Taking Stock

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‘Round The Trade

Target has planted itself firmly in the grocery delivery business with the announcement that it has agreed to acquire Shipt.com, the Birmingham, AL-based online same-day delivery platform, for $550 million in cash. The purchase significantly accelerates Target’s digital fulfillment efforts, bringing same-day delivery services to guests at approximately half of Target’s stores by early 2018. The mass merchant said that service will be offered from most Target stores, and in all major markets, before the 2018 holiday season. “We laid out an ambitious strategic agenda in early 2017, which included a focus on giving our guests a number of convenient ways to shop with Target, whether it’s ordering online and picking up in one of our stores, driving up to pick up an order, or taking advantage of services like our new Restock program. With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country,” said John Mulligan, executive VP and COO for Target. Some of our readers have already questioned Target’s logic behind this deal, stating that the Minneapolis-based retailer should first figure out how to improve its entire grocery presentation before jumping into the same-day delivery business. I would disagree, however, noting that with competitor Walmart already advancing its delivery platform over the past 18 months, Target needed to jump into the fray if it ever expects to remain a significant national player in food, electronics and apparel. And some of our readers are right: Target has a long way to go to improve its grocery image; in fact, the company has a long way to go to recapture its once mighty mojo…more troubling Lidl news. After reporting last month that many of the German discounter’s future Mid-Atlantic store projects have either been canceled or delayed, now comes word from nj.com that a Lidl unit planned for Mantua Township in South Jersey has been delayed, even though the company received approvals from the town to begin construction. According to Mantua’s economic development coordinator, “budgetary constraints” have put the project on hold. While there are still about a dozen of the 47 stores that Lidl has opened since its June debut that are performing well, most of the stores fall into a predictable pattern: very strong openings to be followed by large drop-offs no more than a month later. For every store winner such as Manassas, VA where our estimates are in the $275-300K weekly range, there are three other stores like Culpeper, VA where volume is estimated at $130K per week. Clearly, Lidl is not a place where you can complete your full weekly shopping list and, based on our review of store conditions after several visits to many units, the decline in perishables is particularly noticeable. And as has been stated here previously, the disproportionate amount of space given to general merchandise and apparel is frankly puzzling. Peddling biker shorts for $20 (during the summer months) begs two very basic questions: 1) how big is the total biker shorts market? and 2) how good is the quality of the biker shorts being peddled? (The latter inquiry was made by my own booty.) As I’ve also said before, beyond what I believe is a gigantic initial merchandising misread by the Europeans running the show at U.S. corporate headquarters in Arlington, VA, what’s equally as worrisome is their inability to change course. Certainly, that can happen when you don’t have enough seasoned American retail decision makers at the point of attack to call an audible. And while Lidl’s pricing and packaging remains an undeniable strength as do its bakery and wine/beer departments (which it can’t offer with its upcoming new stores in Maryland, Delaware, Pennsylvania and New Jersey), the “whole” seems to fall far short of the sum of its parts. Don’t expect Lidl to disappear, even though it’s clearly in “rethink” mode. And just before presstime, we learned that Lidl is considering a smaller footprint – 10-15,000 square feet (vs. the current 36,000 square foot model) – and will look to lease other potential new sites. However, with the original decision to acquire all of its own real estate for the first round of about 100 stores (which seem very doubtful to open by next June as the company had hoped) and overall infrastructure costs totaling at least hundreds of millions of dollars (including building four distribution centers, a state-of-the art headquarters, corporate and store staffing), Lidl likely won’t resemble Tesco’s short-lived and clueless Fresh & Easy West Coast entry in 2007. Parent company Schwarz Gruppe has much more money at its disposal than Tesco did and is also privately-owned. Sadly, Lidl’s disappointing opening salvo did not come without great preparation and optimism, but once the opening whistle blows, it’s a totally different game (or as the great philosopher Mike Tyson once said, “Everybody has a plan until they get punched in the mouth”). There’s still time for Lidl to recover but it needs to demonstrate to its customers, especially as the new kid on the block in an already vastly overstored marketplace, that its offerings are relevant. The clock is ticking…… and now, a few points about Godzilla, er, rather, amazon.com. According to Forrester research, the Seattle-based juggernaut captured an incredible 54.9 percent of “Black Friday” online sales. Three days later, multiple sources reported that “Cyber Monday” overall revenue reached record levels with CNBC stating that online sales on November 27 increased by 17 percent. And while we haven’t yet seen too many obvious in-store changes at Whole Foods (WFM) made by Amazon (price reductions on a small, but noticeable number of items and selling other Amazon brands – Echo, Fire, Kindle, etc.), that might change soon. Late last month, WFM released its “most anticipated food trends for 2018.” Some of those include: the creative uses of tacos; the further growth of super powders; new technology to aid puffed and popped snack sales; Middle East cuisine becoming become mainstream; the further elevation of sparkling beverages; and even greater transparency in product labeling to name a few. I kind of wish I was 28 again so I could instinctively go back to the future – then I think I’d hate that idea. And one more story that doesn’t directly involve Amazon, but was clearly influenced by Godzilla’s wide wingspan – CVS’ potential acquisition of Aetna. The $69 billion proposed deal will radically change both the drug and insurance industries and not only speaks to the political realities involving healthcare, but also to a realistic threat that Amazon could bring by entering the U.S. pharmacy business as has been rumored. For CVS, the ability to utilize its nearly 2,000 U.S. stores as distribution hubs for in-stores healthcare, lower co-pays and cheaper pharmaceuticals, makes a lot of sense. And Aetna, which had its $37 billion acquisition bid to acquire another large health provider, Humana, blocked by the FTC (this deal will also undergo major scrutiny) believes it can provide people with a better way of accessing medical care. Trade observers feel that since this proposed deal does not involve only insurance firms and would create a more vertically integrated structure, it might have a better chance of being approved. This will be one of the most important stories of 2018 that will affect almost every American.