Warning: include(/home/content/c/o/r/corra/html/administrator/components/com_categories/dir.php) [function.include]: failed to open stream: No such file or directory in /home/content/59/11424259/html/index.php on line 13

Warning: include() [function.include]: Failed opening '/home/content/c/o/r/corra/html/administrator/components/com_categories/dir.php' for inclusion (include_path='.:/usr/local/php5_3/lib/php') in /home/content/59/11424259/html/index.php on line 13

Warning: session_start() [function.session-start]: Cannot send session cookie - headers already sent by (output started at /home/content/59/11424259/html/index.php:13) in /home/content/59/11424259/html/libraries/joomla/session/session.php on line 658

Warning: session_start() [function.session-start]: Cannot send session cache limiter - headers already sent (output started at /home/content/59/11424259/html/index.php:13) in /home/content/59/11424259/html/libraries/joomla/session/session.php on line 658
Corra Consulting - A Big Box Retail Round-Up

09February

A Big Box Retail Round-Up

The Thread's Top Three:

1. Staples to buy rival Office Depot for $6.3 billion. Although the price ticket might have been an indicator, we’re not back in 1996. It’s 2015 and nearly six months after discussions began between the two giants in September of 2014. So, the real question is: what has changed almost 20 years later that would now allow a deal to get done between these two big box giants? The WSJ summarized details from the FTC’s 1997 case against a Staples-Office Depot merger, which argued that because the two superstores set their prices according to the number of retailers competing in a local area, their merger needed to be blocked (i.e., essentially, less competition within this segment would have guaranteed higher prices in certain local markets). This leaves us with one key question then: is this no longer true today? Here’s what we know. One shift includes that other big boxes such as Walmart, Target, Costco and Amazon.com now play in core product classes that were once dominated almost exclusively by office supply stores. A second shift was that the assortment of office supply stores evolved to encompass product classes that weren’t a part of the mix some 20 years ago. The contraction of the retail market combined with the expansion of retailers’ product positions makes this a very changed landscape today and one where biggest isn’t a guaranteed strength and biggest certainly doesn’t mean undefeatable.

2. RH announces preliminary net revenues of approximately $583MM-- with comparable brand revenue also up 24% for the quarter ended Feb. 1. FYE net revenues, while preliminary, were estimated to be $1.9bn with comparable brand revenue for the year up 19%. Friedman, the brand’s ambitious CEO and steward, believes that RH is in the early stages of realizing its luxury home brand’s near-term potential, which includes a forecast for $5bn in North American sales and mid-teens operating margin. So, could there be a fly in the ointment? Here’s a big box that is getting bigger (i.e., FY 2014 marked the fifth consecutive year of net revenue increases in excess of 20%) and with a strategy that is driven off of experience per square foot vs. sales per square foot. In the “new RH,” one feels that prospective shoppers are walking more dream home than big box home retailer, which typically would proffer floor to ceiling inventory. However, to maintain their growth trajectory, this experience per square foot retailer will be sunk if their operating margin sits in the mid-teens. Unlike competitors whose inventory will refresh the floor, a dream home retail concept requires that the merchants are there to provide new inspiration every 6-8 weeks. My experience is that this type of ambitious endeavor will require a greater level of investment and a mid-teen operating margin signals an investment in heightened promotional activity as opposed to a heightened level of execution in merchandising/visual presentation--the latter of which will be needed to maintain double-digit growth that is profitable.

3. Big Box Retailer Pounces on J.C. Penney’s Closed Stores. I don’t know that I would advise any client to run and snatch up locations that JCPenney was willing to walk away from--not because they’re bad locations, but because JCPenney deemed them non-productive for them and they’re very good at what they do. I also don’t know that I would take on massive footprints with the goal of beating TJX’s HomeGoods at their own game because, in short, I don’t know that anyone is showcasing that they could beat HomeGoods at this point in time. If At Home, formerly Garden Ridge, is going to not only survive but thrive, they need to serve a unique purpose and one that moves beyond the sheer size of their doors. How are they any more a “home superstore” than Ikea? How are they accessing better brands and products than HomeGoods would? And, why will they be successful in doors that JCPenney did not succeed in, and how will they manage to do so as a non-omni-channel player? I simply don’t believe that operating as a “big box” in the traditional sense is a winning hand. There is a reason Bed Bath & Beyond, JCPenney, Macy’s and others are focused on omni-channel strategies. Consumers want brands to be where they are, and many simply do not shop in a singular channel. So, if the private equity backers of At Home want to flip this retail chain within a 5-7 year window as many private equities are prone to do, then these are questions that will require a thoughtful response.


Warning: Cannot modify header information - headers already sent by (output started at /home/content/59/11424259/html/index.php:13) in /home/content/59/11424259/html/administrator/components/com_zoo/helpers/comment.php on line 141

Warning: Cannot modify header information - headers already sent by (output started at /home/content/59/11424259/html/index.php:13) in /home/content/59/11424259/html/administrator/components/com_zoo/helpers/comment.php on line 141

Leave a comment

Please login to leave a comment.