Posts Tagged ‘Best Buy’

2011 Retail Analysts in Review – Part 6: Matthew Fassler, Goldman Sachs

by Quantum Retail • January 4th, 2012 • Write a comment »

Matthew Fassler, analyst at Goldman Sachs made predictions for what the 2011-year would hold for the specialty retail sector. Fassler focused his predictions on Best Buy, RadioShack, OfficeMax, Borders, Home Depot, Lowe’s and AutoZone.

A strategic growth plan lead by Best Buy

For Best Buy, Fassler essentially had a neutral rating. He trimmed his price target to $38 from $39 believing a more streamlined growth strategy would happen in 2011. He also believed warranties would help Best Buy’s profitability where past sales lacked stating that consumer electronics retailing has been “historically a low-margin business that is dependent on extended warranties for profitability.” As content business – music and movies – has continued to shrink over the years, extended warranties would prove to be even more valuable to Best Buy in 2011, according to Fassler.

Best Buy planned to open 6-to-8 large format stores in the U.S. and a total of 18 stores in the U.K., Mexico and Canada throughout 2011 and 2012. The retailer also announced its closing of namesake stores in China, shifting U.S. growth to smaller formats instead of its familiar big boxes–all part of their strategic growth plan. And as a result of restructuring, Best Buy said it would incur charges of $225 million to $245 million over fiscal year 2011, diluting earnings.

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Best Buy reported net earnings of $651 million for fiscal fourth quarter in 2011 down from $779 million for the prior-year period. Their pre-tax restructuring charges totaled $222 million consistent with what Fassler had discussed. In line with their growth strategy for 2011, Best Buy announced plans to re-brand China stores as well as exit the Turkey market in 2012.

In terms of profitability, the company continued to advance its strategy to sell more mobile phones, broadband and TV connections to customers through the evolution of its product offerings and selling model. This correlated to Fassler’s notion that Best Buy would find new ways to increase profitability due to content business slowing. The retailer saw a 20 percent growth in annual sales with 9 percent acquired from mobile phone revenue in the U.S. Moreover, Best Buy made no mention of how extended warranties fit into their 2011 strategies.

RadioShack puts focus on mobile

Significant market changes made it an appropriate time for RadioShack’s CEO Julian C. Day to retire. With that said, before Day left, he mentioned three areas that RadioShack might consider focusing on in 2011:

Mobility: The retailer would start to expand their presence in the mobility sector moving to 2-to-3 carriers nationally allowing consumers to have choice and product comparison.

Re-allocation of space in stores: The second major change Day determined RadioShack would encounter within the company’s business was to reallocate the space in their stores for mobility and some signature categories such as power.

Financial strength: Day sighted T-Mobile struggles as part of the gross margin issue RadioShack was experiencing and decided that it would probably persist. Day thought getting a better handle on their accessories would be their biggest growth margin rate opportunity to improve the financial strength of the company.

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2011 was a transitional year for RadioShack: they phased out T-Mobile and launched Verizon Wireless products and services in their company-owned stores, and they focused on offering a more compelling assortment of brands and products. As Day mentioned, their mobility platform was a key component of their growth strategy as it represented 50 percent of their revenue. The Shack recognized there was still future potential for expansion as they positioned themselves as a multi-carrier wireless retailer.

During second quarter 2011, RadioShack ended operations in their Chinese manufacturing plant and, as a result, incurred closure-related costs of $11.0 million for the first nine months of 2011. For third quarter, comparable store sales for company-operated stores and Target Mobile centers decreased 4.0 percent which was primarily due to the decline in T-Mobile postpaid wireless sales. Having ended their relationship with T-Mobile and beginning to pay attention to offering consumers more carrier options and accessory assortments, RadioShack began on the right path to success just as Day predicted.

OfficeMax slump could be permanent

Analysts were divided over whether or not the big three office supply chains – Staples, OfficeMax, and Office Depot – were in long-term danger. Fassler expected stocks to fall, but in a research note he indicated there was some promise in OfficeMax’s forecast. The rise in retail competition with the likes of Wal-Mart, Costco and Target as one-stop mass merchants has been a huge headwind for the office supply giants as well as the decline in paper usage. Although paper itself isn’t lucrative, Staples, OfficeMax and Office Depot derived about half of their revenues from those operations, which sell in bulk to other companies. Paper sales also provided sales of other products such as ink, staples and printers, and therefore, have the potential to pose a big threat for superstores long-term.

OfficeMax announced the closing of 20 stores in 2011 in addition to downsizing existing units and curtailing expansion costs as third quarter saw a 2.1 percent decrease in same-store sales contributing to a 1.8 percent decrease in comp-store sales overall. But OfficeMax wasn’t the only one feeling the pain in 2011. Office supplies was one of the biggest revenue losers in 2011. Staples only saw a slight gain in Q3 at 0.5 percent and Office Depot saw a 2 percent decrease appearing as if Fassler’s thoughts on long-term decreases were correct.

Barnes & Noble fares well over Borders bankruptcy

As Borders listed a debt of $1.29 billion and assets of $1.28 billion at the end of 2010, they were left to file for bankruptcy. By the time the retailer embraced new strategies and tactics such as e-commerce, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble stood to be the biggest winner in the light of the filing in 2011. Before such, Fassler upgraded Barnes & Noble to ‘neutral’ from ‘sell’ ahead of the filing.

Barnes & Noble reported record sales of $7 billion for fiscal 2011. Digital growth fueled 78 percent in fourth quarter at BN.com and increases were also driven by sales of the company’s NOOK. Strong sales for the retailer were speculated to have developed out of new business from people who used to shop at Borders.

Home Depot to improve, Lowe’s to transition

Two similar home renovation retailers have been found going in different directions. After years of evolution, Home Depot was poised for new levels of profitability while Lowe’s began to undergo a transition. Because of this, Fassler upgraded Home Depot to ‘buy’ and downgraded Lowe’s to ‘neutral’. He forecasted improvement in same-store sales over the first few quarters in 2011 in reference to a focus on home repair, remodeling and maintenance and less emphasis on appliances for Home Depot. As for Lowe’s, the company’s management has undergone substantial shuffling causing Fassler to note their biggest challenge: introducing new and innovative ideas, that there had been too much redundancy in years past.

Fassler’s prediction for Home Depot was spot on. Home Depot experienced growth in 2011 ending the third quarter of the year with net earnings of $934 million compared with net earnings of $834 million in the same period of fiscal 2010. Home Depot accredited their success to the strength in their core categories and their exceptional customer service. Like Fassler mentioned, the retailer spent prior years on transforming their merchandising efforts and introduced new initiatives to benefit the customer. 2011 was the year it all came together for Home Depot.

In regards to Lowe’s, Fassler made some very accurate projections on their current transitional stage. Lowe’s managerial moves put them in some difficult corners; however, they were necessary for the retailer in order to see new growth. Along with leadership changes, Lowe’s also experienced changes in the number of stores they operated. Store closings and discontinued projects led to reduced pre-tax earning for the third quarter, and forced Lowe’s to create strategies focused on advancement and becoming a “home improvement company” as opposed to a “home improvement retailer”. The 2011-year positioned Lowe’s with strong potential as the company continued to transform realizing that they needed to go beyond the confines of a brick and mortar store, providing customer support whenever and wherever a consumer chose.

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AutoZone takes the driver’s seat

Chairman of the Board, CEO and President, William Rhodes, spoke highly of AutoZone’s success in 2010 experiencing growth in domestic and Mexico businesses as well as in both commercial and retail sectors. Servicing the customer and providing the degree of trustworthy advice continued to be a key differentiator in the marketplace, Rhodes stated. Fassler went on to say that their incentive comp would remain close to current levels in 2011.

In 2011, AutoZone, for the first time, exceeded $8 billion in sales increasing 10 percent versus 2010. The company still believed providing great service was their number one focus and the main contribution to their growth. The retailer put an emphasis on growing the commercial business, leveraging the Internet, and investing in technology in 2011 as other sources of development. Rhodes admitted that 2011’s numbers weren’t easy to reach, but hard work and dedication put them in the driver’s seat.

The specialty retail sector has had an especially difficult 2011-year. Shoppers continued to cut back on unnecessary purchases, products that were once lucrative came to a standstill, and some retailers were found caught in the midst of an identity crisis. Whether it was Lowe’s and Home Depot or AutoZone and Best Buy, specialty retailers had one thing in common: trying to keep up with consumers’ always-changing wants and needs. But that was just the beginning. Retailers then had to determine how and when shoppers were going to make purchases.

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Read Fassler’s full prediction here»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

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2011 Retail Analyst Predictions, Part 6: Matthew Fassler, Goldman Sachs

by Quantum Retail • March 23rd, 2011 • 1 Comment »

Matthew Fassler, Goldman Sachs analyst, discusses retail outlook in the specialty sectors.

Best Buy announces strategic growth strategy

According to a Feb. 22 Alacra Pulse article, Fassler had a neutral rating of Best Buy and trimmed his price target to $38 from $39, but said the company announced a series of changes to store opening plans, as well as other minor restructuring moves, that he believes will result in a more streamlined growth strategy and in cost saving.

Fassler also notes that warranties may be helping Best Buy’s profitability where past sales are lacking, saying that Best Buy has not disclosed how much extended warranties contribute to its profits. Consumer electronics retailing is “historically a low-margin business that is dependent on extended warranties for profitability,” he said. “Perhaps extended warranties have become even more valuable to Best Buy recently, as its content businesses — like movies and music — have shrunk.”

The company plans to open 6 to 8 large-format stores in the U.S. and a total of 18 stores in the United Kingdom, Mexico and Canada in fiscal 2012. The International market continues to bring noteworthy prospects for the company along with financial growth for the stakeholders,” said the Alacra Pulse article.

Best Buy also announced it is closing its namesake stores in China and shifting new U.S. store growth to smaller formats instead of its familiar big boxes, said the Wall Street Journal. Best Buy said it would focus on growing in China under another retail format called Five Star that has proven more successful; it disclosed plans to open 40 to 50 additional Five Star stores in 2012.

As a result of the restructuring moves, Best Buy said it would incur charges of $225 million to $245 million over its next two fiscal years, diluting earnings. But it maintained that the moves would eventually result in an annual pre-tax savings of $60 million to $70 million by 2013, according to the Journal.

In today’s cutthroat retail environment, retailers are facing tough issues, not losing sight of the domestic front while expanding globally, restructuring their initiatives to a local focus, aligning with customer needs, and more. Technology Evaluation Center’s P.J. Jakovljevic discusses what retailers can do to stay competitive with Quantum Retail’s Chief Customer Officer, Chris Allan, here »

Radio Shack to put strategic focus on mobile

On a February 22 earnings call, Julian C. Day, Chairman and CEO of Radio Shack, stated that with his plans to retire, there are also significant changes in the market that make it an appropriate time for a leadership transition.

The first area he mentions is mobility, the area of Radio Shack’s business most subject to technological and strategic change. Day stated that they have been able to expand their presence in the mobility sector, moving from two to three carriers nationally, and re-fixturing stores to allow customers to have choice and product comparison. The company’s mobile sales were up 33% in 2010 on top of 25% in 2009.

Other major developments in the mobility area, has been a partnership with Target, in which they operate the postpaid wireless business on their behalf. “We look forward to growing with Target and we believe that partnering with additional high caliber retailers to enable them to get access to the high growth mobility sector, while improving our overall channel economics, makes sound strategic sense,” said Day.

The second major change in the company’s business has been the ongoing reallocation of space in stores for mobility and some signature categories such as power. Day explains that it made sense for them to allocate resources to this category and illustrates just how important the traditional merchant art of picking the right product for the channel can be even in declining segments.

The third and last major change for Radio Shack is the financial strength of the Company. From mid-2006 through mid-2010; Radio Shack built their cash position from less than $200 million to over $900 million.

Fassler noted that it sounds like T-Mobile struggles are part of their gross margin issue, and that it will probably persist. “But putting that aside, how should we think about the gross margin trajectory here?”

“You’re absolutely right, Matt, with the T-Mobile issue, and until we work through all the details on that, it will remain a part of the issue.” Day continued. “I think, our biggest gross margin rate opportunity continues to be, as we get better at driving some of these end products in personal electronics, and in modern home. We need to do a better job on our accessories.”

For the year, Radio Shack reported that gross profit increased $48 million to $2.01 billion, a margin rate of 45%, down 90 basis points on a year-over-year basis. In the quarter, gross profit was most negatively impacted by the disappointing performance in their T-Mobile business.

Mobility is expanding immensely. Along with increasing focus on sales of mobile devices, retailers need to have a plan for mobile commerce in their own business. Check out our Guide to Creating a Plan for Mobile Commerce, E-Commerce, and Social Media »

Office Max and office supply giants could be in a permanent slump

Threats are looming over the office supply giants, leaving analysts divided over whether or not the big three chains — Staples, OfficeMax, and Office Depot, are in a short-term slump or a permanent one.
Fassler expects the stock to fall in the wake of the tough new guidance, said CNN. However, in a research note, Fassler indicates that there is some promise in OfficeMax’s forecast. “Guidance to relatively resilient profitability in the face of lower sales, despite a levered model, does still speak to the profit opportunity at [OfficeMax],” Fassler wrote. Fassler remained neutral on the stock.

In a February note titled “Signs of Paradigm Shift,” Fassler announced that he was cutting the firm’s exposure to office supply stocks due to “secular headwinds to cyclical recovery.”

One of those headwinds is the rise in retail competition — one-stop mass merchants like Wal-Mart, Costco, and Target. Amazon is also an adversary — many of the products sold in the office retailers’ brick and mortar outlets are available online, which enables customers to comparison shop.

The other secular shift isn’t competitive, but behavioral: Paper usage is in decline, said CNN. This affects the contract, or delivery side of the superstores’ business. Staples, OfficeMax, and Office Depot derive about half of their revenues from those operations, which sell in bulk to other companies.

Paper itself isn’t hugely lucrative, but it does drive sales of other products — ink, staples, printers, etc. Consequently, its shrinking usage could pose a big problem for the superstores. In a survey of office supply purchasers at large companies, Goldman Sachs found that nearly half of the respondents expected their paper consumption to drop. Reasons range from environmental concerns to double-sided printing to the advent of mobile technology.

Borders bankruptcy filing puts Barnes & Noble in a good position

As part of the Chapter 11 process, Borders  will close 30% of its 642 stores, or about 200 that it identifies as underperforming. The bookseller operated twice that many at its peak in 2003, stated Wall Street Journal’s Market Watch.

The Ann Arbor, Mich. based company listed debt of $1.29 billion and assets of $1.28 billion at the end of 2010 in its bankruptcy filing.

Borders, according to the filing, owes tens of millions of dollars to various publishers, including $41 million to Penguin Putnam, $37 million to Hachette Book Group, and $34 million to Simon & Schuster.

Market Watch noted that by the time Borders embraced e-commerce in recent years, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble Inc. stands to be a big winner in light of the filing, according to the article.

Fassler upgraded Barnes & Noble to neutral from sell ahead of the filing.

Barnes & Noble shares moved fractionally higher to finish at $18.77, but have still lost more than 11% in the past year.

Home Depot sees continued improvement as Lowe’s moves into transition state

The Home Depot Inc. and Lowe’s Companies Inc. are two similar home renovation retailers that are going in different directions, stated the National Post. While the team at Home Depot has gelled after several years of evolution and is poised for new levels of profitability, Lowe’s is undergoing a transition with many senior executives retiring in recent months.

Fassler, has upgraded Home Depot to “buy” while upping the price target to US$42 from US$37, while downgrading Lowe’s to “neutral” maintaining a US$28 price target.

For Home Depot, Fassler forecasts continued improvement in same-store sales over the next two quarters, thanks to a new focus on home repair, remodeling and maintenance categories and less emphasis on appliances, which faces tough sales comparisons over last year.

As for Lowe’s, the company’s management has undergone substantial shuffling in the past few months, stated the Post.

After Lowe’s most recent analyst meeting, Fassler noted its biggest challenge is introducing truly new and innovative ideas. “There had been too much “redundancy” in the company’s strategy over a number of years,” he said.

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AutoZone’s customer service is their key differentiator

In a March 1 earnings call, William Rhodes, Chairman of the Board, CEO and President, stated that AutoZone is very pleased to announce another very strong quarter of performance, both financially and operationally. “Our earnings per share for the second quarter increased by 35.8%, our best performance since the fourth quarter of fiscal 2003, and our domestic same-store sales increased 7.1%,” he continued. “This marks the ninth consecutive quarter of EPS growth in excess of 20% and the 18th consecutive quarter of double-digit EPS growth.”

Regarding their second quarter results, their Total Auto Parts segment, made up of both Domestic and Mexico businesses, delivered a 10.3% sales increase. Their other businesses, including E-Commerce, were up 11.2%. “There is no question that our industry is experiencing strong growth in both Retail and Commercial sectors, and our competitors have also reported solid growth trends,” stated Rhodes. “However, based on sales data provided to us through NPD, our share of both the Retail and Commercial businesses gained share for the quarter, and according to the detail, we gained share each month of the quarter, November, December, and January.”

Servicing the customer and providing the degree of trustworthy advice continues to be a key point of differentiation in the marketplace, according to Rhodes.

In response to Fassler, William Giles, CFO, EVP of IT, Finance, and Store Development, and Treasurer, agreed that if there were a scenario where their sales growth were to be a bit slower and all the other factors went their way, the incentive comp would remain close to current levels.

How can retailers continue to service their customers better? One way is with a focus on localizing their shopping experience. Download our free guide on The Art of Localizing Inventory »

SOURCES: CNN, Wall Street Journal Market Watch, Alacra Pulse, The National Pulse, Seeking Alpha

Download a PDF of the full series HERE»

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Retail innovation: Developing a Plan for Mobile Commerce, E-Commerce and Social Media

by Wyatt Wood • March 15th, 2010 • 2 Comments »

2010 Retail Outlook Review Series – Part 2

This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 1 click here. Look for Part 3 next week. Please engage! What are your thoughts and strategies for these new retail platforms?

Mobile commerce is creating a buzz as smart phones and mobile devices are dramatically changing shopping habits. Retail sales for m-commerce in 2009 grew 117%, up from 57% in 2008, according to Mobile Commerce Daily.

M-commerce allows customers to compare pricing on the fly

Value is everything. The social sphere is rapidly expanding. Customers are connecting – either ranting or raving – your product assortment is now in the scrutiny of the public. The customer now has the power to compare product price points and access reviews on the fly – posing a new challenge for retailers.

The following survey was released on 3/12/2010 by Wireless and Mobile News. Statistical data comes from Compete.com – a researcher of web and mobile activity, consumer interest in mobile advertising, coupon use and barcode scanning. The survey showed the following:

Consumers were most interested in receiving grocery coupons (36%), scanable barcodes (29%), offers to save and pursue at leisure (26%), movie theater offers (26%), and ads via SMS when going by a retailer with a promotion / coupon (21%).

Compete expresses that over 1 in 5 smartphone owners would be interested in the top-5 is very promising for the mobile marketing industry, considering that it is still in its early stages.  Brands need to focus on engaging and driving behavior of these ‘early adopters’ in order to help bring these concepts to mass market.

Consumers are using mobile devices to do their research on high priced items

In a recent interview on Mobile Commerce Daily, Nicola Smith, supervisor of emerging trends at Moxie Interactive, Atlanta, expresses her insight into what today’s new market will mean for retail.

“Mobile commerce will continue to increase in 2010,” said Smith. “Fifty-one percent of mobile commerce users have purchased consumer electronics via their mobile phone, and we continue to see that trend grow.”

“Some of the highest purchase items on mobile are technology-based items such as PCs and laptops,” she said. “Look at Amazon—one of their highest selling items via mobile phones are flat-screen televisions.”

“People go into the store to see the models, but then they go onto Amazon.com on their handset to compare prices—there’s an interesting cross-section between the brick-and-mortar and digital shopping environments.”

Social ratings give visibility to product quality

Product ratings weigh heavily on shopper decisions – they are putting trust into the opinions of their peers – especially when making purchases online. If a customer cannot see the product in person – they will definitely want to see how others have rated the value. If you stock lower quality products – your ratings will let customers know.

Why Best Buy Loves Mobile

Mobile is growing at an enormous pace – retailers need to develop a plan now. The following video debuted at the National Retail Federation’s 2010 Retail Innovation & Marketing Conference which occurred March 2-4.


Wetseal: Innovating the way we shop through social networking and e-commerce

In an article published on 3/17/2010 in Apparel Magazine, entitled “Building a Social/Mobile Strategy - One Outfit at a Time,” Jon Kubo, Wet Seal’s CIO, who also heads up e-commerce and direct marketing explains the success of their social networking and marketing strategies:

In December 2008, Wet Seal launched in-store kiosks, which allow shoppers to scan an item’s price tag and then view the full range of item-specific outfits created online.

In the two years since Fashion Community launched, users have combed through Wet Seal’s hip merchandise, creating and posting nearly 400,000 outfits on its web site at an average now of roughly 20,000 new outfits each month. Wet Seal places this user-generated content directly into the online and mobile purchasing processes. Search for a pair of skinny jeans, for example, and the top-ranked user-generated outfits containing those jeans pop up. One skinny-jean-and-cowl-neck-tunic combo posted in February was viewed 665 times with 62 positive rankings.

The customer appeal of Wet Seal’s social and mobile applications is obvious, and the benefits for the company are enormous, starting with data collection. Recording all user sessions from the Shop With Me tool helps the company garner a trove of information including what products users circled, what pages they linked to, whether they made a purchase, and whatever product feedback they shared with friends during the chat session.

The user-generated outfits themselves are a great source of insight, adds Thomas. “I can’t think of a better tool to get immediate feedback from a customer on how she is dressing,” he explains. “Before, we had to wait to see what customers purchased to know what was going to sell well. Now we know instantly. It is a great tool for us to develop our own business internally.”

By analyzing the online outfits and ranking data, the company can also discern trends -which can impact its merchandise and assortment planning. For example, Kubo sensed that customers were not dressing up as much to go out because they were all creating outfits using skinny jeans and fashion tops. “We can see consumer sentiment about our products much earlier than we’ve ever been able to do, and it translates very well into what we do on the business end,” he explains.

These tools have also translated very well into the bottom line, boosting e-commerce sales by some 20 percent, according to Kubo, who says that Wet Seal has long since recouped the money it spent to develop its various mobile and social media applications.

The company does not plan to rest on its laurels, however. Fast-fashion is a fast business, after all. “We know we’re ahead of the game now, but our competitors will catch up to us at some point. Hopefully we’ll be on to the next thing by then,” says Thomas.

By Amy Roach Partridge, a New York-based free-lance writer specializing in business and technology.

Now more than ever – retailers need a plan to reach their customers on a personal level. Mobile commerce and e-commerce present a pressing opportunity to do just that. Feedback and reviews let consumers assess the value of what they are buying. Social networks build trust for brands and reveal the pitfalls of products that do not perform.

No matter the retail vertical, be it fashion, grocery, department stores, or specialty merchandise, these new platforms for marketing and product promotion rest in your hands. So get off your laurels and innovate. Hire young, socially aware, employees that can lead your business with a sense of urgency or you will be left behind.

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and in every channel? Are you ready to have the ability to react the instant their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes, promotions, products and performance with ease. Create profitability in every tier of planning, forecasting, distribution, allocation and replenishment. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information, visit: http://quantumretail.com/solutions

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