It may be very hard to remember following a rocky week but the S&P 500 and Dow Jones Industrial Average are having decent years. The U.S. economy is on a hot streak of creating 200,000-plus jobs each month. Yet, these financially solid experiences have not translated into robust levels of household consumption — just another year of profit margin pressure for countless consumer companies.
Source: Bill Sleeth | Twitter
Starbucks in Orlando, Florida with grass roof.
The S&P retail index and S&P consumer discretionary Index have shed 5.7 percent and 1.5 percent, respectively, year to date.
In the mind of Mr. Market, it's no longer adequate for a consumer company to shutter stores or announce an epic supply-chain restructuring to temporarily provide a jolt to earnings and cash flow. The stock market wants to see new avenues of top-line growth being forged or a series of wow type initiatives by executives that could fundamentally transform a company's future.
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To achieve this, consumer companies are now looking within, tackling things such as complete image overhauls of physical and digital stores and unlocking unproductive inventory via investments in tech infrastructure.
Here are 13 of the latest tactics. Are they working? I give 'em the THUMBS UP or THUMBS DOWN.
American Eagle Outfitters/Abercrombie & Fitch. Gone are the sterile homepage appearances, in are gigantic photo sliders and creepy interactive mannequins. The goal is to try and replicate the real-time feel of the stores and create a bit of excitement around products that are more expensive than those found at H&M, Forever 21, and Zara. These websites are likely precursors for each company, and other specialty retailers in the mall, having streaming social content flowing around the store via large digital screens to foster an immersive environment. THUMBS UP. Retailers have to kick down the wall between web stores and physical stores to maximize sales potential and justify all of the investments being made in technology.
Aeropostale. The financially weakened company will remodel 10 stores in 2014 versus 32 in 2013, in a last ditch effort to be relevant to the teen of 2014. Aspects to the remodels include edgy, black signage inside the store and the use of the word "Aero" outside the store (instead of the corporate name) and online. THUMBS DOWN. The new stores are edgier and the merchandise improved, but the company now has two different versions of its brand in malls across the country as it attempts to stay in business beyond 2016. If these remodels do not provide lifts to same-store sales and profit margins, the company will be back in a precarious financial position for back to school 2015 after securing a round of funding from Sycamore earlier this year.
Gap. Reserve in-store capabilities are in effect at Gap and Banana Republic. A consumer could order a product from the online store and then pick it up at a physical store. THUMBS UP. The initiative leads to more productive inventory for Gap, minimizes the potential for lost sales, and lures a person into the store to hopefully buy an item they didn't reserve online.
Walmart. The booting (technically phrased by the company as "stepping down") of Walmart U.S. president and chief executive officer Bill Simon in late July just weeks before the August 14 second quarter earnings report could indicate CEO Doug McMillon's intention to fundamental reshape the business beyond blanketing the country with quasi grocery stores. THUMBS UP AND DOWN. Walmart is likely to guide its earnings expectations down once again when it announces, which could pressure the stock. That is thumbs down. But, what is thumbs up is that a McMillon may finally be accepting that deep change must happen to Walmart. Two changes that could occur: (1) the closing of 100s of underperforming U.S. supercenters and (2) the introduction of a prototype supercenter of the future. A Walmart supercenter of the future should have far less space devoted to general merchandise (for example, hunting should be online only), with the company developing zones in the back of the store to handle online and mobile orders.
Best Buy. By summer end, there will be 500 Samsung and 350 Sony "experience shops" at Best Buy. That represents 47 percent of Best Buy's U.S. store base (excluding mobile) with a Samsung shop, 33 percentwith a Sony shop. The company has also gone live with ship from store capabilities for its entire U.S. store base. THUMBS UP. Similar to Gap, Best Buy is leveraging its new technology infrastructure to more productively utilize its inventory and physical store base. However, minor thumbs down—the stock has declined 4.5 percent in the past month prior to the upcoming earnings report as top and bottom lie challenges likely persisted amid limited new tech introductions and continued investment in competitive prices.
Dollar Tree/Family Dollar. Merged not only to take the fight to Walmart, but also to prepare for a future of inflation. THUMBS UP. Each company has limited, to no, room to hike retail prices. So, to survive and thrive a 10-year inflation outlook that will probably be opposite than the 10-years that flew by, Dollar Tree and Family Dollar realized going it at together could prove more advantageous when dealing with domestic and foreign suppliers. Rejoice, shareholders!
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Home Depot/Lowe's. Both home improvement retailers have begun to introduce 3D printers and experiences into their stores, before small printing shops open in hundreds of closed RadioShack stores. THUMBS UP. Over the long-term, construction workers on job sites will be able to cut out a middle man and obtain instant access to critical tools fresh from a 3D printer. Do it yourself consumers, on the other hand, will have another reason to visit a home improvement retailer besides buying flowers and holiday décor.
Starbucks. The company's vice president of design for the Americas, Bill Sleeth, recently shared with me that there are now 18 global design studios. The goal: bring a local feel to a Starbucks store and introduce furnishings that foster longer stays typical to a place serving an evening menu. THUMBS UP. Starbucks is inching towards being open until well into the night with these remodeled stores, which is a win as it should boost the number of transactions and average guest check.
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Domino's Pizza. When asked about the potential to introduce a "skinny menu," Domino's Pizza CEO J. Patrick Doyle told me: "we think there are opportunities." Such a "skinny menu" would consist of slices with lower calorie cheeses and meats, as well as reduced sodium sauce. THUMBS UP. Imagine the same-store sales jolt for a Domino's out there marketing on television a healthier pizza slice that compliments what it calls a "smart slice" for the educational market.
Microsoft (yes, for real). Ever so quietly, Microsoft has amassed 101 U.S. retail stores (36 percent fewer than Apple). At a new Microsoft store opening at Long Island's Roosevelt Field Mall, one could play Xbox One on a 7 foot tall, 20 foot wide screen. THUMBS UP. This newer store prototype for Microsoft will help to draw in passersby in the mall, immerse them in the Microsoft media experience, and open the door to positive social media interactions on Twitter, Facebook, and Instagram.
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Commentary by Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors. Follow him on Twitter @BrianSozzi.
Disclosure: Belus Capital Advisors has a "sell" rating on Aeropostale, Walmart, and Best Buy; and a "buy" rating on Starbucks.