Focus on: Retail Finance
Lending to retailers is once again on the rise, as capital flows back into the market and retailers that stayed afloat during the recession look to strengthen their competitive positions. During the economic downturn, the more nimble and savvy retailers cut costs, reduced inventory levels, renegotiated leases and closed underperforming stores.
Many of these retailers now have stable cash flows, lean operations and clean balance sheets, and are seeking financing to rebuild inventory and expand conservatively in new or existing markets. Fortunately, they’re finding that capital is once again available.
One factor is the return of private equity. Sponsors who held off on investing in the retail space during the recession are once again ready to invest and are pursuing well-positioned retailers. Another important factor is the presence of lenders with in-depth retail expertise who can look beyond comparable-store sales and other standard performance measures when determining a retailer’s creditworthiness and market value of its brand.
Loan structures are also shifting. Over the past 24 months, asset-based loans — loans secured primarily by the retailer’s inventory — were the most prevalent loan structures available. Today, an increase in the use of cash flow loans — a loan measured as a multiple of the retailer’s projected cash flows and sized according to the perceived enterprise value of the retailer — means more options are available to meet the specific needs of each retailer. These loans put both working capital and long-term debt at the retailer’s fingertips, facilitating the purchase of inventory as well as supporting acquisition bids.
The increase in loan volume is evident in looking at figures for the first six months of 2011. Total non-investment grade leveraged retail loan volume was $34.4 billion, up from $27.7 billion in all of 2010, according to Thomson Reuters LPC. The data also show that cash flow lending, with $20.5 billion in volume, far outdistanced asset-based lending, with a volume of just $13.8 billion for January through June of this year.
While there are clear signs of growth and revival within the retail sector, not all segments are recovering from the downturn at the same rate. Discount and luxury consumers are shopping, albeit at lower levels, while the aspirational consumers — those who covet and purchase items outside of their typical budget — continue to largely delay spending.
Also, the double dip in the housing market is reverberating through the retail sector, particularly impacting those retailers selling household durable goods, such as furniture, electronics and appliances, according to Property and Portfolio Research (PPR), U.S. Census Bureau and Moody’s Analytics.
Looking toward 2012, the health of the sector and the availability of credit will depend largely on macroeconomic factors. The financial markets remain volatile, and the struggling economy, weak housing market, high unemployment and political uncertainty will all have an impact on corporate retail finance.
Investors are also keeping a close eye on the commercial real estate market. Retail property values are rebounding in the top 10 retail metro areas, according to CoStar, and PPR data show retail vacancies receding as demand rises. In areas where lease rates remain low, some retailers are pursuing new leases, triggering a need for increased inventory levels and perhaps new financing. But in most markets lease rates continue to be pressured by excess supply.
Overall, investor appetite is expected to track the economy. Still, the future of retail finance appears strong. Consumers are shopping again, although not at pre-recession levels.
With lots of dry powder after the past few years fueling a strong appetite for retail among lenders and investors — and barring a severe economic downturn — this critical part of the economy should have plenty of capital to grow.
Jim Hogan is senior managing director, GE Capital, Corporate Retail Finance, a leading provider of senior secured loans and leases that meet the unique capital needs of midsize and large retailers from specialty to big-box stores (gecapital.com/americas).
Walgreens profit leaps 69% in Q4
DEERFIELD, Ill. — Walgreens reported Tuesday that profit for its fiscal fourth quarter surged 69%, in part due to gains from the $525 million sale of its pharmacy benefits management business Walgreens Health Initiatives during the quarter.
Net income for the quarter ended Aug. 31 rose to $792 million, up from $470 million in the year-ago period and surpassing Wall Street expectations.
Revenue rose 6.5% to $18 billion and same-store sales increased 4.4%.
For the full fiscal year, Walgreen reported earnings of $2.71 billion on $72.18 billion in revenue.
“Through constant innovation and effective execution of our key initiatives, we continued to make substantial progress this year in the transformation of Walgreens to become the first choice for health and daily living,” said Walgreens president and CEO Greg Wasson.
In the fourth quarter, the company opened or acquired 59 stores compared with 65 in the year-ago quarter. In fiscal 2011, Walgreens added a net gain of 199 new drug stores including 32 acquisitions, on target with its plan to slow organic store growth to between 2.5% and 3% during the year.
The company also said that it completed its 2009-set goal during the fiscal year to convert or open 5,500 Walgreens stores to its new customer centric format. And as announced earlier in the year, it plans to convert or open at least 1,000 “food oasis” stores over the next five years to address the need for greater access to healthy foods in underserved communities across the country, building on a 12-store pilot in Chicago.
Blend Social and User-Generated Content to Drive More Business Online
By Shaun Ryan, CEO, SLI Systems and Mike Hill, executive VP, Guidance Solutions
These days it seems more consumers are on social networks than aren’t, and that’s where they’re getting input from friends and family about what products to buy – or not. When someone posts a positive – or negative – comment on Facebook, Twitter or elsewhere about your brand, it’s one thing to spot it and respond. But there are many more things you can do to showcase the good comments and other user-generated content on your site, to improve the visitor experience, strengthen your brand and drive more conversions and revenue online. There are also ways you can leverage social networking sites to gain more visibility for your products, your promotions and other marketing activities.
Below are some tips for actions you can take that give more visibility to the social sharing your customers are doing that will strengthen your brand – and your business.
- Leverage Social for all it’s worth with Cause Commerce. According to a Cone survey, 79% of consumers stated they would switch from one brand to another if the alternative was associated with a cause they were passionate about. If your company already has a named charity for employee volunteer time or donations, consider taking it one step further by bringing your charity into your e-commerce strategy. This can include highlighting your involvement with a charity or cause on your website, or can be as sophisticated as a social commerce storefront on Facebook. For example, GiftsThatGive, a caused-based retailer, donates $1 of every $5 to the cause of their customers’ choice. Their new Facebook Store allows visitors to create their own Facebook store, choose which products they want to sell, and set a fundraising goal for the charity of their choice.
- Implement Facebook Sign-In for your store. A more advanced integration between Facebook and your e-commerce site is allowing visitors to use their Facebook profile as their account on your store. This reduces the number of steps and amount of information visitors need to provide to create an account with your site. This functionality can also trigger personalized content for the user based on their friends’ activity on the site. TripAdvisor does a good job of encouraging Facebook Sign-In and using friends’ activity to promote certain destinations or trips.
- Index social media and user-generated content in site search results. If you have blogs, Twitter feeds, Facebook wall posts, videos on YouTube or photos on Flickr, all of this content should appear on your site search results pages – possibly in a separate tab, as Yarn.com handles it. When you allow people to find all this informative non-product content in their searches, you’re helping them do their research before they buy – which can mean the difference between putting an item in their shopping cart and leaving your site.
- Place Facebook “like” and Google +1 buttons on product pages. This will encourage site visitors to share your products with their friends. In addition, these “like” buttons can improve your page’s ranking on Bing and Google. You can also import the number of likes that each product has into your site search index and allow your site visitors to reorder site search results so the products with the most “likes” are ranked highest.
- Add site search to your Facebook page. By adding a search box to your company Facebook page, you encourage visitors to search and shop from directly within Facebook, rather than requiring them to leave and go to your site. The results will appear right on your Facebook page, which gives them an opportunity to “like” the results so they’re shared socially. This is a good way to build stronger relationships with shoppers who like to combine shopping with social networking. Make Me Heal and Chaparral Motorsports are good examples of this.
- Make user ratings and reviews searchable. If you’re like most online retailers, you probably have user ratings and reviews on your site – a great way to help visitors see how other people like your products. There are several ways to showcase this content in search: by showing star ratings in search results and allowing visitors to sort or refine results by the number of stars (so they only see four- and five-star ratings, for example); or by allowing visitors to navigate and search through reviews, particularly when there are many reviews to read for a particular product. For example, Abe’s of Maine, an online camera and electronics retailer, makes their reviews easier to navigate by allowing people to select certain criteria so they see only reviews that are relevant to what they’re looking for.
- Encourage user-generated content and tie to social networks. When Guidance designed TOMS Shoes, the UX & design group combined customers’ passion for the popular canvas shoe and social network activities. The How We Wear Them section allows users to upload a photo of themselves wearing their favorite pair of TOMS Shoes. The customer associates the shoe in the photo to an SKU in the catalog, linking directly to that Product Detail Page and is then prompted to share the photo on Facebook. These images are then represented as thumbnails on the Product Detail Page, adding a social touch to the buying experience!
They say that your customers can be the best form of advertising – and in today’s socially connected online world, that’s never been more true. By exercising the suggestions above, you can blend your customers’ feedback and social activities into your online marketing efforts, and effectively drive more visibility and credibility for your brand.
Shaun Ryan is CEO, SLI Systems. Mike Hill is executive VP, Guidance Solutions.