s always compared,
you know it’s always a small percent of their overall business do you think this will change that or has have people already kind of gotten over the hump on them.

Jason:
[48:43] Oh no I think it totally has I’ve talked to a bunch of like,
head digital people at retails and they all tell the same funny story that like when they were recruited for their job they were told how important digital was to to the retailer and,
how Central and strategic it was and you’re going to be on the CEOs of leadership team and and like the joke was that was the last day you saw the CEO was in the recruiting trip right like you took the job you went there and then per your point you found out.
That everybody’s focused on their Core Business and they all looked at e-commerce as the redheaded stepchild and since covid has happened,
the CEO has been sitting in all of their offices right like they’re suddenly invited all the meetings like what investments do we need to be making what do we need to do to stay ahead of the competition like the
the conversations have gotten much more real at all of these retail stores and.
I guess that’s the positive the negative has been you know we talked about historically,
that business hasn’t been super profitable and retailers have also been pretty tolerant of that they’ve just been trying to capture growth and not worry about profitability,
but now it seems like retailers and Leadership teams are a lot more focused on the profitability of that those sales as well you got to take the good with the bad there.

Scot:
[49:59] Cool so that’s that’s kind of our quarterly report and a really good look at what covid has done to e-commerce what other news do you want to talk about.

Jason:
[50:09] Yeah there’s a few things that were interesting to me so,
Simon Malls concluded their acquisition of Brooks brother so Brooks Brothers is one of many.
Bankrupt retailers and this this entity called spark which is a partnership of authentic Brands and Simon Malls,
Bob them out of bankruptcy and they’ve done this a few times before they previously had Boston Aeropostale Forever 21 Lucky Brand earlier this year,
and you know it’s always interesting some people are like oh you know are they going to be a good retail operator there competing with other tenants you know which kind of is the the complaint people make against Amazon as well,
so ironic that is happening in brick-and-mortar if the independent team couldn’t make Brooks Brothers work how is how a spark going to make them work it’s you know they’re all these different.
Perspectives that to me.

[51:03] These these Acquisitions seem like they’ve been super safe spark is buying these on fire sale prices so they’re basically paying less for the retailer than the value of the inventory in the retailer stores.
So
if they are totally unsuccessful at running the brand or getting any value out of the brand they could just liquidate the inventory and be made whole and in Simon’s case they’re protecting a bunch of rent right like they you know wow as long as these retailers are growing concerns.
They pay rent assignment if they close,
they don’t pay rent and worse that triggers Co tenancy caught Clauses with other tenants that will then want to negotiate and get out of their leases so for a variety of reasons this seems like a pretty safe.
Strategy and I think they’ve said they have a bigger pool of money if there are other good Bargains to be had and that leads me to my second news item.
One of the big rumors is the next one that they’re they’re contemplating buying is a much larger one it’s JCPenney out of bankruptcy.

[52:02] In the the argument would be the same,
that would be a much bigger acquisition because there’s just more inventory more Book value but so their spark is rumored to be one of the bidders on JCPenney the other bidder that I’m curious if you have a position on Scott is,
there’s been a lot of rumors that Amazon is looking to buy JCPenney stores not to run them but to turn them into many fulfillment centers,
in the mall that in the theory is Amazon just needs more space,
this is going to be cheap space and there have been a bunch of pundits that have talked about oh this is super smart and Amazon’s for sure going to do this and,
turning them all into a mixed-use thing that’s both doing like fulfillment and you know they could have curbside pickup at the mall and all these things like there’s been a lot of talk about.

[52:49] That being a potential good fit and so at the moment the two big suitors that are rumored for JCPenney are the Simon spark entity and Amazon and I heard just today that the judge
called all the parties in the bankruptcy judge for JCPenney called all the parties in and kind of scolded them and said hey this is taking way too long,
you guys are to dug in like you need to come up with a solution here to resolve this quickly.

Scot:
[53:15] Yeah it on the surface youth can say well that doesn’t make sense you know malls aren’t designed to be fulfillment centers,
but here’s what’s happened for the first time ever that’s really interesting is so you have you have three commercial real estate markets you have Office Space,
warehouse space and then retail and for forever retail was orders of magnitude above like 3 to 4X,
warehouse warehouse was the cheapest and just kind of put some numbers on it,
let’s just use ten dollars a square foot a year for warehouse and then 3244 retail then office park depending on the tier of it was class A B or C was kind of in the middle there so maybe like 15 dollars a square foot.

[53:59] So for the first time all that has inverted so warehouse space is now more like 20 square foot because supply and demand is kicked in if you remember your economics there is a huge demand for warehouse space now because,
you know Walmart and Target all these guys we just talked about growing a hundred percent they have a newfound desire and appetite for a lot of warehouse space,
all those merchants on Shopify etcetera,
office space obviously is in a huge decline right now and then so a small retail so for the first time those lines have crossed and it’s not inconceivable,
that now you could you know Amazon could be looking at you know 25 for existing warehouse and retail space at 15.
And that Delta’s enough where you could say you know I could take that JCPenney box and.

[54:52] Essentially do some up fit put in my loading docks on one side you know they like these kind of.

[54:59] Double sided cross docked kind of things product comes in one side and then goes out estimates on the other side.
It’s not inconceivable that the math actually makes sense from a building perspective.
Now there’s there’s some Logistics you know so a lot of these things are in heavy traffic centers so that’s going to be hard to have you know 18-wheelers coming in and out and some of that,
but those stores were supplied by 18 wheelers and they do have some loading docks they’re gonna need a lot more,
so I think it is a thing that Amazon would you know the economics actually make sense but literally six months ago it would make no sense.

Jason:
[55:35] Yeah I think the economics potential can make sense but I still think it’s overhyped I don’t think it’s going to happen and I should say I’m sure Amazon will end up owning some,
former JCPenney’s locations Amazon already owns a couple of malls that’s converted in a fulfillment center so.
Could that happen again yes is Amazon buying a ton of space and are they going to go kick the tires on any.
Any potential space sure like they have 200 million square feet of space in the US and they’ve already announced building plans for another hundred million so they’re big leasers and for your point.
The the price for that retail space is way lower than it used to be but I think the logistics is a bigger problem I think whenever Amazon opens a fulfillment center there’s a huge.
Controversy around the negative impact on traffic patterns around at right like in the volume of trucks just like destroys the area and I just I just don’t think apple and Amazon want to be competing,
with you know Apple having customers trying to drive to a store and Amazon having,
trucks trying to get in and out it just doesn’t make that much sense so I I think Amazon’s really good at kicking the tires on any deal and I’m sure they have had some conversation but I think it’s gone people whipped up into a lather a little bit too much.

Scot:
[56:48] Yeah and last topic I know we’re tight on time but we’re sitting here in August and we wouldn’t be in the retail world if we didn’t start thinking about holiday,
Halloween is right around the corner we got Prime day coming in October with and then the holiday what are you hearing from holidays you parse through all these comments from retailers.

Jason:
[57:07] Yeah so I unfortunately would have to say that retailers are mostly,
pessimistic about this holiday the again desperately want to be wrong and there’s more uncertainty than there’s ever been before and so I think retailers are allowing for the fact that they could be pleasantly surprised.
But there is kind of a perfect storm of negative things I think retailers are really concerned that that.
We have not seen the bottom yet of the economic circumstance for consumers and so all those Federal programs kind of.
You know bolstered a bunch of people you know we still have like way more people unemployed than,
traditional like we have three times as many people unemployed as we did in February before this all started and you know a ton of the safety net is going away for all those people so retailers are concerned about their consumers health,
or their consumers Financial Health,
in some parts of the country there still are huge health concerns that varies wildly from state to state and that is keeping a lot of people away as all of these sales shift to e-commerce,
we are running into huge capacity problems with shipping for e-commerce right so we’re the all the e-commerce numbers you just talked about Scott that basically has all the logistics companies in the United States running at holiday levels now,
and so if there’s incremental spending for Holiday there just isn’t going to be capacity to deliver it right and so you know what.

[58:35] You know suppliers doing a when there’s a constrained Supply and greater demand they increase prices and so the United States Post Office FedEx and UPS have all announced,
like the largest surges for holiday they ever have in their making customers sign up for there,
allotments of shipping now and they’re not letting particularly smaller retailers that don’t have leverage their not what giving them all the capacity that they ask for so a bunch of retailers are going to be artificially constrained on how much they can ship.
And then you know,
God forbid something bad happens to the u.s. post office between now and then they’re the biggest facilitator of all that so that’s a big risk and then you know because of health concerns
a bunch of the occasions that consumers normally have around holiday.
Are not going to happen in the usual way so people are going to go to less parties they’re going to need to dress up for those parties less they’re going to give less gifts they’re not going to go trick-or-treating as much so people are going to buy less costumes,
they’re going to give away less candy there are all these ways in which you stack all that up and there’s the potential for a very soft holiday now,
there are things that could go well and change that but you know I think I think people are hoping for better bu