ECOMMERCE

Delivery wars heat up as two more retailers expand same-day services

BY Deena M. Amato-McCoy

Best Buy and Macy’s are stepping up their same-day delivery efforts as they continue to bolster their defenses to compete with Amazon and other rivals.

Best Buy announced on Thursday it is expanding its same-day delivery of online orders from 13 metro areas to 27, with more to come. The retailer expects that customers in nearly 40 cities will be able to take advantage of service for the holiday selling season.

In addition, Best Buy is slashing the fee for the service, dropping the price per order from $14.99 to $5.99. Also, more products are being made eligible for the service.

The retailer said its same-day deliveries will be handled by two companies that use a crowdsourced labor model, including our original partner, Deliv.

Also on Thursday, Macy's announced that, starting this fall, it is expanding its same-day delivery of products purchased online to 15 more markets across the United States, which will bring the program to a total of 33 markets. Bloomingdale’s will expand into two additional markets.

The fee for same-day delivery service is $8 for all online purchases that meet Macy’s ($99) or Bloomingdale’s ($150) free shipping thresholds, and $8 plus standard shipping costs for anything less. Macy’s same-day delivery program is done in collaboration with Deliv.

Best Buy began testing same-day delivery in the Bay Area in late 2015, and expanded it to Atlanta, Boston, Chicago, Dallas, Houston, Las Vegas, Los Angeles, Miami, New York, Philadelphia, Seattle and Washington, D.C., in 2016. Beginning Sept. 6, same-day delivery will expand to the following cities: Austin, Charlotte, Cincinnati, Columbus, Denver, Kansas City, Minneapolis/St. Paul, Orlando, Phoenix, Pittsburgh, Sacramento, San Antonio, San Diego and Tampa.

Macy’s launched its same-day delivery service in 2014. It is currently available in the following markets: Atlanta; Boston; Chicago; Dallas; Houston; Las Vegas; Los Angeles; Miami; New Jersey; NYC Metro (Manhattan, Brooklyn, Queens, Yonkers); Orange County, California; Philadelphia; San Francisco; Seattle, and Washington, D.C.

The new markets being added are: Austin, Texas; Charlotte, N.C.; Cincinnati; Columbus, Ohio; Denver; Grand Rapids, Mich.; Kansas City, Mo.; Minneapolis-St. Paul; Orlando, Fla.; Phoenix; Pittsburgh; Sacramento, Calif.; San Antonio, Texas; San Diego, Calif; and Tampa, Fla. Bloomingdale’s will expand into two additional markets: Orlando, Fla., and San Diego, Calif.

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FINANCE

Five Below bullish as Q2 profit, sales beat the Street

BY Marianne Wilson

Five Below celebrated its fifth anniversary as a public company with an exceptionally strong second quarter performance that topped expectations.

Revenue rose 28.7% to $283.3 million in the quarter ended July 29, topping analysts' estimates of $276.6 million. Same-store sales jumped 9.3%, the highest since the chain's IPO in June 2012.

Five Below reported net income of $16.8 million, or 30 cents a share, compared to $9.8 million, or 18 cents a share, in the year-ago period. Analysts had expected earnings of 26 cents a share. Operating income increased by 67.4% to $26.3 million from $15.7 million.

"Our strong second quarter results demonstrate the amazing appeal of the Five Below brand," said Joel Anderson, CEO. "We exceeded the high end of our sales, comp and earnings outlook. Our top line results were accompanied by strong margin expansion, resulting in over 70% net income growth.”

On the company's quarterly call with analysts, Anderson noted that, since Five Below's IPO, it has nearly tripled its store count, more than tripled its revenue, and quadrupled its net income.

"What makes us even more remarkable is how consistent our growth and results have been," Anderson said. "It definitely feels great to celebrate this milestone anniversary with one of our best quarters of sales, comp and earnings growth ever as a public company."

Anderson noted that the retailer saw solid broad-based performance across all its worlds (key merchandise departments), with notable contribution from the spinner trend. Neil Saunders, managing director of GlobalData Retail, commented that there are many reasons for Five Below's success, including improvements in its merchandise mix. Categories such as technology now have more authority, he said, and include far more 'must have' lines. An updated store format, which includes greater visual appeal, brighter lighting, better signage and better defined worlds, is also proving a boon.

"The refreshed format, which makes product display across several categories more compelling and engaging, has also been beneficial," Saunders said. "This is helping to improve the return on investment from new stores and is aiding productivity at older stores where it has been applied. Again, there is much more runway here, so Five Below will likely accrue further benefits as the year progresses."

Five Below opened 31 new stores in the quarter, giving it a total 584 stores in 32 states. The company has said it sees the potential for 2,000 stores plus, a number analyst Saunders called "reasonable."

"One of the more encouraging aspects of Five Below's store expansion program is its ability to flex across different types of markets," he said. "The company now comfortably operates stores in rural, suburban, and urban locations. This allows much more headroom for growth and puts it ahead of other discount operators, many of which are still experimenting with urban shops." (For more, click here.)

For the third quarter, Five Below estimates earnings of 11 cents to 13 cents a share on revenue of $241 million to $246 million. Analysts had forecast earnings of 12 cents a share on revenue of $242.8 million.

"We are focused on the all-important fourth quarter and executing our strategic initiatives, which include continuing to provide a differentiated in-store experience, offering amazing, trend-right, quality merchandise at value prices, introducing new customers to our brand and increasing awareness while building out our infrastructure to support our 2,000+ store opportunity," Anderson said.

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FINANCE

Analyst: Five Below posts ‘stunning set’ of second quarter numbers

The spinner craze continues to benefit Five Below which has produced a stunning set of second quarter numbers, beating even its own high expectations. Total sales rose by almost 29% over the prior year, supported by a 9.3% uplift in comparables. Meanwhile, a substantial expansion of margins fueled bottom line growth where net income was up by 71.4%.

As helpful as spinners have been, and as successful as Five Below has been in capitalizing on the craze, it would be unfair to attribute all of the group's success to this one trend. Certainly, spinners have helped to drive footfall and increase customer numbers, but we also believe that several other factors have boosted growth this quarter.

Foremost among these are improvements to the assortment. Categories like technology now have more authority, include far more 'must have' lines, and deliver some very compelling prices. These 'wow' products have proved popular among existing shoppers, and there is some early evidence that they are helping to draw in new customers. Fortunately, the process of range enhancement seems to be an ongoing process and, as such, we believe it will provide buoyancy to future quarters.

The refreshed format, which makes product display across several categories more compelling and engaging, has also been beneficial. This is helping to improve the return on investment from new stores and is aiding productivity at older stores where it has been applied. Again, there is much more runway here, so Five Below will likely accrue further benefits as the year progresses.

A smaller, but still important, contribution came from the later than usual tax refunds. This acted both as a slight drag on first quarter numbers and also provided a small but measurable boost at the start of the second quarter.

On top of these favorable dynamics, Five Below continues to expand at pace. Over the past year, store numbers have risen by 18.9%, and the company now has 584 stores across 32 states. That new shops quickly become profitable is allowing Five Below to drive this kind of fleet expansion while still posting good gains on the bottom line. Ultimately Five Below has set itself a target of 2,000 US stores — a figure that we still see as reasonable.

One of the more encouraging aspects of Five Below's store expansion program is its ability to flex across different types of market. The company now comfortably operates stores in rural, suburban, and urban locations. This allows much more headroom for growth and puts it ahead of other discount operators, many of which are still experimenting with urban shops.

Looking ahead we are optimistic about the prospects for Five Below. Its assortment and the way in which it sells remains distinct from other discounters and has captured the attention and spending of younger demographics. This should insulate it from some of the competitive pressures in the market and ensure that it maximizes share in the new locations it enters. Meanwhile, more embryonic projects — like the push into e-commerce, will augment an already strong growth story.

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