Sunday, September 28, 2008

How much longer can Kmart survive?

I live in one of the very few "under-stored" areas of the United States. We have no major malls or even significant strip malls or power centers in the immediate vicinity. I have to go about six or seven miles (the horror!) to get to the nearest Wal-Mart, and even further to Target.

I offer this information to explain why I shop fairly often at Kmart -- it's the only major retailer close by (about a mile and a half).

When I tell folks I shop at Kmart, they look at me in wonder. I'm not discussing the coastal elite types who would never shop at any discounter, or perhaps visit Target occasionally when they feel like slumming (and make tired references to "Tarjay"). Even ordinary folks are aghast at the idea of visiting Kmart, a fact that is testified to by the emptiness of the parking lots.

And, I can testify, their feelings are fully justified -- the stores are awful. The one I visit is old, and it shows its age. It's dirty and poorly lit. But worse is the products it sells and the service it provides. The shelves are frequently empty, the merchandise assortment peculiar, pricing information is missing or wrong, there are never enough checkout lines open, and the lines are frequently delayed because items won't scan .A couple years ago, they put in self-checkout lanes, but they couldn't make them work, so they pulled them out.

Just about every time I go there, I leave swearing, "Never again!" But I keep going back, partly because of the lack of alternatives and partly because I get a perverse pleasure out of seeing just how bad a retailer can be.

Unfortunately for Kmart, there are relatively few customers who have no alternatives, and even fewer who get their kicks out of studying how not to run a store.

With sales and profits continuing to plummet* at Sears Holdings ...
Beleaguered retailer Sears Holdings Corp. reported a hefty drop in second-quarter profit as sales slumped, despite a restructuring aimed at drawing back shoppers who've taken their checkbooks elsewhere.*
... we return to the question posed in the title: how much longer can they keep going? I can't see how they last another year, but what do I know? Well, actually I know one thing -- when they go under, they'll blame it on the economy.

* The positive: plummeting profits are better than no profits at all. The negative: they manage to get profits in the face of declining sales only by cutting costs -- see comments about checkout lines above.

Friday, September 26, 2008

Lowe's will slow down growth

The slowdown in the housing market is forcing a slowdown in growth for Lowe's:
Lowe's plans to open 75 to 85 stores in fiscal 2009, which translates to footage growth of about 5%, said the Mooresville, N.C., chain. That compares with this year's plan to open about 120 stores, or square-footage growth of as much as 8%.
It's not a good year for retailers in general, but things are especially bad in the home improvement arena, and it's likely to get worse, with Home Depot's plans to start a price war. Lowe's says in same-store sales will be roughly flat (a range of +1% to -3%)

A short history of Meijer

An interesting article in the hometown Grand Rapids Press on the origins of the Meijer chain (Meijer is one of my favorite stores; I am willing to drive past several competitors to shop there). Hendrik Meijer founded the original store after a number of other failures, and almost by accident:
"He couldn't get anyone to rent a building he had built for a grocery store, so he purchased $300 worth of stock and opened one himself. I guess he figured if the inventory didn't sell, he could always eat it," Hank Meijer said Tuesday in launching the Meijer Lecture Series at Hope College.
The founding of the first Meijer hypermarket in 1962 was a similar move to make the best of a bad situation:

He had built an adjoining storefront to attract a department store. When no one rented the building, he leased out retail spaces to housewares and clothing vendors.

"It became the retail Tower of Babel, with no one agreeing on anything," Hank said.

A year later, Hendrik took back the space, combining groceries and household goods and putting in his own merchandise. One-stop shopping was born.

Thursday, September 25, 2008

The biggest chain you've never heard of is expanding

OK, maybe you have heard of them if they're one of your customers, or if you live in a small midwestern town, but most folks don't know about Casey's General Stores.

Casey's is headquartered in Ankeny, Iowa, and runs 1450 convenience stores in nine states, mostly in towns of 5000 or less population.

They're planning to grow that store count, as well as increase and upgrade store size. The upgrades are the sort of things many c-stores have been adding -- expanded coffee selection, prepared foods, nicer decor, and est-in facilities in some locations.
In terms of a timeframe, the company intends to open 20 to 25 new stores in this fiscal year, which for Casey's ends April 30. In addition to that projection, the chain will replace another 20 stores with the new design and take 10 additional stores and put those locations through the remodel process. In the end, the chain will have 50 to 55 stores operating with the new look by next spring.

Though refraining from specifics about the markets where these new sites will go, Walljasper said the model fits both in rural sites and its larger markets, but may not be right for smaller towns of, say, 500-600 residents.

The larger goal is to grow the company's store base by 4% each fiscal year, despite today's economic challenges. "We're not necessarily pulling back new-store construction or our search for acquisitions due to the challenges in the economy," said Walljasper. "In the Midwest, we have benefited from a robust economy because agricultural areas have done relatively well."

Ad spending down

Ad Age reports that ad spending in the first two quarters of 2008 was down sharply.
Total measured ad spending declined by 1.6% in the first half of 2008 compared with the same period in 2007, according to TNS Media Intelligence. The second quarter alone was down 3.7% over last year, marking the biggest quarterly drop since 2001.
The report deals with "measured" ad spending, which does not include in-store advertising and promotion (which is thought to be increasing) and trade promotion, which is probably remaining roughly proportionate to the small increases we are seeing in retail sales.

Broadcast TV was down 2.4%, although cable and syndicated TV were up slightly. Magazines were down 1.8%. Worst hit (not surprising) were newspapers at -7.4% and radio at -6.5%.

Apparently not enough people are reading this blog.

More on price-fixing: this time in UK

Britain's Office of Fair Trading is investigating the grocery industry on possible price-fixing. The allegation is that pricing information might have been transmitted through vendors (one of the things that makes some folks nervous about collaboration and category captains.
Heavy fines may be imposed on grocers and suppliers after the Office of Fair Trading uncovered evidence that pricing information may have been shared.

The competition watchdog said in a letter that there were "reasonable grounds to suspect" that pricing data was passed between supermarkets via suppliers, the Financial Times reported.
Heavy fines, indeed -- potentially up to 10% of sales.

Retailers being investigated may include Asda, Morrisons, Sainsbury's, and Tesco (who are pretty much the entire UK grocery market). Manufacturers: Unilever, Mars, P&G, Coca-Cola.

Wednesday, September 24, 2008

Nash Finch promoting service offerings to retailers

Nash Finch is going after rival SuperValu by promoting the services it offers to retailers, including store layout and design, fixturing, and market research.
It had most of these services available previously, but they weren’t emphasized by the company or easily visible to customers, said John Paul, Nash Finch’s vice president of sales and marketing.

The effort is designed to appeal to independent grocery-store owners who may feel neglected by competing grocery distributors that are also “chasing after their own retail” businesses, Paul said. Though he didn’t identify it specifically, that’s a likely reference to Eden Prairie-based Supervalu, which gets most of its revenue from its retail chains like Cub Foods, but also supplies 2,200 third-party retail stores through its wholesale unit.

Government investigating price-fixing in food

USAToday reports that the Justice Department is investigating allegations of price-fixing in two more categories of the US food market -- tomatoes and eggs (they have been investigating citrus for the past year).

These investigations are into price-fixing not by manufacturers, but by producers -- farmers and cooperatives.

Although federal law bars competitors from collaborating when setting their prices, Congress has created antitrust exemptions intended to help small farm groups and cooperatives bargain with large food processors.

Inquiries into whether food producers overstepped those limits are being run by federal prosecutors in Sacramento, and an antitrust division of the Justice Department based in Philadelphia.

A separate report, a few days previous, in the Wall Street Journal, said that the Commodity Futures Trading Commission (CFTC) is investigating the dairy industry, specifically Dairy Farmers of America, a cooperative that processes one-third of the nation's milk.

According to the Journal report, the CFTC is investigating whether DFA drove up the prices of milk and cheese futures through strategic trading of cheese contracts on the Chicago Mercantile Exchange. Because DFA purchases milk from farmers based in part on the prices of dairy futures, this would amount to an illegal maneuver to increase the price of milk.

Chains looking to international expansion

Perhaps because growth at home is looking difficult to attain in the short term, many chains seem to be seeking growth overseas -- here's a sampling from just the past few days:

Carrefour is planning to expand into Russia with its hypermarket format, investing $100 million over a five-year period. In addition, there are rumors that both Carrefour and Wal-Mart are interested in buying Russia's Lenta chain.

Marks & Spencer is opening a store on Shanghai's main shopping street, Nanjing Road.

Macy's is opening its first foreign Bloomingdale's outlet, in the new Dubai Mall.

Tuesday, September 23, 2008

Home Depot cutting prices sharply

With the home improvement sector hurting even worse than most retail categories, Home Depot has decided that price cuts are the solution.
In an effort to pick up share from Lowe's and Wal-Mart in a pinched home-improvement segment, Home Depot is cutting prices between 5% and 50% on some 1,200 items. The discounts, which Home Depot expects to be permanent, will go into effect (immediately) and roll out during the next three weeks.
There's no doubt that HD is hurting ("sales fell 3.4% in the first quarter and 5.4% during the second quarter. Sales at stores open at least year dropped 6.5% in the first quarter and 7.9% during the second quarter"), the question is whether price cuts will do anything other than depress margins throughout the sector if competitors match the cuts.
An analyst note from Deutsche Bank warns that the promotions could hurt margins, if competitors counter Home Depot's promotion scheme. "The key here is that in this tough macro environment, we're not sure if incremental price promotions will even drive meaningful sales growth," the note states.

Boscov family may bid for firm

The Boscov's department store chain, which entered Chapter 11 in August has a potential buyer, Versa Capital Management, a Philadelphia investment firm. Versa offered $11 million in cash, plus assumption of $175 million in debts. The plan would include closing ten of the chain's 49 locations.

Word emerged this week that a second bidder has expressed interest, and the rumor is that the new contender is the Boscov family, according to the Philadelphia Inquirer:
"We've heard that the family's very interested in maintaining control," said Warren C. Gerber Jr., financial-services manager for New York-based Phillips-Van Heusen Corp., the Inquirer reported.
Creditors are pleased, of course, at the possibility of a bidding war, since it increases their chances of getting paid.

GE brand returns to TV market

The General Electric brand name is returning to the TV marketplace, through a joint venture of GE and Taiwanese firm Tatung. The new firm, General Displays & Technologies, will be owned 51% by Tatung and 49% by GE.

Dormant since Thomson gave up its license for televisions in late 2004, the GE brand has been eyed by a number of Asian companies looking to a well-established brand they could piggyback on to build U.S. flat-panel TV distribution businesses. [...]

GDT will design, market and service its GE-branded HDTVs, which are planned to be enhanced with Internet access capability for receiving IPTV distributed content, including new services planned from NBC Universal and others. The first series of premium product offerings will be available to consumers in spring 2009.