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.

Managing Supply Chain risks may be as simple as a video conference away

Managing supply chain risks may be as simple as a video conference. As many folks know, I am always on the lookout for start-up companies that offer new solutions to the supply chain market. Though its services are for all industries, one interesting company is Zoom. Based in Santa Clara, California, Zoom is one of a growing number of start-ups that provide cloud-base solutions.

According to an Enterprise Networking Planet article, Zoom is “a true cloud-based solution,” with no dedicated on-premises hardware required. This is an important differentiator, according to Nick Chong, the company’s head of product marketing who also noted the company’s approach to mobility as another differentiator. Mr. Chong further states that Zoom is the first in the market to offer mobile screen sharing within video conferences. Mobile users can also start or join meetings; send invitations via email, SMS, and instant message; and utilize a full suite of collaboration features, such as typing on and annotating documents and presentations and recording meetings directly from their mobile devices.

So, what are the advantages of Zoom’s offerings for the supply chain market? One example can be found in freight forwarding. By nature, freight forwarding companies interact on a global basis and as such need to be able to keep up with changing trade regulations as well as to be able to react to any change within the environment quickly or else run the risk of delays and/or possible damages to goods. Communication and collaboration are important to keep the flow of goods moving between trade lanes.

JAS Forwarding is one such freight forwarder that utilizes Zoom for its internal communications. JAS consists of a global network of 47 subsidiaries, 35 exclusive agents and more than 3,700 employees across 80 countries. As a cost savings measure as well as one to provide a high standard of customer satisfaction, Zoom is being used for training purposes and for global counterparts to discuss business trends, new solutions, and strategies to improve service to customers.

Supply chains continue to globalize and with this expansion comes the need to communicate with teams regardless of where in the world they may be – collaborating, training and sharing knowledge and being able to react quickly to any potential risk that may occur is a requirement especially in freight forwarding. The rise of mobile devices such as smart phones and tablets and cloud-based solutions such as Zoom are allowing companies such as JAS to communicate with employees around the world in an easier and cost-effective manner.

Cost management and e-commerce result in good fourth quarter for FedEx

The latest earnings from FedEx depicts rising revenue, improving operating income and increasing volumes. For fiscal year 2014 (June 1, 2013 – May 30, 2014) overall revenue increased 2.9% to $45.6bn and operating margin was 7.6%. For the fourth quarter (March – May), overall revenue increased 3.5% with operating margin of 10.0%. It appears that there are improving economic signs, particularly as weather improvements in the US domestic market from January and February brought forth the need to clear shipper backlogs. But perhaps even more so, the company is benefiting mostly from rate increases and its reorganization and cost management programs.

The company’s largest division, Express noted a slight 0.2% increase in revenue for the quarter but thanks to higher package volumes and improved yields, operating income increased 3.0% to $475m from an adjusted $460 from previous year. Average daily international volumes increased 2.0% while those for US domestic increased 3.0%.

The Freight division also noted good numbers with revenue increasing 12.0% to $1.5bn for the quarter and operating income up 51.0% to $122m from an adjusted $81m same period last year.

As with previous quarters, e-commerce was credited with increased volumes and revenue for the Ground division. Revenue increased 8.0% to $3.0bn from $2.78bn the previous year. Average daily volumes increased 8.0%. Its SmartPost service reported an 8.0% decline in volume but management noted that this was due to one customer opting to go directly to USPS instead.

FedEx’s outlook for the new fiscal year includes aircraft deliveries to support its fleet modernization and to continue expansion of the FedEx Ground network which management attributed to market share gains. For all its divisions, the company will continue to focus on revenue quality and improve yields.

Meanwhile, FedEx noted on its earnings call that it implemented two pricing changes during the fourth quarter. The Freight division increased its published fuel surcharge indices by three percentage points effective June 2 and perhaps what could be prove contentious is its plan to expand its dimensional weight pricing to all Ground package shipments effective January 2015. While it currently applies such pricing to packages over three cubic feet in size, management noted by expanding such pricing to all Ground package shipments will align its pricing with its cost to deliver. As such, FedEx management commented that the move to dimensional pricing will give FedEx the opportunity to work with customers to make better packaging decisions. Additional thoughts and analysis on FedEx and UPS announcements to implement dimensional pricing will be provided in a separate blog post this weekend.

To conclude, FedEx reported a good fourth quarter thanks mostly to cost management, restructuring and rate increases. The company is optimistic in regards to improving global economic conditions and highlighted on its call its investments it has made to its Japanese and Mexican infrastructure as well as its acquisition in Africa. According to CEO Fred Smith, the company’s strategy in the Express business is “to operate an unduplicated backbone priority network that allows people to move door-to-door express shipments of parcels and light freight between almost any two points on the planet within one to two business days”. Indeed, it appears the company is heading in the right direction.