An Artificially Intelligent Digital Commerce Platform

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You’re probably going to read this if only to find out what that title means. We’re all going to find out together as the online shopping experience continues to evolve.

The North Face has worked with a company called Fluid to develop an online shopping assistant powered by IBM’s Watson Cognitive Computing Technology (I say again, whatever that means).

It’s in beta right now and has just been released for use by the public. Apparently, it’s only for jackets so far. Go here to give it a try. What I found was that it was still a little clunky to use, but that’s why they call it a beta and I imagine it will only get better. Anyway, go play with it yourself.  I can’t see why it won’t ultimately be utilized in brick and mortar as well.

I’m waiting for the online shopping assistant that takes a picture of me through the camera on my digital device, asks me a few sizing and preference questions, saves those, and shows me what’s new that I might want whenever I log on. It’s probably already out there and certainly we already see shopping suggestions (way too much if you ask me) based on what we’ve purchased before. Imagine what that’s like when VF shares the data among all its brands. I am thinking such a system, if it does nothing else, might cut down on returns- brands are spending a lot of money on returns from online sales.

I’ve got one suggestions for The North Face. This is going to sound a little weird, but once in a while the digital assistant (you guys need to name this thing) should recommend a product from another brand when it’s appropriate. I don’t know when, how or what’s involved in programming that, but think of the credibility it would generate. And better they buy another brand’s product that is right for them than one of yours that’s not.  The North Face wouldn’t be the first to do that.  What’s the name of the insurance company that checks its competitors for the best deal?

Here’s the link to the article.  It’s intriguing and exciting to imagine where all this is going, but then I don’t have to run a retailer.

GoPro Gives Us Some Preliminary Financial Results

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On January 13th, GoPro filed an 8-K with the SEC. In the press release it included, they announced expected fourth quarter revenue of $435 million and $1.6 billion for the year and a projected gross margin of 34.5% to 35.5%. The annual number represents 16% year over year revenue growth. By way of comparison, in the quarter that ended December 31, 2014, GoPro reported revenues of $633.9 million and had a gross profit margin of 47.9%.

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Skullcandy Revises its Forecast for the Quarter

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A couple of days ago, Skullcandy decided that the prospects for its fourth quarter had changed enough that they needed to disclose it. They filed an 8K with the SEC to accomplish that. You might want to read the press release that’s part of it.

Skull said it expects fourth quarter sales to be the same as last year’s fourth quarter. Previously, they had forecasted an increase of 5%-7%. Earnings per share for the quarter are expected to be between $0.20 and $0.22 per share. Previously, they had projected $0.38 to $0.40 per share.

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The Role of Store Brands

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I came across this short article recently talking about the ongoing improvement in store brands and their importance to retailers. Now, it’s not our industry but I thought everything they said applies to us.

I guess the standard explanation for store brands is that they give the retailer some more margin. True, and that margin is increasingly important to the retailer these days. Yet their success suggests that more is going on.

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A Brief Review of The Buckle’s Quarter

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The Buckle didn’t say anything unusual or intriguing in its conference call or 10-Q. I guess that’s good. But at the moment, this is the last retailer I haven’t reported on, and it appeals to my sense of order to get it done before settling in for Christmas and the holidays.

What we can learn from The Buckle is that they basically have the same general market related issues as all the other retailers in our space.

For the quarter ended October 31, 2015, their sales fell 4.1% to $280.2 million. In the same quarter last year, sales were $292.2 million. They ended the quarter with 468 stores in 44 states compared to 461 a year ago. Private label was about 35% of their business. I’ve remarked in the past about The Buckle’s apparent success in integrating its owned with purchased brands. I think they continue to be good at that.

Comparable store sales declined $15.2 million or by 5.2%. The number of transactions was down 5.6%. Online sales were up 13.6% to $25.9 million during the quarter. We haven’t heard much talk lately about online sales cannibalizing brick and mortar. I’m beginning to think it’s something retailers should refocus on, if they ever lost their focus.

The gross profit margin also declined from 43.7% to 41.9% while total gross profit fell $10 million to $117.3 million. “The decrease was primarily attributable to a reduction in merchandise margins (1.00%, as a percentage of net sales) and deleveraged occupancy, buying, and distribution expenses as a result of the comparable store sales decline (0.80%, as a percentage of net sales).”

Selling expenses declined very slightly to $52.3 million and general and administrative expense was down 15.5% from $10.3 to $8.7 million. As a percentage of revenues, selling expense rose from 18.1% to 18.7%. General and administrative expense fell from 3.5% to 3.1%.

Operating income fell 12.9% from $64.6 to $56.3 million and net income was down 11.6% from $40.6 to $35.9 million.

Cash flow from operating activities through three quarters was $53.4 million compared to $91.6 million in the same period the previous year, but the balance sheet remains strong. I would note an increase in inventory from $147 million last year to $176 million in this year’s quarter. Not what you want to see with declining sales.

One analyst asked some penetrating and rigorous questions of CEO Dennis Nelson. I can’t quote everything he said here, but he was very concerned with comparative store sales declines that go back to 2013. After laying that all out, he asks, “…what is going on with the retail market and Buckle, in particular? And is brick-and-mortar stores are going through secular decline, what is Buckle’s strategy to resume comps growth going forward?”

I guess I’d characterize CEO Nelson’s response as nonspecific. I never expect CEOs to be very detailed in explaining their strategies during a pubic conference call. But I thought his answer could have been given by other retail CEOs and demonstrated the common issues and uncertainty as to how to respond to those issues they all face.

Even with sales down a bit, The Buckle had a pretty good bottom line although it exhibited the same issues and uncertainty as its competitors. I guess my conclusion, after seeing the results from various retailers, is that you need to build your balance sheet, control your inventory, be thoughtful to cautious about the roles of brick and mortar and where you open new stores, and define omnichannel in a way that does more than just make things easier for customers.

What does your store stand for as a brand that can differentiate it from its competitors?

 

 

Tilly’s Offers Us Some Thoughts on Retail Stores.

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It used to be way easier to grow a retail chain. You found a good location, made a deal with the landlord, made improvements, and brought in some inventory and some experienced management to train the new group of employees. If you did this mostly right, a year later (maybe sooner) you had a cash flow positive store.

Tilly’s says a couple of things about why it’s not that easy any longer. After we take a brief look at the quarter that ended October 31, we’ll talk about what they say.

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Where do They Go from Here? PacSun’s Quarter

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It’s my belief that PacSun CEO Gary Schoenfeld has mostly done the right things since he joined the company. But so far PacSun hasn’t been able to reclaim the competitive position in the market it used to have.   Maybe, if this wasn’t a brutally competitive, over supplied, retail environment, things would be different. But they aren’t and now I see PacSun’s finding its ability to compete constrained by a weakening balance sheet and cash flow issues.

Here’s how CEO Schoenfeld describes the competitive environment helping me, I think, make my points:

“Without a doubt, the bar keeps getting raised in terms of what it takes to be successful, given overall headwinds in retail and apparel and the battles for consumer discretionary spending. Clear merchandising strategies, consistent in-store execution across our entire chain and further penetration into the digital world of our customers, are all essential.”

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SPY Ceases to be a Public Company

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SPY filed a form 15-12G with the Security and Exchange Commission on December 11th. The press release that accompanied the filing stated, “As a result of this filing, the Company ’ s obligations to file certain reports with the SEC, including annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K, respectively, was immediately suspended. Other filing requirements will terminate upon the effectiveness of the Form 15, which is expected to occur 90 days after filing.“

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Perspective from Zumiez’s Conference Call on the Retail Environment. Oh, and Their Results for the Quarter.

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As with most industry retailers, it’s not exactly a great time for Zumiez. Their October 31st quarterly numbers were disappointing. We’ll talk about those. But I want to spend most of this discussion on where, exactly, Zumiez’s is in the market and how CEO Rick Brooks describes and projects what’s happening in retail. The funny thing is, he comes straight out and speaks truth (or at least I think it’s truth) but I don’t know if people quite hear him.

Let’s set the stage a little. Here’s how Zumiez describe their market position in the recent 10Q for the October 31 quarter.

“Zumiez …is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through the fashion, music, art and culture of action sports, streetwear, and other unique lifestyles.”

Here’s how they described it in the 10Q from a year ago.

“Zumiez Inc… is a leading multi-channel specialty retailer of action sports related apparel, footwear, accessories and hardgoods, focusing on skateboarding, snowboarding, surfing, motocross and bicycle motocross for young men and women.

Please read both carefully and note the change. It’s officially no longer about only action sports. We already knew that.

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“Forget Shopping. Soon You’ll Download Your New Clothes”

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Television was first demonstrated back in the 1920s. But it was really wasn’t until the late 1950s that it took off. I don’t think breakthrough technologies take 30 plus years to make it into the mainstream any more. Maybe it’s better to say that once they reach their tipping point, their adoption accelerates dramatically. Why? Because that they come around no longer surprises us.

3D printing appears to be such a breakthrough. It’s already in use for prototyping, some kinds of customization, and no doubt uses I don’t know anything about. Here’s a link to some things they are being used for. Yup, there are definitely some I didn’t know anything about.

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