Retailers, Supply Chains and the Holiday Season

The National Retail Federation (NRF) expects holiday sales to increase 4.1% this holiday season. Meanwhile, Shop.org expects online sales to increase 8% – 11% over last holiday season. All eyes will be on how retailers and their supply chains hold up during this period.

An important time of year, according to NRF, sales in November and December can account for as much as 30% of a retailer’s annual sales and it makes up nearly 20% of the retail industry’s annual $3.2 trillion.

As such, beginning the week of Thanksgiving and each week afterwards, a retailer will be profiled here on the blog. This will then culminate in Ti’s publication of Global Ecommerce Logistics, scheduled for publication in January.

So, be sure to check back each week to see what retailer is profiled. If you’re interested in learning more about our Global Ecommerce Logistics report, the blog post series or about Ti, drop me a line.

Meanwhile, I hope you enjoy the posts!

 

Posts in Series:

1. Targeting a successful holiday season – Target

Targeting a successful holiday season

Promising third quarter earnings has Target breathing a sigh of relief after a year of upheaval. A security breach which the retailer noted in its second quarter earnings filing cost it $148 million for the period and then perhaps a too eager push into Canada has resulted in a rethink in strategy.

Not surprising, its supply chain was blamed for its Canadian expansion mishap. In its first international expansion the company opened 124 stores and three distribution centers in Canada last year, losing nearly $1 billion as sales fell short of expectations. Higher prices than those in US stores, poor selection and in some cases empty shelves were among the issues. As such, the company set forth to correct these issues.

While it was working on its Canadian operations, the company was also beefing up its IT team in response to last year’s security breach and to transform the company into one with more omnichannel capabilities. Indeed, Target was slow entering the online retail space, long relying on Amazon for its platform but that changed in 2011 when the company split with the behemoth and created its own website. However, it proved slow going for the company and it wasn’t until this year with the creation of its Digital Advisory Council, that it’s finally focusing on linking the online with the physical store – an approach that many retailers are using to compete for the consumer’s dollar.

Convenience

It’s all about convenience and after last year thanks to bad weather and shipping delays, Target is one of many retailers looking towards its stores as fulfillment centers. While in-store pick up is offered at no cost to consumers, it’s taken the concept an extra step. For $10 per order, consumers can choose to have purchases shipped same day from store to final destination. Still in trial, Ship from Store is being rolled out into select markets. A potential plus for Target particularly as one analyst compared the number of Target’s potential fulfillment centers it would have, 1,797 to that of Amazon’s current 61 here in the US – a plus for Target perhaps. In fact, Target noted that with its current capabilities, it is able to offer 1 or 2 day shipping to 91% of the country by utilizing stores as fulfillment centers.

Mobile

Software company, Adobe, projects mobile will account for 31% of online sales on Thanksgiving Day compared to 21% in 2013. As such, this need for convenience for price-conscience consumers is on the minds of many retailers and Target is no exception as it rolls out apps for coupons, navigation, shopping lists and more. Aware of the growing trend favoring mobile, Target recently acquired Powered Analytics. Among its capabilities includes the ability to connect a retailer’s app to the in-store shopping experience. Its Fabric product, for example, uses the store’s layout and product locations to deliver customized recommendations and messaging to customers.

How it will combine these app capabilities to its supply chain will be important to maintain customer loyalty and perhaps a differentiator in the crowded retail space.

The Holiday Season

Is Target ready for the 2014 season? While it has recently introduced several enhancements to its mobile app to improve customer experience, an important measure of success will be providing the right products at the right price and the right time to consumers – whether it’s online, in the store or a hybrid of the two.

Slow out of the internet gate, it is working in overdrive to catch up with two of its biggest competitors, Amazon and Wal-Mart and seems to have momentum on its side after posting a good third quarter earnings. As a result, it should have a decent holiday season as long as they can assure consumers adequate security measures have been implemented; not only maintain visibility of inventory but the ability to quickly adjust inventory in-store or online and it is in synch with its delivery partners.

A Successful Retailer Without an Online Presence?

As Sears shuts down stores to stay afloat, UK-based Primark is taking advantage of some of these shuttered locations to expand into the US. An interesting retailer, Primark is similar to H&M and Zara’s, producing and selling low-priced, fashionable apparel. However, perhaps the big difference among the three is that Primark does not have an online presence, nor does it foresee having one anytime soon.

Yes. A retailer without an online presence and one that is still able to muster a 22% year-over-year increase in revenue.

In today’s retail world where e-retailing and omnichannel seem to be the main drivers for revenue, how can a company such as Primark financially benefit from simply brick & mortar? Well, for one thing, the company believes its strict control of its supply chain and limited marketing expense has attributed to its success.

Much like H&M and Zara, Primark responds quickly to changes in fashion tastes. With over 270 stores in primarily Western Europe, the company seems to be a tough negotiator with its 700 plus manufacturers based mostly in Asia.

The company’s quick response to fashion changes is quite impressive. About 10% of its fashion lines are changed out each week and it’s estimated that average stock turnover is about 6 times per season versus an average of 2 times for most US retailers. “Basic” garments are produced usually in Asia with a lead time of about 90 days while “fast fashion” has an average lead time of 8 weeks and are manufactured in Turkey or East Europe which allows Primark to respond quickly to demand for popular items.

Primark has 5 European warehouses – among which with locations in Germany, UK and Spain. DHL Supply Chain Solutions manages at least these three. Who will likely manage a US warehouse could very well be DHL Supply Chain Solutions or its subsidiary, Exel.

With plans to enter the US Northeast first with 10 planned US stores by 2016, Primark will continue with its current supply chain methods which will include sourcing clothing from traditional supplier markets of China, India, Bangladesh, Cambodia, Vietnam and Turkey. However, the company noted that it will make financial sense to establish suppliers from countries closer to the US such as Guatemala, Costa Rica and Mexico. This shift in thought will ultimately result in a rethink of its supply chain, a key to its current success. Perhaps a tricky situation but if done correctly, it can achieve success.

The other key to its success is limited marketing expense. It does little advertising and marketing and instead relies on word of mouth and ironically digital and social media.

So, a retailer without an online presence – a refreshing change and one that seems to follow its own drum beat – but, can it transport its European success and implement it successfully in the US home to such low-price providers as Amazon and Wal-Mart?

The Changing M&A Environment – What’s Next?

Come join us in St. Louis Oct. 23rd as we discuss the changing m&a environment.

The CSCMP St. Louis Chapter will host its October luncheon with guest speaker is Mrs. Cathy Roberson–Senior Analyst, Transport Intelligence. Thursday, October 23, 2014. Crowne Plaza-Clayton, Missouri.

Changes are in the midst for the logistics market. Mergers and acquisitions are up as such trends as an improving US economy and nearshoring take hold. What else is driving this growth? Who’s buying whom? Who’s at risk? What is the outlook?

  • Overview of the 2013 market and 2014 market to date
  • Trends driving the growth of M&A activity
  • What parts of the logistics market are of particular interest for acquisition?
  • Pros and cons for shippers – how do they benefit in this environment? Drawbacks?
  • What is the outlook?

To register, please click here.

For additional information on m&a activity, be sure to sign up for Transport Intelligence’s free newsletter service at http://www.transportintelligence.com

Recent articles include:

M&A interest continues in the US logistics market

North American logistics and transportation mergers & acquisitions heats up

Stifel Monthly Confidence Index

It’s been a while since the last post! Hope everyone is doing well. A BIG favor to ask of all please. Each month we conduct a survey concerning the health of the freight forwarding market – a topic near and dear to my heart. On behalf of Stifel, this data is then analyzed (yes, by yours truly) and available for free download from Transport Intelligence.

Also, for those dedicated participants that take the survey for 12 straight months, there is an opportunity to win one of four iPad minis.

The link to the survey is here. Closing date is Oct. 10.

If you have any questions/suggestions just let me know.

Thank you very much!

Cathy

Another acquisition in the US transportation market

Just days after the publication of Ti brief, North America logistics and transportation mergers & acquisitions heats up, yet another acquisition has been made. The latest acquirer, Roadrunner Transportation Systems, is not shy when it comes to acquisitions. In fact, it has made quite a few and as recent as just July when it acquired Integrated Services Inc. for $13 million.

Integrated Services provides regional logistics for its customers’ warehousing and transportation needs, and has revenue of about $21 million.

But perhaps the bigger news is Roadrunner’s latest acquisition, Active Aero Group, a ground and air expedited service company, which it acquired for $115 million, its largest acquisition this year.

According to the press release, Roadrunner Transportation is purchasing Active Aero because of its spot bid technology, controlled capacity, procurement system and multimodal offering.

“As we have indicated, the ability to provide air and ground expedited services to meet customers’ total transportation needs has been a key strategic objective for Roadrunner,” said Mark DiBlasi, president and chief executive officer of Roadrunner. “Active Aero’s strong position in the marketplace is based upon the high quality of its service offering and personnel and its unique blend of expedited services. As a result, we believe Active Aero represents an ideal match with our strategy and an excellent platform for growth in expedited services globally.”

Indeed, a Stifel note regarding this acquisition suggests the expedited transportation management segment may be important for growing a full-service logistics platform. Stifel cites the late 2013 acquisition of NLM, a competitor of Active Aero, as an example of this trend.

Financially, Roadrunner’s acquisitions are having a positive impact on the company. For the second quarter, Revenue increased 39% to $460.2 million while net income increased 10.7% to $27 million.

Revenue benefited from a number of recent acquisitions, including Wando Trucking, TA Drayage, G.W. Palmer Logistics, Yes Trans, and Rich Logistics, Adrian Carriers, Marisol International and Unitrans.

With this latest acquisition, Roadrunner Transportation Systems portfolio of services is even more impressive. The link shows how these acquisitions fit into its services:

Roadrunner Services and Companies

So, who’s next? It looks like m&a activity in North America is indeed increasing. As noted in the Ti brief, improving economic conditions and fragmented market are among the reasons for this increase in activity.

Supply Chain Plays Major Role in the US Dollar Discount Retail Sector

The US GDP grew 4.0% for second quarter. By all appearances the US economy is improving, but tell that to consumers that regularly shop at such discount stores as Dollar Tree, Dollar General, Family Dollar and many will tell you otherwise. Deloitte estimates the top three retailers account for over 52.0% of total sector sales and average sales have grown 10.0% annually over the past decade.

Not surprising, consolidation in this sector is underway. The #2 discount retailer, Dollar Tree recently announced plans to acquire #3 discount retailer Family Dollar. The $8.5bn merger will result in a combined company with $18bn in sales, close to the largest discount retailer Dollar General with about $17.5bn and more than 13,000 stores.

Family Dollar has been suffering from a lack of direction and tired stores that have not changed in years. An expansion plan was shelved earlier this year when the company announced in April that it would actually close 370 stores and said foot traffic was declining. The company has 11 distribution centers in the US, maintains a private truck fleet as well as utilizes TL, LTL and intermodal carriers. According to its investor relations website, Family Dollar notes that a majority of imported merchandise is shipped from East Asia. Several major steamship lines, as well as an NVOCC are used for its international shipping needs. It appears Family Dollar has been using G-Log’s TMS solution since 2003. In 2005, Oracle acquired G-Log.

Meanwhile, Dollar Tree’s supply chain is managed in-house and consists of 10 distribution centers in the US and two outsourced facilities in Canada. According to its current 10-K filing, Dollar Tree stores receive about 90% of inventory from its distribution centers via contract carriers. The remaining store inventory, primarily perishable consumable items and other vendor-maintained display items are delivered directly to stores from vendors. Dollar Tree utilizes MercuryGate’s PowerTMS solution.

In the merger announcement, the companies said they would continue to run and develop both brands. Officials of Dollar Tree and Family Dollar said each chain will operate independently for the foreseeable future and that Family Dollar will continue with its planned store closings. However, the synergies of a combined supply chain could make for a more powerful united retailer particularly in regards to price negotiations with suppliers. Also, each company appears on the JOC’s top US Importers 2013 at #20 for Family Dollar and #21 for Dollar Tree with 68,600 TEUs and 66,500 TEUs respectively.

The discount dollar sector is growing and facing increasing competition from the likes of Wal-Mart which is expanding its smaller-format stores. As such, consolidation will likely continue. Will leading dollar discount retailer Dollar General team up with Wal-Mart or continue on its own? It’s early to say but a successful supply chain is particularly necessary in this sector to keep shelves stocked and prices low.