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Commentary: Amazon wasting no time in leveraging Whole Foods Market

(Amazon's $13.7 billion purchase of Whole Foods Market will be finalized on Aug. 28. And that same day, Whole Foods will offer lower prices on some of its top-selling items. Amazon also plans to place lockers in Whole Food stores, and make Amazon Prime the grocer's customer rewards program.)

The takeover by Amazon always meant change was inevitable at Whole Foods. However, that change — much like the deal that facilitates it — is coming much faster than anyone imagined.

The announcement that Amazon will reduce prices on grocery staples at Whole Foods signals a clear intention to remedy what has been one of the grocery chain's biggest weaknesses. It will, at a stroke, help improve basket sizes, transaction values, and customer loyalty.

For the wider grocery market, this is not an immediate threat. Whole Foods remains niche, and its general proposition will continue to be more elevated than most grocers. However, rivals should be under no illusion that they are now dealing with a competitor that is not afraid to damage profits and margins if it creates long term gains. This will only add further pressure to already crimped margins in the sector.

The linking of Prime to Whole Foods is another smart move. Not only will this allow Amazon to target discounts and offers effectively, it will also give it significant intelligence on the preferences and habits of Whole Foods shoppers. Given that 70.3% of Whole Foods core customers are already members of Amazon Prime, the linkage covers a significant part of the existing shopper base.

Finally, the selling of Whole Foods branded products through Amazon's other channels is no surprise. Given the high regard in which the brands are held, this will provide a measurable improvement to Amazon's own food proposition. Moreover, it will facilitate greater volumes which will generate economies of scale and cost savings down the line.

Amazon is wasting no time in making the most of its newest division. Worryingly for others in the market, these things are only the opening salvo in what will be a time of rapid change.

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FINANCE

Ulta Beauty beats Street; on track to open 100 stores in 2017

BY Marianne Wilson

Ulta Beauty turned in another winning quarterly performance, besting analysts' earnings and sales estimates. The beauty powerhouse also raised its fiscal 2017 guidance.

One of the few specialty retailers with an aggressive store opening program, Ulta Beauty said it remains committed to opening 100 new locations in 2017. It will also remodel 11 stores and relocate seven others.

Ulta Beauty earned $114 million, or $1.83 a share, in the second quarter ended July 29, compared with $90 million, or $1.43 a share, in the year-ago period. Analysts had expected earnings of $1.78 a share.

Net sales rose 20.6% to $1.29 billion, from $1.07 billion a year ago, also better than expected. E-commerce sales grew 72.3% to $96.3 million from $55.9 million in the second quarter of fiscal 2016, representing 340 basis points of the total company comparable sales increase of 11.7%.

"We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers through our industry leading loyalty program." said Mary Dillon, CEO. "We are also benefitting from continued success of our marketing programs, rapid growth in e-commerce, and solid operational execution across the enterprise."

Ulta Beauty's second quarter same-store sales rose 11.7%, in line with expectations. But the growth was less than the 14.4% increase in the year-ago period, much to the great disappointment of Wall Street.

On the chain's quarterly call, Dillon seemed unfazed. “We exceeded the high end of our guidance for total company sales driven by strong new store productivity," she told analysts. She also said that the company elected to “prioritize earnings growth and margin expansion over comp sales growth.”

Ulta raised its fiscal 2017 guidance and said it now expects comparable sales growth of approximately 10% to 11%, including the impact of the e-commerce business, compared to previous guidance of 9% to 11%.

It expects net sales in the range of $1.33 billion to $1.35 billion for the third quarter, up from $1.13 billion in the prior year period. Same-store sales, including e-commerce sales, are expected to increase 9% to 11%.

As of July 29, 2017, Ulta Beauty operates 1,010 retail stores across 48 states and the District of Columbia.

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C-SUITE

Target Q&A with its new chief strategy and innovation officer

BY CSA STAFF

On Sept. 11, Minsok Pak will step into the role of executive VP, chief strategy and innovation officer, for Target Corp.

In the Q&A below, posted on Target's website, the retailer spoke with Pak about his past work with consumer brands, and the challenges facing retail today.

You’ve worked for consumer brands, including The LEGO Group and LG Electronics, and have two decades of experience as a consultant with McKinsey & Company. How did you get your start in your career and what keeps you going?

I thought I was going to be a PhD in Economics but during my senior year I realized I didn’t have patience for academia. I wanted to be doing stuff – having impact – not just focusing on research. I was fortunate enough to join McKinsey & Company fresh out of college and quickly learned a lot about different business industries and functions. It was fast-paced, intellectually stimulating, and I got to work with some terrific people. Before I knew it, I’d spent nearly two decades there.

I love tackling new challenges and working with great teams to drive growth in a business. I get energy from staying curious and looking for ways to create impact. Throughout my career, I’ve had the privilege of being a part of a number of significant transformations. It‘s the idea of being in an environment where there's a lot of change happening and the opportunity to make a difference that excites me.

I‘ve focused on consumer and retail industries because they‘re tangible and real – we’re all consumers and we all shop. And retail today is one of the most dynamic industries, with seismic changes in both competitive and consumer behavior.

What do you think is the biggest challenge retailers are facing today?

Retailing used to be about brick and mortar – having convenient locations, the right products on shelves, and the best prices. That’s no longer the case. With digitization, consumers have a lot more options and access. They have higher expectations when it comes to experiences, personalization, and engagement. In order to succeed, retailers must fundamentally change their business models.

You’re a triathlete. What has that taught you about business?

Training for and competing in long-distance triathlons forces you to have a long-term goal, make difficult trade-offs, execute with discipline, and adapt when variables change. I‘ve also learned not to put boundaries on myself. I believe we are often our worst enemy because we self-impose limits on what we can accomplish. And these lessons apply in my professional life, too.

Your first day is coming up. What’s your top priority once you’re settled in?

Buying a winter coat! In all seriousness, my top priority will be to get up-to-speed quickly. Target is a nearly $70B retailer with 1,800 locations competing in an extremely dynamic retail environment. My goal will be to learn about all of the terrific things already underway and to work with the team to continue building for the future.

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