Food inflation rate to increase 3.5% to 4.5%

Food inflation is increasing this year.
This means that food manufacturers, grocers and big box retailers will have to find a way to “pass on” additional costs to cash strapped consumers.
Consumer preferences have changed for good as many households are still trading down to private label. Most grocers and food manufacturers are “sacrificing volumes for price increases”. So a consumer will now buy a smaller bottle of milk or cereal! Companies like Supervalu , Kroger and others have managed to pass along the 4% commodity price increase to consumers. It’s all about “speed & velocity” to move products. Right now the biggest sector that has to worry are the food manufacturers. Watch the gross margin # and inventory levels of WMT, TGT and other retailers who are dependent on “Everyday Low Prices”. Food Inflation to rise 3.5% to 4.5 %

E-Commerce will soon be #1 revenue driver for some discount and luxury retailers

Recent 2011 quarterly announcements show that Abecrombie and Fitch derived 11% of total revenue from online sales.

Gap got 9% of total sales online  and global retailer powerhouse H&M made $1b in sales online.

What does this mean for the broader discount, dept store and luxury retailers going forward?  It means that stores that haven’t made significant

capital investment in their .com businesses will be at a major competitive advantage starting Fall 2 and holiday season 2011.

Our estimates show us that the IPAD and more robust GPS (Shoppertrak, Foresquare) technologies will enable businesses to generate additional 5% –  10% sales online. This will lower operating margins as less square footage in stores will be the norm.

Additionally the all important gross margin will improve given the lost cost marketing campaigns that can

be done instead of costly broadcast and print campaigns.    The retail sector that will benefit the most will be discounters (Dollar, WMT, TGT, KOHLS and dept. stores (M, JCP and SHLD).

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WMT will end it’s negative same store sales comp by Fall 2 season.

Walmart recently announced that many competitors (TGT, Dollar Stores) are now trying to make them in pricing.

This puts Walmart at a major disadvantage as the (1) # the locations and  (2) price differential are it’s most competitive advantages.

Traffic, product mix and assortment are better at Walmart however apparel is still a major drag on earnings.

Will Back to School give walmart a much needed boost?  We think that electronics and grocery, wellness will be the catalyst.

We predict that walmart will have a positive +1 Same Store Comps driven by groceries and elctronics by the Fall 2 (October – November ) of 2011.

For more updates please check our blog Walmart WMT

 

Walmart is going back to basics to reverse same store sales decline

Wal-Mart details plans to reverse U.S. decline

What’s old is new!!  Discount retailers are all about traffic..traffic…traffic.  So Walmart is seeking to reverse seven straight quarters of same-store-sales declines at its U.S. namesake chain, Wal-Mart Stores Inc. that it’s expanding the number of items on its shelves, launching TV advertising and working with its suppliers to lower costs. The questions are how will this affect margins and EPS?  The urban store launch is not ready to affect EPS for the world’s largest retailer

Read our blog posts for more detail  www.57thstventures.com

WMT which was hurt by a previous strategy to narrow its product assortment, said it’s adding about 8,500 items, or 11%, to an average store.

The retail giant is returning so-called “heritage” products to its shelves in an effort to reverse declining U.S. same-store sales.

Fishing supplies, crafts and fabric are among items being added back to store shelves adding that the company is tailoring some merchandise to local demand, such as selling ice-fishing tools in markets like Minnesota.

BASICS

To make room for more items, Walmart U.S. is raising the height of its shelves and bringing back its so-called action alleys — or products in the center of busy aisles — which the company said has boosted comparable sales. Previously, the retailer had embarked on a remodeling campaign to lower shelf heights and de-clutter its aisles to make its stores more appealing to higher-income shoppers.

The company is now pitching its stores as a one-stop shop at a time when its low-income shoppers are facing rising prices for gasoline, food and possibly apparel.

Walmart has lost traction to its smaller rival Target Corp. (NYSE:TGT)   and dollar-store chains such as Dollar General Corp.(NYSE:DG)  and Family Dollar Stores Inc. (NYSE:FDO).

Walmart is also refocusing on its everyday low-price strategy after a previous move to cut prices temporarily on some items didn’t fare as well as expected.

As part of the low-price moves, the retailer said its store managers and product buyers will check on competitors’ prices more often. It also said it will match a lower advertised price even if customers don’t bring in a competitor’s advertisement, and it is training employees to make sure the simplified policy is implemented consistently across all stores.

About 80% of products like pasta, beverages and snacks have been added to its dry grocery aisles, and that will continue, the company said. In the next few months, the company plans to add to its fresh grocery and consumables aisles, including such items as paper towels, toilet paper and laundry detergent.

General-merchandise categories like electronics, sporting goods, apparel, fabrics/crafts and outdoor living will expand later this year, Wal-Mart said.

In March, Bill Simon, president and chief executive of the company’s biggest sales division, said he’s seen “an improving trend in business.” Read more comments from Walmart U.S. CEO.

Wal-Mart’s shares rose 0.6% to $52.86 in midday trading.

 

Social Media and B2B. How much EPS impact will it have on luxury, specialty and discount retailers?

Daily Deal have luxury segmentation strategy

LivingSocial heralded a new era last month when it offered a $10,000 coupon for a penthouse-suite package at San Francisco’s Fairmont hotel: Daily-deal sites are going upscale.

Smaller-ticket items  were a start ! Now  LivingSocial and its larger rival Groupon Inc. are pursuing buyers willing to spend hundreds or even thousands of dollars on travel and luxury goods.

The move upmarket is putting Groupon and LivingSocial on the same turf as travel companies such as Travelocity.com Inc. and Expedia Inc. (EXPE), as well as luxury sites like Gilt City. Daily- deal sites also are trying to grab more of the money heading to Amazon.com Inc. and other e-commerce stores. A typical daily- deal user pays $20 to $50 on the specials — far less than the average of $100 per transaction spent at online retailers

People move up and down between categories….

Offers from high-end hotel rooms, airfare discounts, cruise specials and wine tastings. In the future, Groupon and LivingSocial also may sell computers, air- conditioning tune-ups and golf lessons!!!  Who know

Groupon has already sold $499 Dutch bicycles and $2,000 Lasik surgery. LivingSocial’s Fairmont deal in February, which offered a 50 percent discount on a $20,000 suite and additional perks, was its most expensive deal ever. The promotion included a one-night stay at the hotel’s 6,000- square-foot penthouse and a one-day rental of a Maserati Quattroporte. LivingSocial, based in Washington, D.C., sold 115 coupons for the offer.

By moving into pricier deals, the sites are trying to reach a broader demographic. When it started in November 2008, Groupon was favored by urban college kids. Now it has more than 60 million subscribers in 42 countries, Solomon said. Most are 25 to 50, and many live in the suburbs, he said.

Groupon usually takes a 50 percent cut of the offer price, while LivingSocial collects 35 percent. That means big-ticket items can quickly rev up sales. At $10,000 a pop, the Fairmont deal generated $1.15 million for LivingSocial and the hotel.

Established Rivals

The challenge is competing with sites that already specialize in travel and luxury deals. Travelocity, Expedia and Orbitz Worldwide Inc. (OWW) offer discounts on hotel rooms, airfares and vacation packages. As Groupon and similar sites push into the market, they will probably sell about $267 million worth of hotel rooms in the U.S. this year That’s about 1 percent of total online hotel sales.

LivingSocial aims to gain an edge by touting elaborate excursions called Adventures.

Groupon, meanwhile, is expanding into airfare. In February, it offered a $7 voucher good for $77 worth of airfare for select flights from Virgin America. The company is working out special arrangements with partners, rather than taking its usual 50 percent,

The luxury-deals market already has a host of competitors ready to defend their turf. BloomSpot Inc., for instance, focuses on luxury restaurants, spas and weekend getaways, and averages $70 to $80 per offer.

Bloomingdale’s Versus Wal-Mart?

BloomSpot has been “multiplying revenue every couple of months,” Chief Executive Officer Jasper Malcolmson said. In February, it offered a $6,000 wedding-honeymoon package, including an event coordinator, a cake and wine reception — along with a stay for 10 guests at a 5,000-square-foot estate.

Is Groupon the Wal-Mart of local shopping?

So-called flash-sales sites like Gilt City and Ideeli.com strike agreements with high-end merchants to sell a certain number of exclusive items to their members during one week.

Ideeli, based in New York, caters to 4 million women. They have an average household income of $103,000.

“At Gilt, competition is spurring enhancements to its service

LivingSocial is counting on a partnership with Amazon to reach more shoppers and gain an edge on Groupon. Seattle-based Amazon led a $183 million investment in the startup in December. The following month, LivingSocial offered a discount on an Amazon gift card.

Groupon and LivingSocial could ultimately expand into everything from autos to insurance

Stay tuned for more at www.57thstventures.com

TGT beats Wall Street estimates as sales , margins and net income exceed expectations

PFresh initiative to add 6% to 7% instant sales lift to the remodeled locations  with aggregate 10% expected over 3 years.

See what our 5THSTresearch team predicted last year during the Pfresh launch.  Free research report at www.57thstventures.com <Click Here>

Target Corp. reported Wednesday a better-than-expected 23% increase in third-quarter profit, after the No. 2 U.S. discount retailer more than doubled its credit-card segment income and expanded fresh food assortments to boost sales.

TGT stock rose to 55.54, +1.75, +3.25%), driven by 5% discount promotional strategies purchases made with its Target credit and debit cards to lift demand, also forecast fourth-quarter comparable sales would be the best in the past three years.

See Comparables

TGT 55.54, +1.75, +3.25%
WMT 53.64, -0.62, -1.14%
RLX 470.53, -2.77, -0.59%

Target shares vs. Wal-Mart and the S&P Retail Index, year to date.

Target shares rose 4% Wednesday afternoon.

Third-quarter net income rose to $535 million, or 74 cents a share, from $436 million, or 58 cents, earned in the same period a year earlier. Sales in the quarter ended Oct. 30 rose 3% to $15.23 billion with comparable sales increasing 1.6%.

Analysts on average, expected a quarterly profit of 68 cents a share.

Target’s results and sales forecast added another positive signal as the retail industry readies for its biggest selling period during the holiday season, analysts said.

On Tuesday, larger rival Wal-Mart Stores Inc. (WMT 53.64, -0.62, -1.14%) gave a fourth-quarter forecast that exceeded Wall Street estimates as the company projected that comparable sales at its namesake U.S. division, the company’s largest, would return to positive same-store sales growth after six straight declines.

To bolster demand, Target has remodeled its stores through a PFresh program, adding perishable foods and putting them up front in a bid to draw customers through the door. The company also has revamped electronics and other departments, putting up big signs and lowering shelf sight lines to make it easier for customers to find what they’re looking for.

The company has also projected the PFresh program and the 5% discount plan would contribute about a percentage point each in incremental same-store sales in the fourth quarter. Target takes measure of remodeling.

During the latest quarter, credit-card segment profit jumped to $130 million from $60 million as expenses incurred for bad debts dropped 64%.

Retail segment profit before interest expense and income taxes rose 3.2% to $816 million,

 

WMT finally announces small store urban format. The real question is sell thru #’s

More on the website of check our recent postings on WMT. http://www.57thstventures.com#mce_temp_url#

 

 

Just as America has gotten used to Walmart’s mammoth supercenters, the retailer says it plans to focus on smaller stores, as well, to better expand in U.S. urban markets.
At a presentation for investors in Rogers, Ark., Walmart executives laid out its growth plans for the next several years, which will include between 30 and 40 smaller stores in its fiscal 2012, as well as between 155 and 165 large stores. It also plans to add between 7 and 12 additional Sam’s Clubs.
“Over the next few years, we will introduce new formats to help us enter new markets,” Walmart U.S. President and CEO Bill Simon says in the company’s release following the meeting. “Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill in gaps in existing markets.”
“The large format is our supercenter, which sells a broad assortment of groceries and general merchandise. We have integrated efficiencies into our supercenter design that have allowed us to decrease the average square footage for our supercenter format. The medium format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market. The small format, which is less than 30,000 square feet, will be targeted to urban markets and small towns.”
The company says it plans to increase total square footage between 3 and 4% next fiscal year, while overall sales growth is forecast at between 4 and 6%. It will shift more capital toward new stores in the U.S., and is lowering the costs of its extensive remodeling through efficiencies.
CEO Mike Duke also told investors that the chain’s core customers “are still under pressure. They are either directly impacted by unemployment in their family, or there is a fear element of unemployment that is still there. The level of consumer confidence is not there.” As a result, he says, its customers continue to be on a tighter budget.
He also conceded that in its latest attempts to roll back prices and reduce inventories, it went too far, and it will have to work to win back sales and customers.
Separately, the company announced that it is expanding its test two new programs for the upcoming holidays, including a “Pick Up Today” service, which lets customers order online and receive free same-day pickup at a local Walmart store, which will roll out to 800 stores. And it is also enlarging its test of “FedEx Site to Store” to include additional locations in New York, San Francisco, Chicago and Washington, D.C

What Walmarts $4B South African Acquisition means..

25% of Walmarts (WMT) current revenue comes from it’s international division.

The market reacted with tepid response since WMT could have returned more to investors in the form of a larger dividend.

https://57thstresearch.wordpress.com/?s=WMT

Given that WMT stock has been trading between $50 – $53 for the last 120 trading days ..an aquisition of $4B makes little sense

HOWEVER we think differently because

(1) Massmart is a top distributor and retailer of consumer goods and general merchandise on the African continent, Wal-Mart said. It runs 290 stores in 13 countries in Africa, with most of its stores in South Africa, and manages eight wholesale and retail chains under a variety of different brand names.

(2) WMT has recently made strategic alliances in India with hypermarkets that have positioned it well in the 2nd largest growing BRIC market.

WMT real test will be to shore up it’s U.S. stores with the urban store rollout. This is CRUCIAL as the 3200 U.S. stores have had continued SSS declines for the past 5 quarters.

We predict that WMT’s recent acquisition won’t bear meaningful results until at least late 2011.

Stay tuned and read up on our WMT outlook right here www.57thstventures.com

Walmart aggressively looking to implement smaller store format in Madrid, Chicago etc

WMT is aggressively trying to now implement the “smaller store format ” which by definition includes stores that

(1) Increase Average transactions per store in highly traffic areas which will lead to higher conversions  driven by more localized promotional coupon campaigns.

The key is will the “velocity” be easy to maintain throughout launch. Will sell thru = higher gross margins

(2) E-commerce strategy will support stores are average store deliveries will increase by 35% to the smaller stores. This will be necessary as WMT supports a smaller base of SKU’s

WMT is now analyzing and implementing a deeper review of store signage and adding more market specific advertising and

promotional support locally for late November.

Other questions involve the role of increased sundries ,grocery related items, food , performing best (dry goods, dairy and deli/frozen foods).pharmacy categories which are competing directly with WAG and CVS.

Stay tuned for more upodates this week.

Walmart clothing makes up 10% of total sales. So will they emplore a new basic or fashionable strategy?

If it’s basics strategy what will be the  area of focus? Overall of all categories or will the focus be on a couple like kids, missy, underwear basics?

What will the traffic drivers be and will there be any pull from this big box in this category impacting other manufacturers besides Hanes, Gildan, etc?

Read other WMT excerpts here https://57thstresearch.wordpress.com/?s=WMT for more background. Subscribe at www.57thstventures.com for exclusive reports and notes