American banks have been shuttering branches located within supermarket chains at a rate seven times faster than other locations amid the industry’s profit squeeze and customers’ migration to digital channels.
Banks closed 10.7% of their in-store branches in the year ended June 30, according to Federal Deposit Insurance Corp. data. The closure rate for other branches was 1.4% in that period.
Most branches within grocery stores are operated by regional banks, which have been under pressure since the March collapse of Silicon Valley Bank. PNC, Citizens Financial and U.S. Bank shut the most in-store locations during the 12-month period at chains including Safeway and Stop & Shop. Among retailers, Walmart houses the most bank branches with 1,179, according to an S&P Global report released this week.
While the financial industry has been closing branches for years, the pace accelerated sharply in 2021 after the pandemic turbocharged the adoption of mobile and online banking. That year, banks closed nearly 18% of their in-store branches and 3.1% of other locations, S&P Global said.
“In-store branches have fallen out of favor at many banks,” said Nathan Stovall, head of financial institutions research at S&P Global Market Intelligence. “We’ve seen banks look to shrink their branch networks, with a focus on cutting less-profitable branches that generate less customer traffic and fewer loans and high net worth accounts.”
Banks began building branches inside supermarkets in the 1990s because the scaled-down locations were far cheaper to set up than regular locations. But the industry now views branches as a place to entice customers with wealth management accounts, credit cards and loans rather than just a place to withdraw money, and that favors full-sized branches.
The pace of closures has slowed since the 2021 peak, but are still at an elevated level compared to before the pandemic. For instance, in 2019, banks shut 4.2% of in-store locations and 1.7% of other locations.
The moves come as the industry is adjusting to higher funding costs as customers have moved balances into higher-yielding options like money market funds. U.S. banks registered a 15% decline in deposits from in-store branches, while deposits at other branches fell 4.7% in the year ended June 30, according to the FDIC.
An employee looks for items in one of the corridors at an Amazon warehouse.
Carlos Jasso | Reuters
Amazon warehouse workers are suffering physical injuries and mental stress on the job as a result of the company’s extreme focus on speed and pervasive surveillance, according to a new study.
The study, released Wednesday by the University of Illinois Chicago’s Center for Urban Economic Development, includes responses from 1,484 current Amazon workers across 42 states and 451 facilities, in what the authors are calling the largest nationwide survey of Amazon workers to date.
Nearly 70% of Amazon employees who participated in the survey said they’ve had to take unpaid time off due to pain or exhaustion suffered on the job in the past month, while 34% have had to do so three or more times. The most common injury reported by workers was sprains, strains or tears, and nearly half of respondents said they had moderate or severe pain in the leg, knee or foot in the last three months on the job. More than half of workers said they’re burned out from their work at the company, and that response rate intensified the longer the employee had worked at Amazon.
The data adds to a drumbeat of scrutiny around Amazon’s workplace safety and treatment of warehouse employees. Regulators, lawmakers, rights groups and employees have criticized Amazon — which is the second-largest employer in the U.S., behind Walmart — over its labor record. The researchers estimate Amazon is the largest warehouse employer in the country, accounting for an estimated 29% of workers in the industry.
Amazon had roughly 1.46 million employees globally, as of the quarter ended June 30, and the majority are warehouse and delivery workers.
The Occupational Safety and Health Administration and the U.S. Attorney’s Office are investigating conditions at several warehouses, while the U.S. Department of Justice is examining whether Amazon underreports injuries. In June, a Senate committee led by Sen. Bernie Sanders, I-Vt., also launched a probe into Amazon’s warehouse safety.
Amazon has said it has made progress on lowering injury rates and that the company has made adjustments to working environments in order to reduce strain and repetitive movements. It has begun to automate some tasks and is also rolling out more robotic systems in warehouse facilities that the company claims can improve safety, although that prospect has been debated.
Workers fulfill orders at an Amazon fulfillment center on Prime Day in Melville, New York, US, on Tuesday, July 11, 2023.
Johnny Milano | Bloomberg | Getty Images
About 64% of workers who participated in the survey said they feel the safety of workers is a high priority at Amazon, but that sentiment is lower among those who reported negative impacts to their physical health from the job.
The survey was funded by Oxfam America, and advocacy groups the Ford Foundation and the National Employment Law Project.
Amazon spokesperson Maureen Lynch Vogel disputed the study findings in a statement and said “there’s nothing more important” than employees’ health and safety.
“This is not a ‘study’ – it’s a survey done on social media, by groups with an ulterior motive,” Vogel said. “If anyone actually wants to know the facts, they can read the data that we publish each year and submit to OSHA, which shows that rates in our buildings have improved significantly and we’re slightly above the average in some areas and slightly below the average in others.”
Amazon said musculoskeletal disorders, or problems like sprains and strains are the most common type of workplace injury across all industries, adding that employees get adequate breaks and that the company provides mental health resources for staffers. Amazon also said it informs managers that productivity or speed shouldn’t be pressed at the expense of worker safety.
Safety critics have increasingly zeroed in on Amazon’s speedy pace of work and close monitoring of employee productivity as factors that lead to a heightened risk of injuries.
The survey results underscored that point, finding that those who reported injuries on the job while working at Amazon are more likely to say that keeping up is hard than workers who have not been injured.
Approximately 44% of workers surveyed said they couldn’t take breaks when they need to, according to the study. “A key mechanism for workers to maintain a fast pace of work without injury is the ability to take breaks and recover from periods of intense work,” the researchers said.
Amazon packages move on a conveyer belt at a fulfillment center in England.
Nathan Stirk | Getty Images
Employees pointed to “technology-enabled workplace monitoring” as something that reinforces the pace of work, while 53% of respondents said they always or most of the time “feel a sense of being watched or monitored in their work at the company.”
“We see clear evidence in our data that work intensity and monitoring contribute to negative health outcomes,” the researchers said.
Amazon uses a variety of metrics to measure warehouse workers’ activity on the job, the researchers said, including rate, or the number of tasks they’re expected to complete per hour; task time, which measures the average time between scans with a barcode scanner; and idle time, or “time off task,” which measures time a worker isn’t scanning items while on the clock.
Workers have argued that the time off task policy makes working conditions more strenuous and that it’s used as a tool to surveil workers. Amazon in 2021 adjusted its time off task policy so that it averages data over a longer period.
Venture-capital giant Softbank notched a $15 billion-plus gain on its 2016 deal to buy Arm Holdings when the artificial intelligence-enabling semiconductor firm went public last month. But not as many investors know about Softbank’s “other” big AI investment, Wilmington, Mass.-based software and robotics maker Symbotic, which Walmart has taken a big stake in itself.
That may soon change.
Symbotic, a company that has already generated market heat selling AI-powered robotic warehouse management systems to clients including Walmart, Target and Albertson’s, is partnering with Softbank to play in a potentially giant and transformative market. The two are teaming up in a joint venture called GreenBox Systems which promises to deliver AI-powered logistics and warehousing to much smaller companies, delivering it as a service in facilities different companies share. They say it’s a $500 billion market, and an example of the kind of change AI can bring to the economy at large.
If it works, GreenBox will reach companies that could never afford the multi-million dollar required investment, in the same way cloud computing puts high-end information tech within reach, said Dwight Klappich, an analyst at technology research firm Gartner.
“I’ve seen a lot of robotics tech and I’ve never seen anything like it in my life,” TD Cowen analyst Joseph Giordano said. “Compared to what it replaces, it’s like day and night.”
Erasing memories of a big WeWork real estate blunder
It might even mute the memory of Softbank’s most disastrous commercial real estate management investment ever, the notorious office-sharing company WeWork.
Like WeWork, GreenBox is a promise to fuse technology and real estate. Indeed, its sales pitch of “warehouse as a service” recalls the “space as a service” slogan in WeWork’s 2019 IPO prospectus almost exactly. The big difference: with WeWork, outside analysts struggled to identify what technological advantage WeWork ever offered clients over working at home or in traditional offices, let alone one that justified its peak valuation of $47 billion. WeWork today is worth under $150 million and is now under bankruptcy watch as it warned in August of its potential inability to remain “a going concern,” and more recently stopped making interest payments on debt, asking lenders to negotiate.
At GreenBox, the technology is the whole point, Giordano said. And unlike WeWork, which wanted people to change the way they used offices, Symbotic and GreenBox are out to let companies that already run warehouses boost efficiency and profits, he said.
“Contract warehousing exists today – but those operations are mostly manual,” said Robert W. Baird analyst Rob Mason.
Softbank owns more than 8% of Symbotic, according to data from Robert W. Baird, and took it public through a special purpose acquisition company last year. Softbank also owns 65% of the GreenBox venture, which launched with $100 million in investment by the two companies. Walmart owns another 11% of Symbotic, according to a proxy statement from the robotics company, and is by far its biggest customer until the GreenBox venture ramps up, accounting for almost 90% of revenue.
“We share the same vision of going big and going fast,” Symbotic CEO Rick Cohen said. “We believe this market is massive.”
Symbotic has generated stock-market excitement even before the GreenBox deal. Its shares are up 190% this year. Sales in its most recent quarter climbed 77%, and orders for its existing warehouse-management systems jumped to $12 billion – a backlog it would take the company years to fulfill Add in the $11 billion of Symbotic software and follow-on services GreenBox committed to buy over six years in July, and that backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.
The best indication of the future may be from Walmart, which bought its Symbotic stake as part of the companies’ deal to automate the retailer’s 42 U.S. regional distribution centers for packaged consumer goods.
The product is the reason why, analysts say.
At prices of $25 million to hundreds of millions, according to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, Giordano said, wasting much less space in the building.
The system works something like a disk drive that uses intelligence to store data efficiently and retrieve the right data on demand – but with boxes of stuff. And a large warehouse can use several different systems, piling up the required investment to get moving.
Because Symbotic’s system can track inventory down to the case easily, where stuff is put can be matched much more easily to incoming orders, making it possible to more fully automate order picking. It can also match the design of outgoing pallets to the layout of the store the pallet is headed to, speeding up unloading and shelf stocking, Klappich said.
But the biggest innovation the tech allows is in business models, rather than in technology itself. That hasn’t spread outside of giant companies yet, but Giordano and Mason say they think it will.
The AI’s precision will let multiple companies share the same warehouse, and even commingle their goods for efficient shipping without confusion, much as cloud computing lets multiple clients share the same computer servers, Mason said.
“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” Klappich said. “Larger-scale automation without the capital expense has been a challenge.”
Born out of stealth work with Walmart, minting a multi-billionaire
The idea grew out of a vision Cohen had when running his family’s grocery distribution company, C&S Wholesale Grocery, which he has grown to $33 billion in annual revenue from $14 million since 1974. Symbotic was founded in 2006, and worked in stealth mode for years while refining its prototypes with Walmart.
“I’ve spent my whole life in the outsourcing and [logistics] business with C&S, so, this — the ability to run warehouses for people — has always been on the plate, Cohen said in the July analyst call. “We said we’re going to take care of Walmart first. …We are now starting to say, I think we can do more.”
Symbotic and C&S have made the 71-year old Cohen one of America’s richest men, with a net worth hovering around $15.9 billion, according to Forbes.
Symbotic teamed up with Softbank to build GreenBox in order to preserve its own capital, Cohen told analysts. The joint venture was initially capitalized 65% by Softbank and 35% by Symbotic, for a total of $100 million. Analysts say the venture will require much more capital, possibly raised by having GreenBox itself borrow money in the bond market. Symbotic said it will use its share of the profits from sales to GreenBox to keep its equity stake in the joint venture around 35%.
“The question has been, who has the capital to set it all up?” Klappich said. “Softbank could be the key because they have deep pockets.”
The joint venture will buy software from Symbotic, then turn around and sell the warehouse space, equipment and related services as a package to tenants.
Many questions remain, and potential threats from Amazon, private equity
Much else about the new company remains unknown, beginning with the identity of its not-yet-announced chief executive, Mason said. The venture could either develop warehouses or rent them, though Symbotic said it will probably mostly rent them. Pricing for the warehouse-as-a-service is undisclosed.
But the rise of Greenbox more than doubles Symbotic’s potential market, and nearly doubles its backlog. Symbotic has said that its total market is about $432 billion, a figure chief strategy officer Bill Boyd repeated on the conference call when the GreenBox alliance was announced. Early adopters will be in businesses like grocery and packaged goods, with Symbotic expanding into pharmaceuticals and electronics over time, according to Symbotic’s annual federal regulatory filing this year.
The GreenBox market for smaller companies shapes up as another $500 billion of possible demand, Gartner’s Klappich said. The estimates are based on the number of warehouses in those industries, the likely percentage of warehouses in each whose owners can afford the technology, either independently or through GreenBox, and the average price of Symbotic-like systems.
The third quarter of the company’s fiscal year, which ends in October, illustrates how the company’s profits might scale. Revenue jumped 77% to $312 million, and its loss before interest, taxes and non-cash depreciation and amortization expenses shrank to $3 million. Mason says the company will turn profitable on an EBITDA basis in the fiscal year that begins this fall, before orders from GreenBox begin, and EBITDA will be “in the mid-teens” as a percent of sales by the following year.
Clients stand to save money all the way through the warehouse, Klappich said.
Giordano estimated the savings at eight hours of labor per outgoing truck. The technology can also cut space rental costs by allowing goods to be packed closer together and stacked higher.
Using the facility as a service will let seasonal companies cut back on the space and robot time they use during slow periods, rather than carry them all year. The warehouse should run with many fewer workers, Giordano said. And GreenBox will pay for upgrades to robots and software every few years, rather than making tenants invest more, he said.
Walmart led investors on a tour of its Brooksville, Fla. warehouse in April, and said technology investments like the Symbotic alliance will let profits grow faster than sales. More than half of distribution volume will move through automated centers within three years, improving unit costs by about 20% as two-thirds of stores are served by automated systems. The company has said little about the impact on jobs, but CEO Doug McMillon said overall employment should stay about the same size but shift toward delivery from warehouse roles.
Competition will be arriving soon enough, analysts say. Building something like Symbotic, and especially moving it down into the realm where companies other than global giants can afford it, takes a combination of technology, money and vision, Klappich said.
Amazon could expand into the space, using its warehousing expertise in a service that resembles its Web hosting business model, or private-equity firms awash in investable cash might acquire combinations of companies to produce competing products and business models, Klappich said.
For Softbank, the payoff if GreenBox works is potentially huge. Analysts on average project Symbotic shares to rise another 53% in the next year after pulling back amid recent recession fears, according to ratings aggregator TipRanks. With post-IPO estimates arguing that Arm shares will stagnate, and taking into account that Softbank paid a reported $36 billion for Arm in 2016, it’s possible Symbotic will be the bigger win in the end, at least on a percentage basis, as the 65% share of GreenBox rises in value.
Fidji Simo, chief executive officer of Instacart Inc., speaks during a Bloomberg Studio 1.0 interview in San Francisco, California, U.S., on Thursday, March 3, 2022.
David Paul Morris | Bloomberg | Getty Images
Instacart, the grocery delivery company that saw its business boom during the pandemic, priced its long-awaited IPO at $30 a share on Monday, and will become the first notable venture-backed tech company to hit the U.S. public market since December 2021.
The offering came in at the top end of the expected range of $28 to $30 a share, and values Instacart at about $10 billion on a fully diluted basis.There were 22 million shares sold in the IPO, with 14.1 million coming from the company and 7.9 million from existing shareholders. The stock is set to debut on the Nasdaq on Tuesday under ticker symbol “CART.”
The 11-year-old company, which delivers groceries from chains including Kroger, Costco and Wegmans, had to drop its stock price dramatically to make it appealing for public market investors. In early 2021, at the height of the Covid pandemic, Instacart raised money at a $39 billion valuation, or $125 a share, from prominent venture firms like Sequoia Capital and Andreessen Horowitz, along with big asset managers Fidelity and T. Rowe Price.
The tech IPO market has been largely shuttered since December 2021, as inflationary pressures and rising interest rates pushed investors out of risk and led to a plunge in the prices of internet and software stocks. Instacart’s performance, along with the upcoming debut of cloud software vendor Klaviyo, could help determine if other billion-dollar-plus companies in the pipeline are willing to test the waters.
Instacart has sacrificed growth for profitability, proving in the process that its business model can generate earnings. Revenue increased 15% in the second quarter to $716 million, down from growth of 40% in the year-earlier period and about 600% in the early months of the pandemic. The company reduced headcount in mid-2022 and lowered costs associated with customer and shopper support.
Instacart started generating earnings in the second quarter of 2022, and in the latest quarter reported $114 million in net income, up from $8 million a year prior.
At $10 billion, Instacart will be valued at about 3.5 times annual revenue. Food delivery provider DoorDash, which Instacart names as a competitor in its prospectus, trades at 4.25 times revenue. DoorDash’s revenue in the latest quarter grew faster, at 33%, but the company is still losing money. Uber’s stock trades for less than 3 times revenue. The ridesharing company’s Uber Eats business is also named as an Instacart competitor.
The bulk of Instacart’s competition is coming from Amazon as well as big brick-and-mortar retailers, like Target and Walmart, which have their own delivery services. Target acquired Shipt in 2017 for $550 million.
Sequoia is Instacart’s biggest investor, with a fully-diluted stake of 15%. While the Silicon Valley firm is sitting on a paper profit of over $1 billion on its total investment, the $50 million in shares it purchased in 2021 are now worth about one-quarter that amount.
Instacart co-founder Apoorva Mehta owns shares worth over $800 million, and is selling a small portion of them in the IPO. Mehta has been executive chairman since the company appointed ex-Facebook executive Fidji Simo as his successor as CEO in 2021. Mehta is resigning from the board in conjunction with the IPO, and Simo is assuming the role of chair.
Only about 8% of Instacart’s outstanding shares were floated in the offering, with 36% of those sold coming from existing shareholders. The company said co-founders Brandon Leonardo and Maxwell Mullen are each selling 1.5 million, while Mehta is selling 700,000. Former employees, including those who were in executive roles as well as in product and engineering, are selling a combined 3.2 milion.
Instacart, the grocery delivery company that slashed its valuation during last year’s market slide, filed its paperwork to go public on Friday in what’s poised to be the first significant venture-backed tech IPO since December 2021.
The stock will be listed on the Nasdaq under the ticker symbol “CART.” In its prospectus, the company said net income totaled $114 million, while revenue in the latest quarter hit $716 million, a 15% increase from the year-ago period. Instacart has now been profitable for five straight quarters, according to the filing. PepsiCo has agreed to purchase $175 million of the company’s stock in a private placement.
Instacart said it will continue to focus on incorporating artificial intelligence and machine learning features into the platform, and that the company expects to “rely on AIML solutions to help drive future growth in our business.” In May, Instacart said it was leaning into the generative AI boom with Ask Instacart, a search tool that aims to answer customers’ grocery shopping questions.
“We believe the future of grocery won’t be about choosing between shopping online and in-store,” CEO Fidji Simo wrote in the prospectus. “Most of us are going to do both. So we want to create a truly omni-channel experience that brings the best of the online shopping experience to physical stores, and vice versa.”
Instacart will try and crack open the IPO market, which has been mostly closed since late 2021. In December of that year, software vendor HashiCorp and Samsara, which develops cloud technology for industrial companies, went public, but there haven’t been any notable venture-backed tech IPOs since. Chip designer Arm, which is owned by Japan’s SoftBank, filed for a Nasdaq listing on Monday.
Founded in 2012 and initially incorporated as Maplebear Inc., Instacart will join a crop of so-called gig economy companies on the public market, following the debut in 2020 of Airbnb and DoorDash and car-sharing companies Uber and Lyft a year earlier. They’ve not been a great bet for investors, as only Airbnb is currently trading above its IPO price.
Instacart shoppers and drivers deliver goods in over 5,500 cities from more than 40,000 grocers and other stores, according to its website. The business took off during the covid pandemic as consumers avoided public places. But profitability has always been a major challenge, as it is across much of the gig economy, because of high costs associated with paying all those contractors.
Headcount peaked in the second quarter of 2022, Instacart said, “and declined over the next two quarters, reducing our fixed operating cost base.” At the end of June, the company had 3,486 full-time employees.
In March of last year, Instacart slashed its valuation to $24 billion from $39 billion as public stocks sank. The valuation reportedly fell by another 50% by late 2022. Instacart listed Amazon, Target, Walmart and DoorDash among its competitors.
The biggest area for cost reductions has been in general and administrative expenses. Those costs shrank to $51 million in the latest quarter from $77 million a year earlier and a peak of $102 million in the final period of 2021. Instacart said the drop was the “result of lower fees related to legal matters and settlements.”
Simo took over as Instacart’s CEO in August 2021 and became chair of the company’s board in July 2022. She was previously head of Facebook’s app at Meta and reported directly to CEO Mark Zuckerberg. Apoorva Mehta, Instacart’s founder and executive chairman, plans to transition off the board after the company’s public market debut, according to a 2022 release.
The company’s board also includes Peloton CEO Barry McCarthy, Snowflake CEO Frank Slootman and Andreessen Horowitz’s Jeff Jordan.
Instacart will be one of the first independent grocery delivery companies to go public. Amazon Fresh, Walmart Grocery and Google Express are all units of large corporations. Shipt was acquired by Target in 2017 and Fresh Direct, another direct-to-consumer grocery delivery company, was bought by global food retailer Ahold Delhaize in 2021.
Sequoia Capital and D1 Capital Partners are the only shareholders owning at least 5% of the stock. Instacart said those two firms, along with Norges Bank Investment Management and entities affiliated with TCV and Valiant Capital Management, have “indicated an interest, severally and not jointly” in purchasing up to $400 million of shares in the IPO at the offering price.
Instacart’s move into AI has come largely through a string of acquisitions in the past two years. Those deals include the purchase of e-commerce startup Rosie, AI-powered pricing firm Eversight, AI shopping cart and checkout solutions provider Caper, and FoodStorm, a software startup specializing in self-serve kiosks for in-store customers.
The company also touted its use of machine learning in predicting grocery availability for retailers and increasing consumer sales. It said its algorithms predict availability every two hours for the “large majority” of its 1.4 billion grocery items, and that more than 70% of customers purchased items through Instacart’s recommendation algorithm in the second quarter of 2023.
Goldman Sachs is leading the offering. That’s the former employer of Instacart finance chief Nick Giovanni, who was previously global head of the tech, media and telecom group at the investment bank.
No-frills discounter Aldi is the latest grocer to shake up the industry with big moves.
The German retailer announced this week that it plans to acquire about 400 Winn-Dixie and Harveys Supermarket locations across the Southern U.S. As part of the deal, it would take over operations of the stores, which are in Florida, Alabama, Georgia, Louisiana and Mississippi, and put at least some of them under the Aldi name.
The deal is expected to close in the first half of next year.
Aldi is already expanding aggressively across the country. It has more than 2,300 stores across 38 states. Separate from the acquisition, it is on track to open 120 new stores by year-end.
Like Trader Joe’s and fellow Germany-based rival Lidl, Aldi relies heavily on its own brands. About 90% of products it carries are Aldi’s private label, which allows it greater scale and lower costs in areas like marketing and the supply chain. Aldi also gets creative to keep costs low, including byreducing the size of a pasta sauce lid and other packaging and using electronic shelf labels that save on labor and materials.
As inflation cools, that could present a new challenge for Aldi — if shoppers revert to old habits like shopping at neighborhood grocery stores that may have higher prices, or opt for a favorite name-brand cereal or more variety. It’s also had to race to keep up with competitors’ online options, prompting Aldi to expand curbside pickup to more stores.
The privately held retailer did not share financial details of the acquisition. But the deal has big implications for publicly traded competitors including Walmart and Kroger, as well as regional grocers.
CNBC spoke to Jason Hart, the CEO of Aldi U.S., about why the company is doing the deal and how it sees Aldi fitting into a fast-changing grocery landscape. His comments were edited for brevity and clarity.
Why was Aldi interested in acquiring Winn-Dixie and Harveys Supermarket? Why acquire rather than build your own hundreds of stores in similar locations?
This acquisition provides us speed to market with quality retail locations, great people and a solid core business in a region of the country, the Southeast, where we’ve already had and experienced significant growth and success, but we also see much more opportunity and there’s much more consumer demand to meet.
Doing this [expanding] on our own organically, that has been our plan, and that has been our trajectory over a number of years, and in the Southeast as well. …. This acquisition really gives us the opportunity to accelerate all of those plans.
Jason Hart, Aldi U.S. CEO
ALDI Creative Quarter Studio/ Katrina Wittkamp
What should shoppers expect to see at those stores on the other side of the acquisition?
We’re currently evaluating which locations we’ll convert to the Aldi format to better support the communities that we’ve now got the opportunity to serve more closely. We’re going to convert a significant amount to the Aldi format after the transaction is closed and over the course of several years.
For those stores we do not convert, our intention is that a meaningful amount of those will continue to operate as Winn-Dixie and [Harveys] Supermarket stores.
In stores that you choose not to convert with the acquisition, will people start to see some of those Aldi products on Winn-Dixie shelves?
We can certainly see and imagine some future synergies and learnings from each other, whether that’s consumer insights, product ideas, merchandising ideas, but at this point, we just don’t have any definitive plans to announce.
We carry a limited number of SKUs [stock keeping units, the term used to describe each type of product carried by a retailer] first and foremost — a couple of thousand SKUs in our stores versus our competition that may have many times that — that drives higher volume per SKU, driving scale that provides efficiency both in our business and for our suppliers.
The dozens of brands and sizes and small variants of the same product — the result of that [in rival stores] is tens of thousands of products that isn’t necessarily the result of customer demand. It’s more so the brand’s demand for shelf space within those stores. And the result actually can frustrate customers by overcomplicating the shopping experience. At Aldi, we simplify that shopping experience for the customer, offering great quality and great prices.
Why do you think we’re seeing so many big moves in the grocery industry right now?
The way that consumers are shopping is changing quite dramatically. And also the drive to value. And obviously, there are alternative retail formats that are growing quicker than the traditional formats. We’re very proud to be one of those alternative formats that’s really disrupting the industry.
Consumers seem to be willing to try other ways to fill their grocery list, whether that’s through e-commerce, whether that’s through trying out discounters like Aldi, [and] trying out different products like private label.
When consumers are seeing these changes, and seeing other retailers and other products meet their needs, they change their shopping habits.
What are the trends with online and in-store sales now as the pandemic is more in the rearview mirror?
We’re now seeing equal growth in both our bricks-and-mortar sales and in our e-commerce sales. I would anticipate if I was to look at the crystal ball of the future, it’s going to go back to e-commerce growing slightly more than what bricks and mortar is both in the market and for Aldi.
A customer pushes a shopping cart full of groceries outside a Wal-Mart in Rogers, Arkansas, left, and a pedestrian passes a Target store in the Tenleytown neighborhood of Washington, D.C.
Getty Images
Target and Walmart are both catering to thriftier shoppers, but the two big-box retailers have seen very different outcomes when it comes towinning their dollars.
Walmart, the nation’s largest grocer, makes more than half of its annual revenue from selling groceries — a category that shoppers buy even when times are tight. Target draws only about 20% of its yearly revenue from grocery, making it rely more on sales of items such as clothing, earrings and throw pillows that customers may skip when feeling frugal.
Wall Street added to the confusion with its own counterintuitive moves. After earnings reports, it snapped up Target’s stock on Wednesday and sold off Walmart’s shares on Thursday. The potentially surprising moves could reflect the companies’ recent stock performance, since shares of Walmart are up about 10% this year compared with Target shares’ decline of about 13% during the same period.
Despite the differences, the companies showed they still have much in common. Target and Walmart leaders offered similar descriptions of American consumers who now think twice before spending money on nonessential items while paying more for food.
“As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials,” Target CEO Brian Cornell said on a call with reporters. “So that’s absorbing a much bigger portion of their budget.”
Walmart Chief Financial Officer John David Rainey echoed similar sentiments, describing consumers as “choiceful or discerning” on a call with CNBC.
Yet both executives added that shoppers can be persuaded to spend, with a good deal or when getting ready to celebrate holidays or seasonal events.
Here’s a closer look at three key ways that Target’s and Walmart’s most recent quarterly results diverged:
As shoppers head out into the world again, some retailers have seen double-digit declines in online spending.
Target followed that pattern in the second quarter. Its digital sales dropped by 10.5% year over year.
Walmart bucked the trend. E-commerce sales rose 24% for Walmart U.S. in the second quarter.
Both retailers pointed to curbside pickup as a major driver of online sales — a key differentiator from competitor Amazon.
Walmart chalked up online sales gains to store pickup and delivery, as well as more advertising revenue. It also credited its third-party marketplace, which is Walmart’s take on Amazon’s online business model. The online marketplace is made up of vendors who list items on Walmart’s website, which helps to expand the merchandise assortment and comes with a higher profit margin than selling online items directly.
Customers are also visiting Walmart’s website and app more often, Rainey said. The number of weekly active digital users grew more than 20%, he said on the company’s earnings call. The number of customers buying items on Walmart’s marketplace increased 14% in the second quarter, with double-digit growth across home, apparel and hard lines, a category that includes sports equipment and appliances.
Target has lagged behind in online sales. But it is making moves to try to turn around trends.
The retailer will roll out a remodel of its digital experience in the next three months, Target Chief Growth Officer Christina Hennington said on an earnings call Wednesday. She said the website will “include different landing experiences, more personalized content, enhanced search functionality, ease of navigation and other updates to bring more joy and convenience to our digital guests.”
Walmart, for its part, refreshed the look of its website and app in the spring.
For more than a year, Americans have generally shown reluctance to spring for new outfits, gadgets or other items that they can live without.
That’s made life harder for retailers, which rely on big-ticket and impulse-driven purchases to buoy sales. The merchandise tends to drive higher profits than selling the basics such as milk, bread and paper towels.
Rainey, Walmart’s CFO, pointed to signs that may be changing. He said there was “modest improvement” in discretionary goods in the second quarter, even though general merchandise sales still dropped by low double digits year over year. He said sales of blenders, hand mixers and other kitchen tools popped, as some consumers cook more at home.
Target didn’t see the same relief. Sales of frequency categories, such as food and beauty items, weren’t enough to offset weaker discretionary sales at the retailer.
Target’s Hennington said trends in discretionary categories “remain soft overall.” She pointed out some exceptions, including the popularity of a Taylor Swift vinyl and colorful Stanley tumblers designed with Chip and Joanna Gaines.
Both retailers, however, said they’re stocking up on essential items and placing more modest orders for discretionary stuff. Target, for instance, said at the end of the second quarter, its overall inventory levels fell year over year — but it intentionally reduced discretionary inventory even more.
Retailers have plenty to worry about as food prices remain high, interest rates rise and student loan payments return.
But Walmart and Target struck contrasting tones when speaking about the months ahead.
Target CEO Cornell said sales trends improved in July, but not enough to keep the company from cutting its outlook for the year. When asked about back-to-school shopping, Cornell and Chief Financial Officer Michael Fiddelke stressed it was very early in the season.
Walmart hit a more confident note. On the earnings call, CEO Doug McMillon said general merchandise sales outperformed the company’s expectations. He said the popularity of GLP-1 drugs, medications such as Ozempic that are used for diabetes and weight loss, could also drive foot traffic and revenue going forward.
And, he added, “the trends we see in general merchandise sales make us feel more optimistic about those categories in the back half of the year.”
McMillon said back-to-school has gotten off to a better start than the company predicted. He said that spending tends to correlate with consumer spending later in the year — which could be a positive sign for the critical holiday season.
“Typically when back-to-school is strong, it bodes well with what happens with Halloween and Christmas and GM [general merchandise] in the back half,” he said.
Target shared similar hopes that customers will open up their wallets and reverse the retailer’s sales slump as the season of pumpkin spice and gift-giving approaches. It saw traffic and sales trends improve in July, which it credited in part to spending for the Fourth of July holiday.
“We know our guests want to celebrate culturally and seasonally relevant moments and will be leaning into those moments in a big way in the third quarter and the upcoming holiday season,” Hennington said.
Stocks fell Wednesday for the second consecutive day as investors digested news from the Federal Reserve. The Nasdaq Composite fell more than 1.15%, while the S&P 500 dropped 0.76%. The Dow Jones Industrial Average slipped by 180.65 points, or 0.52%. August has been a rocky month for stocks, and the major averages are well in negative territory. Valuations have also been falling from their lofty heights. Follow live market updates.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on July 26, 2023.
Saul Loeb | AFP | Getty Images
The Federal Reserve released minutes from its latest meeting in July that showed officials are still concerned about the pace of inflation. Fed members also noted that more rate hikes could be coming unless conditions change. The Fed raised rates by a quarter percentage point at its July meeting, bringing the federal funds rate to the highest level in more than 22 years. The minutes also showed uncertainty among members, however, with some saying they thought the committee could skip a hike and see how previous efforts were affecting the economy.
Customers shop at a Walmart store on May 18, 2023 in Chicago, Illinois.
Scott Olson | Getty Images
Walmart‘s discount reputation keeps drawing customers. The big-box retailer raised its full-year forecast when it released its second-quarter earnings Thursday morning before the bell — a notable contrast to Target, which cut its forecast the day before. Walmart also topped analysts’ expectations for sales and profits. Chief Financial Officer John David Rainey told CNBC’s Melissa Repko that seasonal moments, such as the Fourth of July holiday and back-to-school, have helped drive sales. He also said Walmart is starting to see “modest improvement” with big-ticket purchases, which have seen weaker sales as consumers have focused on necessities such as food.
A view of a home that was destroyed by a wildfire on August 16, 2023 in Lahaina, Hawaii.
Justin Sullivan | Getty Images
The wildfires in Hawaii have left the town of Lahaina devastated. More than 100 people are missing and thousands more are homeless after the deadliest wildfire in the U.S. in more than century. The town of Lahaina in Hawaii will have to be completely rebuilt, and residents are now worried that outside developers will swoop in to buy up valuable land on Maui once the reconstruction process starts. Hawaii Gov. Josh Green even warned mainlanders not to invest in property, saying the Hawaii state government is considering acquiring land in Lahaina to protect it. Meanwhile, Hawaiian Electric, the state’s biggest power utility, is being investigated for the role it might have played in the fire, with a lawsuit arguing years of inaction and negligence contributed to the spread.
HOLLYWOOD, CA – JULY 20: General views of the ‘Barbie’ skyscraper billboard campaign at Hollywood & Highland on July 20, 2023 in Hollywood, California. (Photo by AaronP/Bauer-Griffin/GC Images)
Aaronp/bauer-griffin | Gc Images | Getty Images
Pink is the new black. “Barbie” has breezed past Batman to become the highest-grossing domestic movie in Warner Bros. Discovery‘s 100-year history. With $537 million at the domestic box office, “Barbie” has topped the company’s previous domestic record set in 2008 with “The Dark Knight.” The bubblegum pink box office hit has earned more than $1.2 billion worldwide since it was released July 21 and is on track to be the highest-grossing film of the year.
— CNBC’s Hakyung Kim, Alex Harring, Pia Singh, Jeff Cox, Spencer Kimball, Sarah Whitten, Melissa Repko and NBC News contributed to this report.
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People walk through a nearly empty shopping mall in Waterbury, Connecticut.
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High food prices. Low unemployment. And eye-popping spending on concert tickets and European trips.
Retailers are chasing shoppers as they navigate contradictory dynamics like cooling inflation, rising interest rates and pandemic-induced jolts to the way people live, work and shop.
That has made it tricky to predict consumer spending.
“We’ve been dealing with massive imbalances in the economy and big shifts in spending patterns, investment patterns, supply disruptions, all of that stuff. And then the reversal of all of those shocks,” said Aditya Bhave, a senior U.S. economist at Bank of America. “So that’s been the big challenge.”
The swirl of confusing trends tees up a closely watched retail earnings season that could offer more clarity about consumers and the economy. Home Depot, Target and Walmart will kick it off this week, followed by other major retailers like Lowe’s, Best Buy and Macy’s.
The reports come as opinions about the economy have grown more optimistic. Economists at Bank of America and JPMorgan recently scrapped calls for a recession this year. Wall Street investors have rallied behind calls for a “soft landing,” or a successful effort by the Federal Reserve to slow down the economy and higher prices by raising rates — but without tipping the country into a sharp economic downturn.
Yet concerns linger. Andrew Garthwaite, global equity strategist at Credit Suisse, predicted in a note to clients last week that theU.S. economy will head into a recession next year and drag down stocks.
As the biggest U.S. retailers gear up to report earnings, here are four reasons why consumer spending and those companies’ sales have become harder to predict:
Americans got some good news recently: prices aren’t going up as much as they used to be. That trend may make shoppers go to stores for more wants rather than needs.
The consumer price index, which tracks the prices consumers pay for a key basket of goods and services, rose 3.2% in July compared with a year ago, the Bureau of Labor Statistics reported Thursday. That’s a much more modest increase than the 40-year inflation highs that consumers dealt with about a year ago.
Some brands have even spoken about cutting prices. For example, denim maker Levi Strauss‘ CEO, Chip Bergh, said in a CNBC interview last month that the company will reduce the cost of about a half dozen items, including 502 and 512 jeans, by $10. More price-sensitive shoppers typically buy those items, he said.
Yet Americans are still spending more on just about everything, even as wages start to rise at a higher rate than prices. Those more expensive items include necessities like groceries, housing and cars. For example, prices for food at home have shot up 25% compared with before the pandemic in January 2019, according to an analysis of U.S. Bureau of Labor data.
Even Levi’s reflects that. The jeans that it plans to price lower will be sold at $69.50 after the reduction — more than the $59.50 they went for pre-pandemic.
Questions about cooling inflation and price changes, and how they will affect consumer spending, will likely come up during the analyst question-and-answer session on every retailer’s earnings call, said Michael Baker, a retail analyst at D.A. Davidson. Slower inflation, while good for consumers, will make retailers’ sales numbers look weaker in the coming quarters, even if a company sells the same number of units.
The silver lining? If prices rise by smaller amounts or even fall, consumers may spend more freely. Target, Walmart and Macy’s have spoken for the past few quarters about customers who have skipped big-ticket purchases, such as clothing and electronics, as they spend more on necessities.
Consumers could decide tosplurge again just in time for the crucial holiday season, Baker said.
Many consumers may have pinched pennies — but shoppers are still racking up some big bills.
Americans’ credit card balances topped $1 trillion for the first time ever, according to new data released last week by the New York Federal Reserve. That raises fresh questions about whether consumers can afford to keep up their spending habits at retailers’ stores and websites — or will have to cut back.
High debt could get people into trouble, if they can’t afford to pay down their balances and rack up interest charges each month. The average interest rate for U.S. credit cards has spiked to nearly 21%, according to the Federal Reserve Board. That’s a more than 6 percentage point jump in the past 18 months, driven by the rate hikes the Fed has used to tame inflation.
Bhave, the Bank of America economist, said there’s no need to panic. Americans have bigger bills because inflation has driven up prices. But many people also make more money than they used to.
Thanks to a tight labor market, Americans’ wages have risen significantly over the past two years. As inflation cools, the growth of average hourly earnings has begun to outpace the rise in theconsumer price index.
People may grumble a lot about higher prices, but they still have jobs, Baker said. He called low unemployment “the big offset that’s helped consumer spending hang in.”
From splashing out on Taylor Swift concert tickets to taking two-week trips to Italy, Americans are shelling out on experiences after years cooped up at home.
But what does that mean for specific retailers? U.S. consumers are now spending more of their personal income on services and less on goods — a reversal of the trends during the Covid pandemic.
Yet retail sales, while decelerating, have been stronger than some feared.
“There’s no denying that sales are slowing, which in and of itself one might think is not great, but I actually think it’s pretty healthy,” D.A. Davidson’s Baker said. “Nothing seems to be slowing such that it’s falling off the table.”
He said softening retail sales could signal the U.S. is on track to avoid a recession because it may stop the Fed from raising interest rates further. Ultimately, that would be good for both retailers and consumers, he said.
Nikki Baird, vice president of strategy at retail-focused software company Aptos, said she’s been surprised by consumers’ resilience. Even as Americans juggle expenses like dining out and going on vacation, they are still shopping.
“I thought with all of the revenge travel that’s been happening, that would impact consumer spending on goods,” she said. “But I guess they were [in a] ‘If I’m gonna go on that cruise, I need a new dress’ kind of mentality.”
The pandemic shocked buying patterns, but more big-ticket purchases could be coming
A new iPhone, a trendy outfit, ora broken dishwasher.
Retailers often get a bump when seasons change, new products debut and old items break. Yet the pandemic disrupted the typical cadence of purchases – and is still messing with retailers’ sales patterns.
For example, many Americans bought pricier and longer-lasting items like kitchen appliances, furniture and laptops when they had stimulus dollars in their bank accounts and faced long stays at home. Now, consumers may be closer to refreshing pricier items bought during the pandemic, and it could be a boon for many major retailers.
Best Buy CEO Corie Barry said in late May that she anticipates lower demand this year for the company’s big-ticket electronics. But she is hopeful the replacement cycle will pick up again next year.
In the nearer term, two seasonal factors could help. Retailers, including Walmart and Target, may get a bump from early back-to-school spending – especially from college students getting headboards, coffeemakers and more. Home Depot and Lowe’s just got through the springtime, the holiday season of home improvement when homeowners spruce up yards and contractors take advantage of better weather.
The ripple effects of the pandemic will still affect retailers’ outlooks for the rest of the year. The government stimulus dollars that served as a lifeline for many and fueled discretionary purchases for others have dwindled.The personal savings rate in the U.S. is less than half what it was before Covid, after Americans socked away money early in the pandemic and then felt more financially secure because of a tight labor market.
The pause on student loan payments likely supported higher levels of discretionary spending for the last three years, too, said Baird of Aptos. Since those payments resume this fall, that could factor into retailers’ forecasts for the back half of the year.
— CNBC’s Leslie Josephs, Jeff Cox and Gabrielle Fonrouge contributed to this report.
The thing that will make companies lower prices is if consumers stop complaining about paying more for the things they need and want, and actually start refusing to buy them.
As the U.S. corporate earnings-reporting season progresses, with earnings from major retailers Walmart Inc. WMT, +0.59%,
Target Corp. TGT, +0.10%
and Home Depot Inc. HD, +0.52%
on tap next week, investors can get a ground-floor view of how consumer demand may have been hurt, or not, by higher prices, and what the companies plan to do, or not do, about it.
This dynamic of how consumers adjust their spending habits when prices change is referred to by economists as the price elasticity of demand.
“ For companies to cut prices, ‘you have to have the consumer go on strike, and they’re not there yet.’”
— Jamie Cox, Harris Financial Group
Those who trust companies will choose to ratchet down prices on their own, or at least not raise them because the rise in input costs has been slowing, haven’t been listening to what the many companies have told analysts on their post-earnings-report conference calls.
Kraft Heinz Co. KHC, +0.47%
acknowledged after its second-quarter report that its relatively higher prices have hurt demand, but not by enough for the food and condiments company to consider cutting prices.
Colgate-Palmolive Co. CL, +0.81%
said it will continue to raise prices, even as inflation slows and selling volume declines, as the consumer-products company continues to be laser focused on boosting margins and profits.
And while PepsiCo Inc. PEP, +0.16%
was worried that elasticities would increase, given how its lower-income customers were being particularly pressured by inflation, the beverage and snack giant reported strong results as it witnessed “better elasticities” in most of the markets in which it operated.
“Obviously, there is still carryover pricing, and I don’t think we’ll do anything different than our normal cycles on pricing in the balance of the year,” PepsiCo Chief Financial Officer Hugh Johnston told analysts, according to an AlphaSense transcript.
Basically, as MarketWatch has reported, so-called greedflation is alive and well.
Jamie Cox, managing partner for Harris Financial Group, said as long as the job market stays strong, as it is now, corporate greed will continue to pay off.
“If something is more expensive, and you have a job, you’ll complain about it, but you won’t substitute it for something cheaper,” Cox said. For companies to cut prices, “you have to have the consumer go on strike, and they’re not there yet,” Cox added.
“ ‘At some point, people are going to say, “All right — enough.” ’ ”
— Paul Nolte, Murphy & Sylvest Wealth Management
The reason elasticity is so important in the current environment is that, as long as consumers continue to pay the higher prices companies are charging, inflation will remain stubbornly high, making it, in turn, more likely that the Federal Reserve will continue to raise interest rates or, at the very least, not lower them.
But the longer interest rates stay high enough to crimp economic growth, the more likely the stock market will reverse lower as recession fears rise.
“At some point, people are going to say, ‘All right — enough,’ ” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “But we just haven’t seen that yet.”
What is elasticity?
Economists use the term “price elasticity of demand” to refer to the way in which consumers adjust their spending habits when prices change.
“Elasticity tries to measure how much more producers will want to produce if prices rise, and how much more consumers will want to buy if prices fall,” explained Bill Adams, chief economist at Comerica.
Elasticity often depends on the type of product a company sells.
For example, consumer-discretionary-goods companies that sell products and services that people want will often experience greater price elasticity than consumer-staples companies that sell things that people need, such as groceries and prescription drugs.
But even for needs, consumers often still have a choice, as less expensive generic, or private-label, alternatives may be available.
Andre Schulten, chief financial officer of consumer-staples maker Procter & Gamble Co. PG, +0.58%,
which recently beat earnings expectations as it continued to raise prices, telling analysts that, while there was “some trading into private label,” the overall market share of private-label products was unchanged for the year.
As Harris Financial’s Cox said, consumers may be complaining about higher prices, but they aren’t yet desperate enough to stop buying.
The Federal Reserve’s latest Beige Book economic survey stated that business contacts in some districts had observed a “reluctance” to raise prices as consumers appeared to have grown more sensitive to prices, but other districts reported “solid demand” allowed companies to maintain prices and profitability.
That’s likely why companies and analysts have become less concerned about price elasticity. Based on a FactSet analysis, mentions of the word “elasticity” in press releases and conference calls of S&P 500 companies SPX
increased as inflation and interest rates started surging in early 2022 through the end of the year.
Mentions of the word elasticity in earnings press releases and conference-call transcripts of S&P 500 companies.
FactSet
As the chart shows, “elasticity” popped up in more than 55% of earnings releases and conference calls in mid-2022, but with the second-quarter 2023 earnings-reporting season more than half over, mentions had dropped to about 20%.
Perhaps that will pick up, as retailers, especially those catering to lower-income customers — recall the PepsiCo comment — assess the demand impact of continued price increases.
Meanwhile, the branded-foods company Conagra Brands Inc. CAG, +0.71%,
whose wide-ranging food brands including Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim, were starting to see the emergence of a different dynamic.
Chief Executive Sean Connolly said consumers were shifting behavior in some categories as prices remained high. Rather than trade down to lower-priced alternatives, he noticed some consumers buying fewer items overall, “more of a hunkering down than a trading down.”
That’s exactly the kind of consumer behavior that is needed, if companies are to stop feeding into the greedflation phenomenon and to start pulling back on prices.
Trucks and trailers sit in a Yellow Corp. facility lot, closed after the freight trucking company ceased all operations, in Las Vegas, Nevada, on July 31, 2023.
Patrick T. Fallon | AFP | Getty Images
U.S. trucking firm Yellow filed for Chapter 11 bankruptcy protection on Sunday, burdened with a heavy debt load after a series of mergers and following tense contract negotiations with the Teamsters Union.
The bankruptcy filing in a Delaware court lists estimated assets and liabilities of $1 billion to $10 billion and creditors of more than 100,000.
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“It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” Yellow’s CEO, Darren Hawkins, said in a statement.
Yellow, formerly called YRC Worldwide, is one of the largest U.S. trucking companies and a dominant player in the “less-than-truckload” segment that hauls cargo for multiple customers on a single truck.
Customers include large retailers such as Walmart and Home Depot, manufacturers and Uber Freight. Some have paused shipments to the company on fears they could be lost or stranded if the carrier went bankrupt.
Yellow’s bankruptcy filing comes after Teamsters Union said late last month that it was notified that the company was ceasing operations.
The company has been in contentious negotiations with the union over an internal restructuring initiative meant to boost efficiency.
It recently averted a strike by 22,000 Teamsters-represented workers.
Before resolving the strike threat, Yellow sued the union in Kansas federal court, seeking to block a strike and saying that union’s refusal to negotiate had pushed the company to the “brink of extinction.”
The company’s struggles compounded with a steep drop in ecommerce shipments from early pandemic highs and an industrywide decline in freight volumes over the last year.
Yellow, saddled with liabilities from its purchases of Roadway in 2003 and USF in 2005, reported total debt of $1.5 billion last year, according to Refinitiv data.
U.S. taxpayers face potential losses if the company does not repay a $700 million-loan the administration of former President Donald Trump issued to bail out the long-troubled and poorly managed trucking firm in 2020 under a pandemic relief program.
Workers fulfill orders at an Amazon fulfillment center on Prime Day in Melville, New York, US, on Tuesday, July 11, 2023.
Johnny Milano | Bloomberg | Getty Images
For the millions of sellers who make up the booming Amazon marketplace, few things are as perpetually concerning as the threat of getting suspended for alleged wrongdoing and watching business evaporate overnight.
Helping third-party sellers recover their accounts has turned into a large and lucrative enterprise, because the only way the merchants can get back up and running is to admit guilt and correct the issue or show sufficient evidence that they did nothing wrong. The process is often costly, lengthy and fraught with challenges.
Enter the illicit broker.
For a fee of $200 to $400, sellers can pay for services such as “Amazon Magic,” as one broker on encrypted messaging service Telegram calls it. The offerings also include access to company insiders who can remove negative reviews on a product and provide information on competitors. Users are told to send a private message to learn the price of certain services.
The Telegram group has over 13,000 members, and it’s far from the only one. Other brokers peddle similar services on Telegram as well as on WeChat, WhatsApp and Facebook Groups. The confidential data is promoted as intelligence gold for any seller working to get their product or account reinstated.
The groups are part of a robust market of so-called black hat service providers that have cropped up alongside the rise of third-party marketplaces on Amazon, Etsy and Walmart. Amazon’s marketplace now accounts for over 60% of goods sold on the platform, and includes numerous businesses that generate millions of dollars in annual revenue on the site.
As it’s grown, the sprawling global marketplace has also seen a surge in the number of counterfeiters and spammers trying to game the system, which has pushed Amazon to ramp up enforcement. Much of the activity originates off Amazon’s marketplace and on social media and encrypted messaging apps, complicating the policing efforts.
A public Facebook page identified by CNBC offers an internal screenshot service with “valuable insight into your seller account, allowing you to see how Amazon employees view your account and its performance.”
Facebook parent Meta didn’t respond to a request for comment.
The issue of rogue employees taking bribes is not a new one for Amazon. The company has in the past dealt with low-level, low-wage seller support staffers in China, India and Costa Rica who have accepted payments in exchange for leaking information.
Brokers, who act as middlemen between sellers and employees, often reach out to insiders on LinkedIn, said a person familiar with the matter who asked not to be named due to confidentiality. Amazon has an internal group tasked with threat analysis and response, including a team dedicated to investigating employees suspected of leaking data, the source said. The threat analysis unit monitors social media platforms for abusive groups where bad actors may congregate before engaging in illicit activity on Amazon’s marketplace.
Amazon told CNBC that it has systems in place to detect suspicious behavior such as improper access to confidential data and investigates these activities, sharing information with law enforcement agencies. It reports abusive groups to social media platforms and encrypted messaging services, where bad actors are increasingly concentrating their activities in order to avoid detection, the company said.
“There is no place for fraud at Amazon and we will continue to pursue all measures to protect our store and hold bad actors accountable,” Christy Distefano, an Amazon spokesperson, said in an email.
Amazon declined to say whether it has disciplined or fired employees for leaking data in exchange for payments, beyond noting that it has zero tolerance for staffers who violate its policies.
In 2018, Amazon investigated claims that employees, primarily based in China, received payments of $80 to more than $2,000 to share confidential sales information or delete bad reviews, The Wall Street Journal reported. More recently, the Department of Justice charged six individuals in 2020 with participating in a scheme to bribe employees and contractors for internal data.
In July, the fifth defendant in the case, who is a well-known seller consultant, was sentenced to probation and house arrest after pleading guilty in March. Account annotations, internal notes from an Amazon staffer on a seller’s account, were among the confidential data being exchanged between the defendants and employees.
Amazon said it uncovered the suspicious behavior related to the bribery case in 2018 and reported it to the FBI. The company said it had “robust systems” in place to detect suspicious behavior such as fraud and abuse. Amazon has also urged social media companies to assist it with rooting out fraudulent activity such as fake reviews.
While Amazon is aware of the problem and is investing in people and technology to weed it out, groups continue to proliferate into the hundreds, the person with knowledge of the issue told CNBC. Accessing groups on encrypted chat apps such as Telegram, WeChat or WhatsApp may require a link or invitation.
Remi Vaughn, a spokesperson for Telegram, told CNBC in an email that “moderators proactively monitor public parts of the platform and accept user reports in order to remove content that breaches our terms of service.”
The Amazon Magic group on Telegram is public, with users advertising black hat services almost daily. Screenshots of Amazon’s internal Paragon system, which is used by seller support employees to handle cases, are distributed freely in the group. CNBC authenticated the legitimacy of the screenshots with sources knowledgeable of the system.
“Much more you can find about your account by ordering screenshots with inside information from us, as seller support sees it,” a message in the Telegram chat states.
Many of the messages in the group are in Russian, and a user who runs the group claims on Facebook to be based in Ukraine. The person didn’t respond to a request for comment.
Group administrators list a full menu of services available in an online spreadsheet. Annotations, which often include more detailed information than the suspension notifications, are priced at $180 apiece, and attacks on a competitor’s listing vary in pricing. Securing an upvote on a review, a tactic used to manipulate trustworthiness or popularity of a product, costs 50 cents. The brokers guarantee buyers they can deliver the goods within one to two business days.
Amazon sellers have for years complained of being unfairly kicked off the site without explanation. The process of getting their account back can take months, costing critical sales in the meantime. The issue was a key focus of a 16-month investigation by the House Antitrust Subcommittee into competitive practices at Amazon and other Big Tech companies.
“When Amazon turns off the faucet, everything goes to hell,” said Cynthia Stine, president of eGrowth Partners, a consultancy that helps merchants get reinstated. “I’ve had CEOs of large companies cry on the phone with me, and they’ve had to lay off their people. They’ve declared bankruptcy.”
Account annotations are like an “insurance policy” for sellers who’ve been suspended, Stine said. She said she comes across potential clients who have purchased annotations and are seeking to regain selling privileges roughly once or twice a month. As black hat brokers and consultants have multiplied over the years, it’s eaten into her business, Stine said.
“For a time, people wouldn’t even come to us, they would just go work with whoever they bought the data from,” she added.
Amazon has previously said it has processes in place to help sellers avoid deactivation and get reinstated when appropriate. The company disputed claims that the chaotic and costly suspension process justifies illicit tactics such as buying confidential data.
“There is no place for fraud at Amazon and no excuse for resorting to illegal activities,” an Amazon spokesperson told CNBC last month.
Maplewood, Minnesota, 3M company global headquarters.
Michael Siluk | Universal Images Group | Getty Images
Check out the companies making headlines in premarket trading.
General Motors — Shares of General Motors rose more than 1% after the automaker raised its full-year guidance and reported second-quarter results that rose on a year-over-year basis.
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3M – Shares of the chemical manufacturer rose about 2% in premarket trading following the company’s latest earnings report. 3M posted $7.99 billion in revenue, beating analysts’ estimates of $7.87 billion, according to Refinitiv. The company also raised its full-year earnings guidance and reaffirmed its revenue guidance.
Xerox — The workplace technology provider advanced 3.6% after beating earnings expectations for the second quarter, posting 44 cents per share excluding items against a 32-cent forecast from analysts polled by FactSet. Quarterly revenue came in line with expectations at $1.75 billion. Xerox also said to expect free cash flow and the adjusted operating margin to be better than previously anticipated for the full year.
General Electric — Shares of the industrial giant jumped more than 4% in premarket trading after the company posted stronger-than-expected earnings for the second quarter. GE also boosted its full-year profit guidance on the back of strong demand from aerospace and record orders in its renewable energy business.
Danaher — Shares of the conglomerate slid 4.6%. Danaher said non-GAAP core revenue in the base business will be down in the current quarter compared with the same quarter a year ago and would be up less than previously expected for the full year. However, the company gave a strong quarterly report, posting second quarter earnings per share excluding items at $2.05 and revenue at $7.16 billion, while analysts polled by FactSet anticipated $2.01 per share on $7.12 billion in revenue.
Spotify — The music streaming platform dropped 6.1% after presenting a weak quarterly report and guidance. Spotify reported revenue of €3.18 billion, below a Refinitiv forecast of €3.21 billion. Full-year revenue guidance was also worse than analysts expected. The report follows Spotify’s announcement that it will raise prices for premium subscription plans.
Lilium — The electric helicopter stock added 5.6% after management released a letter to shareholders. In the letter, management said adjusted cash spend for the first half of 2023 was within budget and the company was successful in an audit from the European Union Aviation Safety Agency.
Alaska Air — Shares of the airline fell more than 4% even after Alaska beat estimates on the top and bottom lines for the second quarter. Alaska reported $3 in adjusted earnings per share on $2.84 billion in revenue. Analysts surveyed by Refinitiv were expecting $2.70 in earnings per share on $2.77 billion in revenue. The airline’s full-year earnings guidance of $5.50 to $7.50 per share was roughly in-line with the average analyst estimates of $6.65, according to FactSet.
RTX — Shares of the company formerly known as Raytheon slipped 3% despite a strong quarterly report. RTX ported $1.29 in earnings per share, excluding items, on $18.32 billion in revenue. Analysts polled by Refinitiv forecasted $1.18 per share and $17.68 billion. The company also raised its full-year expectations for both lines.
Verizon — The telecommunications giant traded 2.6% higher after reaffirming its full-year guidance. That came despite a mixed second quarter, with Verizon posting $1.21 in earnings per share, excluding items, on $32.6 billion in revenue. Analysts polled by Refinitiv estimated $1.17 earnings per share and revenue of $33.24 billion.
Walmart — Walmart rose more than 1% after Piper Sandler upgraded the big-box retailer Monday to overweight from neutral, and hiked its price target. Analyst Edward Yruma said Walmart could take greater market share in the grocery business as inflation eases.
— CNBC’s Samantha Subin, Yun Li, Jesse Pound, Sarah Min and Tanaya Macheel contributed reporting
EL PASO, Texas — The Texas man who fatally shot 23 people at an El Paso Walmart in a targeted attack against people of Mexican descent was sentenced Friday to 90 consecutive life sentences.
Patrick Crusius, of Allen, agreed in February to the back-to-back life sentences when he pleaded guilty to 90 federal counts, including 45 hate crime charges.
The judge asked that he is sent to ADX Florence, a maximum facility prison in Fremont County, Colorado, and requested he receive mental health treatment.
The shooter traveled almost 600 miles from North Texas to El Paso before opening fire on shoppers on Aug. 3, 2019, with a WASR-10 rifle.
Minutes before the attack, he posted a hate-filled racist screed online in which he referred to an “invasion” of immigrants to the United States, the Justice Department said.
Sentencing began Wednesday, and for days relatives of those killed spoke to Crusius about their anger and about the damage he did.
“Look at my son,” Francisco Javier Rodriguez, whose 15-year-old son Javier Amir was killed, said Thursday as an image of the teenager was on a screen.
Kathleen Johnson told Crusius that he shot her husband, David Johnson, at close range in Aisle 3 that day.
“His innocent blood was everywhere. He was our provider, loving father and grandfather,” said Johnson, who has night terrors and post-traumatic stress disorder.
“I don’t even want to look at you,” she said.
Thomas Hoffman spoke about his father, Alexander Hoffman, and shared a photo of his parents who had been married 40 years and of a plane ticket for a flight his father was supposed to take that day.
“You shot my dad in the back,” he said Wednesday. “You are a coward.”
The shooter bought the WASR-10, which is a Romanian-made semi-automatic variant of the AK-47 assault rifle, as well as 1,000 rounds of 7.62mm hollow-point ammunition, almost two months before the attack, according to the indictment.
He drove overnight from Allen, which is north of Dallas, to El Paso before opening fire on people who were shopping at the Walmart on a Saturday morning.
When Crusius was indicted on federal hate crime charges, then-Assistant U.S. Attorney General for Civil Rights Eric Dreiband called the mass shooting, and other acts of hate like it, heinous crimes intended to terrorize and intimidate.
The shooter pleaded guilty on Feb. 8 to 45 counts of violating the Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act and 45 firearm counts, the Justice Department said at the time.
— Kayla McCormick reported from El Paso, Phil Helsel reported from Los Angeles.
Amazon has made it official: Prime Day will return on July 11 and 12 this year. But the real bargain may already be available. Bank of America’s trading desk studied the pattern of Amazon’s shares in the days leading into the sales event, and found it can be positive for the stock. After crunching the numbers, consumer sector specialist Michael Dick said Amazon gained as much as 14.8% in the 13 days before the promotions. Those who purchased shares in the five days prior realized a gain of as much as 7.6% in recent years, he said. Most analysts see room for Amazon stock to run, despite its nearly 50% year-to-date gain. According to FactSet, 91% of analysts rate the dominant e-commerce platform a buy, with an average price target of $137.54. Based on Tuesday’s close of $125.78, that leaves about 9% upside for the stock if it hits the average target. Jefferies analyst John Colantuoni on Wednesday raised his price target on the stock to $150 from $135. “We believe upside to consensus (JEFe FY24 EBITDA is 8% above consensus) combined with positive sentiment from AI will help AMZN shares to re-rate,” he said, referring to higher price-to-earnings multiple. Colantuoni added that the stock has already benefited from the rise of artificial intelligence, which has boosted usage at its Amazon Web Services unit. “While AMZN lags its mega-cap peers in generative AI capabilities today, the AI opportunity remains early, and we expect AMZN’s rich history of innovation will help them close the AI gap over time,” Colantuoni said. On Tuesday, JPMorgan analyst Doug Anmuth reiterated Amazon as his “best idea,” saying he expects it to pass Walmart as the largest U.S. retailer in 2024 as it expands deeper into categories such as consumer packaged goods, apparel, furniture and appliances. Amazon began the Prime Day event in 2015 as a way to boost its Prime membership, and has held it annually ever since. Last year, it began a new tradition by adding a second bargain bonanza to the autumn calendar in the run up to winter holiday season. Rivals like Walmart and Target have tended to announce their own competing deal days, adding excitement to an otherwise slow time for retailers. So far, Target has announced its own event, which will run from July 9-15. On Wednesday, Amazon shares were trading down more than 1% after the Federal Trade Commission announced a lawsuit against the company, alleging “deceptive” sales tactics tied to the Prime program. A Prime membership costs about $139 a year and includes perks like free shipping and access to Amazon’s streaming service. The FTC alleges some subscribers unintentionally signed up for Prime and it was very complicated to cancel the membership.
Not a great setup. There are too many articles and postings about how we are overdoing artificial intelligence, and how there’s not enough substance to justify recent market moves. There’s no question that the market, particularly the Nasdaq , has rallied endlessly on what amounts to the same information: Nvidia (NVDA) makes great cards; Adobe ‘s (ADBE) putting them to use; so is Meta Platforms (META) but we don’t know how; as are Microsoft (MSFT), Alphabet ‘s (GOOGL) Google and, most importantly, Oracle (ORCL); but don’t forget Broadcom (AVGO) and Marvell (MVRL). That’s worrisome, indeed. That’s why I am approaching this shortened week with a little trepidation There’s really nothing new that I can see short of analyst meetings from Samsara (IOT) and MongoDB (MDB), both loved, but both a little abstruse. They can’t move the needle. So, it seems to me this is the test week. Research right now is of no hope whatsoever. If a stock is up, we get price target boosts. If it is down, we get cuts. Nothing original, nothing against the grain. That’s been a major source of sustenance for a while now, but I think that we have had enough of it so perhaps that causes a pause. No matter, I think we get a pause, and we still don’t have a replacement for the AI theme. Do we go health care following President Joe Biden’s first campaign rally? Getting tougher. Financials ahead of the Federal Deposit Insurance Corporation penalties? Possibly, and a bunch of regional banks seem interesting. Have you seen that yield and price-to-earnings multiple on Truist, a truly good regional bank? The consumer-packaged-goods segment has been written off as past tense : Campbell ‘s (CPB) last quarter may be the template. Retail’s tough as nails: only Walmart (WMT) and Costco (COST) seem to pass muster. Transports? You are on your own because I think the Street is anxious to end the spell of revenge travel. How many times can you re-recommend the cruise ships? The industrials have been going up on the same thing for weeks now – a prospective Chinese stimulus plan that has not yet arrived and, perhaps, the Democrats’ infrastructure plan. I am not going to hide in oil and gas because I will be discovered in plain sight. Of course, there’s some hyperbole here, and heaven knows I am given to it. Still, I am worried about this week because for the first time in a bit I think we need to do some serious digesting. No, I just feel we have come to the point where I have more ideas to sell than buy. When I scan the market, I see many charts that are extended where, even though I like them, I wouldn’t be comfortable buying them. I am mindful that a stock like that of Adobe had a huge move into an excellent quarter and then raced up the hill even more on the numbers, supercharged by AI. That in itself is pretty amazing. But then, out of nowhere, sellers emerged and reversed much of the move. There’s some real fluff in the tape. I see fluff in a lot of places, maybe all but in the pathetic oils which seem to need a re-fill of the Strategic Petroleum Reserve pronto. At times like these, what I like to do is reflect on what it would take to put new money to work. We know now that we got no interest-rate hike from the Federal Reserve last week because the central bank seemingly didn’t know what to do – too many disparate folks trying to hammer out something they couldn’t, so why not postpone? But as I have been saying, we can’t seem to get unemployment up and wage growth down. The Fed knows you can’t get the stickiest part of inflation – rentals – down without more layoffs. We have them in tech and now finance, but not enough to make people abandon their homes or move back with their folks. That’s why I think they are really playing for time. They need more homes built, and they need the homebuilders to lose their discipline. To that I say, good luck. But what matters is that I feel we are fresh out of catalysts to go higher and that most stocks just don’t seem to be at levels that make sense to purchase. Why not just wait? That’s a tough one for most of us. We will want to jump at the first sign of a price break for fear of missing out. Yet, that, again, is worrisome. We don’t want to fear missing out. We want to buy things we want at our prices or else. Are these the prices we want for Microsoft? For Nvidia? So, let’s wait and see. I am willing to miss a percentage or two, maybe even three, to see if we can’t get a better basis on our stocks if we want to buy some. Given the market is officially overbought, I think I will wait until we have a couple of days down before it’s worth pulling the trigger. (Jim Cramer’s Charitable Trust is long NVDA, META, MSFT, GOOGL, COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Jim Cramer on Squawk on the Street, June 30, 2022.
Virginia Sherwood | CNBC
Not a great setup. There are too many articles and postings about how we are overdoing artificial intelligence, and how there’s not enough substance to justify recent market moves.
There’s no question that the market, particularly the Nasdaq, has rallied endlessly on what amounts to the same information: Nvidia (NVDA) makes great cards; Adobe‘s (ADBE) putting them to use; so is Meta Platforms (META) but we don’t know how; as are Microsoft (MSFT), Alphabet‘s (GOOGL) Google and, most importantly, Oracle (ORCL); but don’t forget Broadcom (AVGO) and Marvell (MVRL).
A Target department store in North Miami Beach, Florida, May 17, 2023.
Joe Raedle | Getty Images
More grocery purchases, fewer ambitious do-it-yourself projects and last-minute splurges at the store.
This week, some of the biggest retailers in the country reported earnings and described how their customers are shopping. As Home Depot, Target and Walmart reported their quarterly sales and shared full-year outlooks, the companies offered up the latest clues about the health of the American consumer and previewed what could be ahead for the economy.
Some smaller retailers also offered warning signs for the current quarter and this year.
So far, at least five retailers — Target, Walmart, Tapestry, Bath & Body Works and Foot Locker — have spoken about sales trends across the country getting worse.
As the three-month period went on, shoppers spent less, especially on discretionary merchandise, Target CEO Brian Cornell said on a call with investors. Walmart noticed the same pattern.
Both big-box retailers reported a sharp sales drop after February.
Walmart’s Chief Financial Officer John David Rainey attributed the decline, in part, to the end of pandemic-related SNAP benefits and a decrease in tax refunds.
Cornell said headline-grabbing events could have shaken consumer confidence too. He pointed to the March banking crisis. Silicon Valley Bank collapsed that month, sparking fears of broader economic woes.
Bath & Body Works saw sales fall off in March.Yet, sales recovered in April as the retailer turned to a common playbook: promotions.It got a boost as customers spent money at sales events toward the end of the quarter, CFO Wendy Arlin said on a Thursday earnings call.
Foot Locker also said it may have to motivate shoppers with markdowns for the rest of the year. The company cut its full-year forecast Friday, as it reported earnings that missed expectations. CEO Mary Dillon said in a statement, “sales have since softened meaningfully given the tough macroeconomic backdrop.”
On a call with investors Friday, Dillon said the sneaker seller’s sales got hurt by lower tax refunds and high inflation as customers spent more on food and services. While she said sales rebounded in April, “they did not improve nearly to the extent we expected, and that weakness has continued into May.”
A few other retailers that reported earnings had specific factors working in their favor.
When Tapestry, the parent company of Coach and Kate Spade, reported earnings last week, the company said sales softened as the quarter progressed and into April as consumers became more cautious.
But it has a factor going for it that some other retailers don’t: A growing business in China and other international markets to offset some of those softer sales.
Home Depot bucked the slowing sales trend, but that may have to do more with what it offers than consumer health.
Spring is peak season for home improvement. The retailer’s comparable sales in the U.S. declined 4.6% in the quarter versus the year-ago period. In February, its comparable sales were down 2.8%. March was its weakest month of the quarter, as comparable sales fell nearly 8% year over year in the U.S.
Home Depot’s trends were still negative in April but saw a slight improvement as comparable sales slid 3.7%, according to CFO Richard McPhail. Customers may have been buying more spring items such as potted plants.
Inflation is easing, according to a Labor Department report this month. Yet, that’s cold comfort for shoppers who are still paying a lot more at the grocery store than they were a few years ago.
Stubbornly high prices, especially for food, are a storm cloud that hangs over many families who shop at Walmart, and looms over the retail industry as a whole, the big-box giant’s CEO Doug McMillon said. On a call with investors Thursday, he called the persistent inflation “one of the key factors creating uncertainty for us in the back half of the year.”
“We all need those prices to come down,” he said on the call. “The persistently high rates of inflation in these categories, lasting for such a long period of time, are weighing on some of the families we serve.”
For example, he said general merchandise costs in the U.S. are lower than a year ago, but still higher than two years ago. In dry grocery and consumables categories, Walmart is seeing high single-digit to low double-digit cost inflation on items such as toilet paper or paper towels. For food, inflation has climbed more than 20% on a two-year basis, according to Walmart’s Rainey.
A shopper browses the eggs section at a Walmart store in Santa Clarita, California.
Mario Anzuoni | Reuters
Walmart is feeling the inflation crunch even though it is better positioned to manage higher costs than other retailers. As the nation’s largest retailer and biggest grocer, Walmart can use its scale to manufacture private-label merchandise or negotiatewith vendors over price.
In plenty of other categories, however, inflation is still driving a higher average ticket for customers, Home Depot CEO Ted Decker said on an earnings call Tuesday.
Target, Home Depot and Walmart all saw a noticeable pattern: fewer pricey and fun items in shopping carts.
At Home Depot, customers boughtfewer big-ticket items such as appliances and grills in the fiscal first quarter.
Home projects got more modest, too, Decker said on an investor call. Contractors and other home professionals noticed a change from large-scale remodels to smaller renovations and repairs.
Decker said consumers’ increased focus on value could be contributing to that shift, along with an uptick in spending on traveling, dining out and other services. He added some homeowners already tackled big projects and bought some high-priced home items during the early years of the Covid-19 pandemic, leaving less for them to do or to buy now.
The trend extended beyond home improvement.
Customers at Walmart have become more selective when shopping for electronics, TVs, home items and apparel, Rainey told CNBC. The items have become a tougher sell and when customers do buy them, they often wait for a sale, he said.
At Target, sales declined in some discretionary categories as much as low double-digits as customers bought less clothing and home decor, Chief Growth Officer Christina Hennington said on an investor call. Groceries and essentials drove a bigger portion of the retailer’s quarterly sales.
One exception? Beauty. Hennington said Target’s beauty category was its strongest in the fiscal first quarter. Sales grew in the mid-teens year over year, showing shoppers are still willing to replenish the cosmetic case and get a new tube of lipstick.
Walmart is eager for warmer weather too. Sam’s Club has noticed slower sales of patio sets, perhaps because of the later-to-hit spring weather, its CEO Kath McLay said on an investor call. Walmart has seen a sharp drop in air conditioner sales at its big-box stores, its CFO Rainey said.
“We’re ready to get some spring or summer weather,” he said on a call with CNBC.
Target noted it’s looking forward to another upcoming season: back-to-school.
The discounter expects to get a sales boost in the back half of the year due to the big shopping season, Hennington said on an investor call. She said the return to classrooms and college dorms triggers sales across almost every department of its store, from lunch ingredients in the grocery aisles to new outfits in the kids’ clothing department.
Retailers may be saying so long to the days of stockpiling and early shopping.
Company leaders said there are signs shoppers are reverting to some of their old ways.
At Walmart-owned Sam’s Club, McLay said shoppers are not just opting for lower price points. They’re also shopping later for seasonal items. For example, she said, customers used to buy patio furniture just as soon as it was set at the stores.
“Now we’re seeing people wait a little bit later into the season,” she said.
It saw a similar pattern with Mother’s Day sales, she said.
McLay said that may indicate people have returned to shopping habits of 2018 and 2019. The trend could be fueled by shoppers’ reluctance to open their wallets or because they’re not as worried about out-of-stock items — or a combination.
At Target, shoppers have also embraced more procrastinator tendencies, especially for discretionary items such as apparel.
“Guests are shifting to shop more just in time in these categories, as they wait until the last moments before key events to invest in new decor or wardrobe refreshes,” Hennington said on an earnings call.
Here are Wednesday’s biggest calls on Wall Street: Bernstein reiterates Tesla as underperform Bernstein said after the automaker’s shareholder meeting that it sees trouble ahead. “Elon Musk reiterated several times that the next 12 months will be difficult for Tesla, and attributed his caution to macro issues, which is inconsistent with the relative constructive outlook for the broader auto industry. We believe Tesla’s challenges instead stem from its limited model lineup, and that 2024 could be even more challenging.” Guggenheim initiates MSG Entertainment as buy Guggenheim said the entertainment company is “well positioned to grow.” “Initiating at BUY, $37 PT; Consumer Tailwinds, Unique NY Concentrated Venue Portfolio – MSGE Is Well Positioned to Grow.” Bank of America upgrades AppLovin to buy from neutral Bank of America said it sees accelerating revenue growth for the mobile tech company. “We upgrade AppLovin to Buy based on the view that its new machine learning engine (Axon 2.0) will accelerate revenue growth in 2023.” Redburn upgrades BioNTech to buy from neutral Redburn said the biotech stock is very attractive. “The valuation of BioNTech, however, has moved significantly. For much of the last few years, we have argued BioNTech is meaningfully overvalued, but with the pendulum swinging in the other direction, leaving 58% potential upside, we upgrade to Buy from Neutral.” Guggenheim upgrades Visteon to buy from neutral Guggenheim said it sees “supply-chain revenue upside” for the auto supplier. “We believe VC now has the most potential supply-chain revenue upside in our coverage with clear visibility to improvement in 1-2 quarters.” Credit Suisse upgrades iQIYI to outperform from neutral Credit Suisse said in its upgrade of the Chinese online video platform company that it likes its “strong” margins. “We are increasingly convinced about IQ’s profitability outlook and leading position: (1) its unique strength in content innovation/project selection should sustain its leadership in a market that increasingly focuses on premium content; (2) consecutive quarters of strong margin beat proves an effective ROI-driven strategy.” Stifel initiates EVgo as buy Stifel said the battery charging company is “well positioned in a fast charging business.” ” EVgo is a leading EV charging company based in Los Angeles. The company currently operates the second largest DC fast charging network after Tesla, and appears well positioned to be a leading player going forward.” Read more about this call here. Barclays upgrades Wynn to overweight from equal weight Barclays said the “best is yet to come” for the casino operator. “Macau fundamentals have moved well ahead of shares, while Las Vegas is likely more resilient than appreciated.” Read more about this call here. Mizuho downgrades WeWork to neutral from buy The firm said its prior buy rating was “wrong” on shares of WeWork and that “macro headwinds have been exacerbated.” “We now see our base case business assumptions, specifically occupancy targets, as unachievable, leading to higher cash burn and eventually driving the need for outside capital. We do not see FCF positive till YE25.” Citi adds a positive catalyst watch on Advance Auto Parts Citi said the auto parts retailer is a “turnaround” story. “AAP sets up well as a turnaround story as 1Q will likely be close to the trough for the business combined with inexpensive valuation, favorable industry dynamics, and a new CEO announcement expected. Evercore ISI upgrades Norfolk Southern and Old Dominion to outperform from in line Evercore said Norfolk and Old Dominion have “quality” business models. “As such, we are upgrading both Norfolk Southern (NSC) and Old Dominion (ODFL) to Outperform from In Line as we look to relative valuation and quality business models both in times of expected choppy performance, but also as we begin to contemplate the eventual emergence from what has now been a nearly 16-month ‘freight recession.’” Barclays reiterates Alphabet as overweight Barclays said Alphabet will continue to flex its AI “prowess strongly.” “We see shares continuing to outperform based on an improving ad market in 2Q, higher incremental margins, and this AI sentiment shift getting follow-through.” Stephens reiterates Walmart as overweight Stephens said it’s standing by its overweight rating heading into Walmart earnings Thursday. “We continue to think Walmart is positioned to be a relative winner in the food and consumer discretionary sector, with a well established low price position in the marketplace, continual improvements in assortment and customer experience and a management team that is laser focused on execution and capital allocation.” Bank of America reiterates ServiceNow as buy Bank of America said the software company is well positioned for AI. ” ServiceNow has continued to land larger customers over time and has seen consistent expansion activity.” Stephens reiterates Western Alliance as overweight Stephens said it’s standing by its overweight rating on the regional bank. “Yesterday afternoon, WAL filed a presentation that included a QTD update on several topics. WAL reiterated deposit flow stabilization as of March 20th and further noted QTD deposit growth at 5/12 had exceeded the Company’s $2 bil. dollar guided target.” Read more about this call here. Credit Suisse downgrades Knight-Swift and Werner to neutral from outperform Credit Suisse downgraded several trucking companies on Thursday and says it’s turning more cautious. “We have become increasingly cautious on the trucking cycle as low rates persist. With trucking stocks posting solid year-to-date gains, we advocate trimming exposure; we lower our EPS estimates across the board and downgrade Knight-Swift (KNX) and Werner (WERN) to Neutral.”
Workers walk through the garden center at a Home Depot store
Scott Olson/Getty Images
In its last quarterly earnings report, Home Depot forecast flat sales and lower profits for 2023, partly because consumers aren’t spending as much on home improvement products as they did during the pandemic, a boon period for the sector. Another hit to its bottom line, the company predicted, was the decision to invest $1 billion this year to increase hourly wages for every one of its frontline workers.
Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives project that it will actually boost the big-box retailer’s industry-leading position. “We plan to continue to capture market share,” CFO Richard McPhail told analysts during the February earnings call. One reason, he said, is “the unique advantage that our orange-blooded associates give us over our competition,” alluding to Home Depot’s signature color and the term for its frontline employees.
While Home Depot made a splash with the billion-dollar pay hike, it comes on the heels of similar moves by other major retailers that also espoused the benefits of investing in a well-paid workforce.
A year ago February, Target set a new starting wage range from $15 to $24 an hour for its so-called team members and expanded access to health care benefits, at a cost of $300 million in 2022. “We know that those investments lead to a more engaged team and that team then builds greater guest trust and loyalty, which in turn continues to power our growth across the company,” said Melissa Kremer, chief human resources officer, last fall when Target was named 12th among Fortune’s 100 best companies to work for.
In January, Walmart announced it was raising the minimum hourly wage for its store employees to $14 from $12 and up to $19 an hour, establishing an average wage of $17.50 an hour. “Retaining talent and establishing career opportunities for our associates remains a central objective to our growth ambitions,” CFO John David Rainey said at an investor meeting in April. “We are confident we can make the investments needed to remain competitive in a tight labor market while also growing our profitability.”
Although it’s difficult to draw a straight line from the cost of labor to sales, profits and market share — and retailers are also making big investments in automation — retaining a loyal and satisfied workforce can be seen as a wise strategy amid an ongoing battle for talent, and even as persistent inflation and interest rate hikes are expected to further moderate what has been robust consumer spending.
Irrespective of Home Depot’s strong track record on Wall Street, Morgan Stanley analyst Simeon Gutman said he was somewhat surprised by the $1-billion outlay. “The investment community largely thought Home Depot was already in prime position in terms of wage rates,” he said, noting a series of pay increases in recent years. And the fact that the company is anticipating less-than-rosy sales this year was another eyebrow-raiser. “The [home improvement] environment seems to be weakening, not accelerating, and therefore incremental wage investments at this time would open the door to more questions and surprise. But if you look at Home Depot over multiple years, you’re okay with it.”
Ann-Marie Campbell, executive vice president of U.S. stores and international operations at Home Depot, says the increase in wages is just one component of the investment story in associates. “We know that the key to an engaged and committed workforce is investing in the person and in their development,” she said.
The company also began the year with a new store leadership structure, creating new management positions and increasing the number of managers on the floor at any given time. “This is a meaningful investment that we believe will position us favorably in the marketplace,” she said.
“Essentially what they’re doing is reinvesting in a key competitive advantage of their business model, which is service within their stores,” said Brian Nagel, an analyst with Oppenheimer.
Market leaders such as Home Depot, Walmart and Target that have scale should be in better positions than mid-size competitors to invest in their labor force, Gutman said. “They’re behaving as they should given the tight labor market, showing leadership and not just thinking about a 12-month timeframe. They’re thinking about 12 to 36 months.”
The efficiency wage theory
The concept that maintaining a well-compensated, enthusiastic workforce is good for business is at the heart of what labor economists refer to as the efficiency wage theory, which postulates that paying employees higher than minimum wages increases productivity, retention rates and loyalty. That, in turn, is reflected in customer satisfaction and goodwill versus the competition.
“Providing customers a compelling reason to shop at your stores requires giving them real value and good service, and that’s not possible without having motivated and empowered employees,” said Zeynep Ton, a professor at MIT Sloan School of Management in Cambridge, Massachusetts, who has studied retail operations for more than 20 years. “Any retailer that wants to win needs to make sure they attract and retain the right employees and design their jobs so they can be productive and serve their customers well. And in a tight labor market, it’s getting increasingly difficult to keep talent [if] you pay unlivable wages and [offer] few opportunities for growth and success.”
In addition to the efficiency wage theory, there is significant empirical evidence that paying low wages hinders employees’ ability to focus on the job and be productive, said Ton, who expounds on this topic in her forthcoming book, “The Case for Good Jobs.”
“It also drives turnover and attendance problems,” she said. “The bottom line is that employee turnover and low pay cost companies a lot more than executives may think, both financially and competitively.”
It’s hard to say when, and if, Home Depot will see a demonstrable return on the monumental expenditure for its frontline workers. Regardless, CEO Ted Decker said during the February earnings call, “We harken back to … what our founders said: that if we take care of our associates, they take care of the customer and everything takes care of itself. That’s what this investment is all about.”
Eager to boost sales, relieve workers from mundane tasks and respond to the ongoing labor shortage, retailers and supermarkets are adding robots to their store aisles.
Outfitted with cameras and sensors, autonomous inventory robots that can verify price signs and look for out-of-stock items are being deployed at big box stores like BJ’s Wholesale and Walmart-owned Sam’s Club.
related investing news
Inventory is one of the biggest challenges retailers face. Missed sales from empty shelves and out-of-stock items cost U.S. retailers $82 billion in 2021, according to NielsenIQ.
“Retailers are spending a lot of money to know what’s coming into their stores through their inventory systems and through their point of sale systems,” said Jarad Cannon, chief technology officer at inventory robot maker Brain Corp. “But in their stores on a daily basis, they don’t have a very good model of what’s actually happening on their shelves.”
Other companies in the space include Simbe Robotics and Bossa Nova Robotics.
So what impact will inventory robots have on U.S. retailers and the livelihood of its workers? CNBC got a behind-the-scenes look at Brain Corp. to find out.
