McMillanDoolittle logo

Acquisitions

The Battle Of That B*stard (Returns)

Partnerships could address the very real need to a) reduce the cost of returns and delivery for the retailers, b) drive traffic to locations receiving the returns and c) make life easier for the consumer.

PayPal announced an undisclosed investment in Happy Returns, a service that places Return Bars in malls and inside retailers such as multi-unit PaperSource and independent boutiques.  Happy Returns is trying to solve for some of retailer’s most pressing problems – consumer’s frustration at the returns process, the mounting costs of online orders and declining foot traffic.

PayPal already operates a returns service for consumers, covering up to $30 of return shipping costs for up to 12 eligible PayPal purchases worldwide. But consumers are resistant to paying for returns.

Happy Returns primarily addresses the retailer’s need to reduce the cost of the return of online orders, which Shopify estimates are returned at rates at least double those of in-store purchases.  The cost of returns is so great that the initial premise that online stores would be more profitable than brick-and-mortar ones has proven false.

Happy Returns generally works with direct-to-consumer and digitally native brands such as Untuckit and Rothy’s, using staffed locations to help the consumer at its Return Bars.  The service allows an online order to be returned without the consumer re-boxing the item and allows them to receive an instantaneous refund.  Happy Returns then aggregates, processes, and ships the returned items to a given retailer, distribution center, or even donates un-sellable goods.  In March the company rolled out a self-service kiosk that is placed at retailers and is used to exclusively accept only returns from purchases at the retailer’s own .com. The premise is to move returns from the check-out to a unique place, reducing customer wait time and freeing staff to serve customers.

Happy Returns is not the only company addressing the retailer’s return problem.

Kohl’s tested accepting Amazon returns for over a year and announced last week that the service will roll-out to all stores this summer.  Walgreens just partnered with Navar to establish return centers in its 8000 locations, working with retailers and brands such as Levi’s, Cole Haan, and Urban Outfitters. The Navar Concierge Service – which also partners with Nordstrom – allows consumers to pick-up packages, not just return them.  Navar differs slightly in that it still requires a consumer to box a return and print the labels, but the convenience of so many locations is significant. A common theme in the partnerships is a focus on the clothing and footwear categories.  Consumers regularly order the same style in multiple sizes to understand which fits them best, returning the cast-offs.

The partnerships could address the very real need to a) reduce the cost of returns and delivery for the retailers, b) drive traffic to locations receiving the returns and c) make life easier for the consumer.

 We don’t know the financials for the services;  Navar is privately held, Happy Returns is still a start-up, and Amazon is…. Amazon.  But the trend shows that these returns businesses will be part of a broader solution and thus may still not be profitable as standalones. 

But the consumer still expects convenience from their retailers and for their returns and this is one-way to deliver it.

This article first appeared in Forbes.

0

STORY Needs (Digital) Work

STORY – a concept described as “narrative retail” –  opened in 36 physical Macy’s locations last week. Curiously, there was no digital opening.

Narrative retail presents a theme-based, curated assortment that is reinvigorated with a new story every two months. It is meant to generate traffic, enhance the Macy’s brand and produce a reasonable amount of sales.  STORY’s opening theme is COLOR – with products, displays and scheduled events all celebrating the hues of our lives.

We visited STORY at two Chicagoland locations – the downtown State Street Macy’s and at Woodfield Mall. Neither location matched the description or pictures we saw of the Herald Square location. But they weren’t bad. At Woodfield, Story displaced the Coach handbag assortment on a prominent pad near the escalators. Two sales associates were happy to speak with consumers, the navigation was clear and I learned about future events.  There were fun gift giving items to buy under $30.

STORY’s physical execution turned out alright.  But there is a huge hole in Macy’s STORY strategy.

1) The STORY assortment is neither presented nor shoppable as a collection on Macy’s desktop website, mobile site, or app.

2) Macy’s desktop and mobile site feature an introduction to STORY, but the app does not.

3) No result appears if a consumer searches for STORY on the mobile site or Macy’s app.

4) If a consumer searches for a key item from the concept – the Levi’s X Crayola jean jacket, for example – you can find it on Macy’s site – but the product page has no tie-back to the STORY concept.

5) If you look at Macy’s Instagram feed there is no mention of STORY – although there is #StoryatMacys

6) And at Woodfield, once the largest mall in America and still a powerhouse, there was no instagrammable location within the STORY pad.

Macy’s goal may be increased store traffic and brand awareness – but a digital-lite strategy will not have the impact Macy’s needs. Nearly 600 Macy’s stores will not have STORY shop-in-shops. The 36 that do will not look as good or have the impact that the execution in Herald Square presumably has. The instagrammable moments there look fun.

A strong digital strategy and investment including shoppable collections could introduce STORY to a much broader audience, drive purchase, drive visits to the store, drive add-on purchases during a BOPIS transaction, and ultimately have a greater impact on Macy’s.

We hope this move comes in the future.

This article first appeared in Forbes.

0

Walmart Buys ELOQUII – A Smart Move to Address an Under-served Market

Walmart continues its transformation into a true omnichannel retailer with the purchase of ELOQUII, a well-positioned digitally native brand competing in the $21 billion and growing plus-sized market.

The brand will join other recent Walmart acquisitions like Moosejaw, Bonobos and ModCloth which serve their customers in both the online and offline world but find their roots squarely in the e-commerce space.

ELOQUII was launched in 2011 by The Limited but was a short-lived experiment that was shut down a mere 18 months later. The brand relaunched as an independent, vertically-integrated e-commerce business. It reaches the growing and under-served plus sized women’s market, which is defined as sizes 14 and above. This market represents a huge portion of US consumers with nearly half of American women qualifying under this definition. Yet, it remains particularly under-served by US retailers, particularly from a physical store standpoint.  While market share data is difficult to obtain in this category (primarily due to a clear definition of what constitutes “plus size”), Walmart is the largest competitor in the space by virtue of sheer size, followed by Ascena which operates several specialty formats dedicated to this customer. Others have recognized the opportunity, with Kohl’s announcing just last week the introduction of their EVRI brand.

Andy Dunn, former founder of Bonobos and now Senior VP of digital consumer brands for Walmart U.S. noted in his blog post, “We know they’re looking not just for basics, but also for on-trend pieces that allow them to express their individuality. This is a segment of the market that has been historically underserved and neglected. We believe she deserves better. Today we stand in solidarity with her by acquiring a brand whose sole focus is to exceed her expectations.” ELOQUII CEO Mariah Chase, her executive team and the company’s 100 employees will join Walmart’s U.S. e-commerce division, reporting to Dunn.

While some of Walmart’s prior acquisitions in the digital space (including Bonobos) have been headscratchers in terms of understanding the fit between their business and Walmart’s core consumer, this one makes tremendous sense. No one is better positioned than Walmart to reach this consumer and ELOQUII’s addition brings talent and a deep understanding of the target.

Again, Walmart shows that it is not standing still.

By Neil Stern

Neil Stern for Forbes

0

Starbucks Innovates At Home And Abroad With Princi And Alibaba

It’s been a busy week for Starbucks. After acquiring Milan-based Princi last year, Starbucks finally opened the first of what is planned to be a 1,000 store standalone bakery concept in their hometown of Seattle. Customers have been able to sample Princi goods inside their Roastery concept in Seattle since last Fall and in the newly opened Reserve concept located in the building headquarters.

The freestanding Princi is located in the hip Denny Triangle neighborhood. The menu features sandwiches, salads, soups, and pastries. And of course, Starbucks coffee including the Princi blend. Locations in New York and Chicago are set to open this Fall. I had a chance to visit the newly opened store in Seattle and I was impressed. Great artisinal bread is a lost art in the U.S. and Princi certainly delivers. I would be more excited about the concept if I also hadn’t visited freestanding Teavana tea café’s and La Boulange bakeries. These are two businesses that Starbucks also acquired, later to shut down. While Princi offers great promise, both as a freestanding concept and as a way to upgrade the in-store offer, there is also reason to be skeptical given their past track record.

At the same time, the company has also announced an ambitious partnership with Alibaba in China. The broad ranging partnership is centered on three activities:

  • Utilizing the Alibaba platform, starting in September, Starbucks will leverage Ele.me’s 3 million registered delivery riders to deliver its coffees, teas and food to Chinese consumers. The initiative will start at 150 of its stores in Shanghai and Beijing before expanding to 2,000 store in 30 cities by the end of the year.
  • Inside the innovative Hema stores, Starbucks Delivery Kitchens will complement the delivery of coffee and tea offered through existing Starbucks stores. The first of these fulfillment hubs will launch in Shanghai and Hangzhou next month, with other Delivery Kitchens opened in other cities over time. Hema is the fresh supermarket that also doubles as a mini-fulfillment center to deliver groceries in as quickly as 30 minutes to the surrounding neighborhood.
  • Finally, Starbucks will be partnering on a virtual store (on their own and Alibaba’s multiple platforms) to allow customers to order product, buy merchandise or send a gift card.

What is fascinating about these two stories is the example of multi-pronged innovation. Starbucks is simultaneously upping the experience through Princi while going all in on convenience and immediacy of delivery with Alibaba. Both strategies likely have a place in retail’s future.

Finally, and perhaps it goes without saying, Starbucks shares a hometown with a little company called Amazon, which is a chief rival on a global level with Alibaba. Perhaps another partnership will be in the marking?

By Neil Stern

Neil Stern for Forbes

0

Walmart Divests Its Brazilian Operations as They Continue to Reshape the Global Map

A Wal-Mart Stores Inc. location stands in Sao Paulo, Brazil, on Friday, Jan. 15, 2016. Photographer: Patricia Monteiro/Bloomberg

Walmart announced that it is selling 80% of the Brazilian operations to Advent International, a private equity investor with extensive holdings in Brazil. When completed, Walmart will retain a 20% stake in the company. Walmart expects to record a non-cash, net loss of approximately $4.5 billion as a discrete item in the second quarter, a significant portion that they attribute to the recognition of cumulative currency fluctuation losses.

In a few dramatic weeks, Walmart has reshaped their international operations. It began with the sale of Asda for nearly $10 billion to Sainsbury, which follows a similar deal structure where 20% of the combined business is being retained. Walmart then made a huge move in India with the $16 billion acquisition of 77% of Flipkart. And now, Brazil.

It is pretty clear that Walmart has made several strategic bets, and exits, of markets where it feels it can be long term winners, and losers. On the surface, Brazil is a head shaker since it represents one of the larger emerging markets. But, after nearly 20 years of operating there (entered Brazil in 1975), Walmart was no closer to solving that market. According to Eduardo Yamashita, Managing Director of GS & Intelligence in Brazil, Walmart’s lack of success in Brazil could be attributed to a number of factors, from significant international and local competition to Walmart’s “struggle to gain economies of scale in IT systems, logistics and formats and to appropriately localize their business to meet the needs of a diverse Brazilian population”.  Added to that, Brazil is an extremely complex country in which to operate, and their political instability hasn’t helped.

I believe that this deal probably represents the culmination of their global repositioning. Walmart emerges as a leaner (at least from an International perspective), more digitally-focused enterprise. While much can be written about their successes and failures in each respective market, this activity underscores the difficulty of expanding any retail operation to a global scale. As much as sheer size, capital and operational efficiencies play a role, retail, at its heart, remains a deeply local business.

By Neil Stern

Neil Stern for Forbes

0

Walmart, Continuing To Court A New Kind Of Customer, Paints It Jetblack

As the excitement of Walmart’s annual meeting dies down this week, it is pretty clear that the company is making a concerted attempt to court a more upscale consumer. The new website delivers a more lifestyle-driven experience that simplifies navigation and significantly declutters the homepage. But it may also signal less of a focus on low prices.

Much, of course, has also been made about acquisitions of more premium-focused brands and websites like ModCloth, Moosejaw and Bonobos. The central question (and one difficult to answer) is whether Walmart’s ownership is a positive or a negative. There are indications from third-party analytics provider ComScore that traffic at all of these sites has declined. It remains to be seen as to whether that’s an indication of ownership or other marketing strategies being deployed.

The largest acquisition, of course, has been Jet.com, which was purchased for $3.3 billion. Jet’s traffic is also reported down, but Jet is playing an even more critical role in the world of Walmart, as Jet’s founder Marc Lore has now taken a much more prominent position in Walmart’s overall digital strategy.

Walmart WMT +2.02% just announced the launch of a new service, Jetblack, a $50-per-month personal-shopping service. The service gives customers access to personal shoppers through text message. Customers can send a text requesting a specific product, and Jetblack’s couriers will deliver the product as soon as the same day. Customers can also make more general requests, like a birthday or anniversary present, and Jetblack’s personal shoppers will send recommendations.

The service, as described in a press release, is targeted at “time-strapped urban parents” and uses “a combination of artificial intelligence practices and expertise from professional buyers across the home, health, parenting, fashion and wellness categories, as well as parents themselves.” The service will fulfill products from Walmart and Jet.com but also reach out to third-party retailers to complete orders.

While this is a fascinating idea, it also leaves perhaps more questions than answers:

  • Will customers pay $600 a year for a service? It is difficult to find comparable examples, but popular subscription services like Netflix and Amazon Prime cost considerably less.
  • Does the Walmart connection matter? Although marketed under Jet, will it suffer from any stigma of being associated with the parent brand, which does not exactly resonate with the target customer?

As always, I applaud Walmart for thinking outside the box. As the acquisition of Flipkart indicates, this is no longer the lumbering Bentonville giant, but a company that is not afraid to make some big bets. This service is an interesting one, both to understand if a company can monetize personalized service on a larger scale and to see if Walmart can successfully court a new customer base.

By Neil Stern

Neil Stern for Forbes

0

Amazon Primes the Pump at Whole Foods

Amazon’s acquisition of Whole Foods has been far from a smooth transition to date. Between culture clashes (the data driven approach at Amazon versus the emotional and experiential approach of Whole Foods), changes of policies to small vendors and systems integration with widely reported out of stocks, Whole Foods seems to have lost some of its retail mojo. To be fair to Amazon, Whole Foods was struggling to re-position itself prior to the acquisition.

I have been watching closely to see how Amazon would be working to make changes.  To date, I have seen the following:

  • Some very hyped (over-hyped) price cuts on a few hundred items within the store, mostly in perishables
  • The installation of Amazon pick-up lockers in many stores, which leverages convenience and presumably drives traffic
  • Amazon taking over delivery from Instacart in several markets, which replicates the rapid (1-2 hour) delivery model
  • Some “spot” price offerings linking discounts to Prime membership including a recent Mother’s Day special on tulips

Now, the long awaited integration appears to be happening.  Whole Foods announced the roll-out of a rewards program in Florida, where Amazon Prime members will receive 10% off hundreds of items initially and also have access to rotating weekly specials. Whole Foods believes this will be a significant off-set to its high priced reputation.

The move is one that I have been expecting since the onset of the announcement. There is extremely high overlap between the customer bases. CEO John Mackey estimates that there are 8 million Whole Foods shoppers who are also Prime members. According to Consumer Intelligence Research Partners (CIRP), it is estimated that there is a 40% overlap between Amazon and Whole Foods shopper base, with 80% of those customers having shopped recently. At the same time, Amazon has just raised the annual prime membership to $119 and needs to demonstrate that Prime will continue to add value beyond the most valued perk of free two day shipping.

And of course, ideally, this may spur further Prime membership for Whole Foods shoppers who are not part of the program.

I expect this to create a short term sales lift for Whole Foods. Long term, it provides Amazon with further data to understand omnichannel shopper behavior which can only benefit them more as Amazon continues to attack the retail food business on all fronts.  Another tidbit from CIRP is that grocery is now the second most shopped category (after electronics) on Amazon. Food will only continue to grow off a very small base.

By Neil Stern

Neil Stern for Forbes

0

The Story of Macy’s Acquisition

Macy’s announced its acquisition of Story today.

Story, the 2000 square foot location on 10th Avenue in Manhattan, opened in 2010 and has been rooted in the retail trends that consumers on the higher-end of the market have been migrating towards for over a decade.

Story made its name offering a limited time, curated assortment focused on a theme (or story) and consistently reinvented itself every two months.   It began by partnering with digitally native start-ups and evolved to work with retailers like Target and product companies such as Intel.  And in a time when co-working spaces are showing up in malls across America (or co-working spaces are hosting retailers), Story is experimenting with this as well.

Along the way, Story has hosted start-up pitch events which have included judges such as Neiman Marcus President and Chief Merchandising Officer, Jim Gold.  With the recent Macy’s acquisition, perhaps it is not coincidental that (Macy’s-owned) Bloomingdale’s CEO Tony Spring will be a judge at the next Pitch night – May 7th.

So why would Macy’s purchase a single concept?  Because STORY embodies one version of what retailers should be if they choose not to compete on the broadest assortment or on the lowest price.  Consistent newness.  Curated selection.  A chance to be surprised and delighted.

Of course…. this is something that department stores embodied in the past, and I’m sure Macy’s/Bloomingdale’s has the internal talent to create its own Story.  But Story neither has the internal red-tape, nor carries the staid legacy of the mother banners.

Given the size of the transaction, Macy’s isn’t hoping Story will improve its financials.  But maybe Story can help the larger company emphasize some of the fundamentals of retail.

By David Weiss

0

Instacart, Aldi and Everyone…Versus Amazon

Instacart has been on a roller coaster ride since its inception back in 2012.  The company has continued their rapid expansion, with service offered to nearly 70 million US households from over 200 retail partners based on location. Recent additions to the platform include Sam’s Club and Aldi.  The addition of Aldi is particularly powerful because it adds a clear low price option to their arsenal. With several divisions of Kroger also participating, Instacart now serves as a partner to the top eight largest grocers in the U.S.  Instacart has also added several prominent regional chains like HEB and Wegmans, following the prevailing wisdom of, if you can’t beat them, join them. Even retailers who maintain their own e-commerce platform like Ahold (which has e-commerce pioneer Peapod), has added Instacart in select markets to offer more immediate service. Instacart offers both a one-hour and two-hour delivery option.

The company is also continuing to invest heavily in technology, with a patent filed to allow self-checkout for their in-store shoppers which could significantly speed the picking and payment processing part of the business. At the same time, the company has also continued to raise capital. The latest $200 million Series E financing round now places the company’s value at a whopping $4.2 billion. Everything sounds great, right?  The current wrinkle in the business model is, you guessed it, Amazon. Whole Foods was both an early partner and equity investor in Instacart, with an estimate that 10% of Instacart’s sales were coming through the Whole Foods partnership. With Amazon’s acquisition, sales figures have begun to change with strong influence and a new offering. Amazon recently announced free two hour delivery through Whole Foods, with the service starting initially in four markets: Dallas, Austin, Cincinnati and Virginia Beach. The service has since expanded into San Francisco and Atlanta. Amazon provides a formidable challenge as Instacart still seeks to perfect its business model even among its rapid growth. The business model is not without its challenges, the least of which is a lack of transparency on the end prices to a consumer:
  • There is a delivery fee, of course. Raised from $5.99 for two hour delivery and $7.99 for one hour. Reasonable enough considering the speed of service. For a $149 annual fee, Express subscribers can get free delivery on orders over $35.
  • There is a “service” fee of 10% added to an order that is a bit murky. It is not a tip (which is still encouraged) but was designed to provide higher pay to their contract workers. Customers can opt out of this fee but requires an extra step.
  • There is a “mark-up” associated with shopping at some retailers. This is quoted at 15% but can be higher and retailers are not always transparent with how the pricing differs in the app versus prices in-store
  • And finally, there is tipping. While optional, it leaves another open question on what to tip and how much a consumer pays over in-store pricing.
Adding all of that up, there is a price for convenience and an acknowledgement that delivering groceries, fast, to a consumer’s home, comes at a cost.  Yet, the battle is on for what is now the promise of same day or even same hour delivery. Target recently acquired Shipt, an Instacart competitor, in order to have the ability to match fast delivery. For retailers, there is certainly a risk/reward to aligning with Instacart. Yes, it gets them in the game quickly and with little to no capital, but the process allows a third party to control. Many are offering their own services along with click and collect as a way to provide  consumers with multiple options. But, as always, it will be Amazon as the key player to watch. Whole Foods provided badly needed local infrastructure to their model. Whole Foods will need to sort through the myriad of options currently available (Prime Now, Amazon Subscribe & Save, Amazon Fresh) to create a coherent and profitable retail strategy. Neil Stern for Forbes
0

Is Jet Day In Our Future?

Jet announced the return of JetCash two weeks ago, and the normal noise that accompanies a Wal-Mart / Amazon announcement was… muted.

It shouldn’t be.

Amazon has proven that a company can create a shopping holiday. Prime Day generated nearly $1 Billion dollars in 30 hours, according to JP Morgan’s estimates. The return of JetCash may be the beginning of Wal-Mart’s attempt to duplicate Amazon’s success.

JetCash – a rewards program – allows registered users to earn one dollar of JetCash for every dollar spent on the site. Wal-Mart had previously shuttered the program after it acquired Jet, but announced its return – with a few changes – on September 25th. For every dollar spent between September 18th and October 29th, the customer will receive 5% JetCash, up to $50, that will be usable beginning on midnight on November 13th and ending on December 31st.

With Amazon receiving nearly 50 cents of every dollar spent online, Jet is attempting to slow that share-of-wallet growth by offering a new loyalty incentive. Jet will likely combine its JetCash season opener with a strong line-up of promotional discounts, opening the holiday shopping season with a catchy approach.

Just as other retailers plan ahead to compete on Prime Day, they should be looking at how to compete as “JetCash” season opens. Is this the beginning of a Jet Day in the future?

The combination of the US’s two largest retailers creating discount wars on unconventional dates will continue to apply pricing pressure on the retail sector and its slim margins.

0