NEW YORK— The current state of housewares selling within the retail industry is like a cubist work of art: important parts all over the place with little focus and no clear-cut parameters.
Much of this is due to the retailers themselves, where online merchants see the value of having a physical presence while traditional retailers, for the most part, see value in maintaining and growing e-commerce websites. In addition, operators have blown past blurring the lines of demarcation among the various retail segments and have begun to obliterate them altogether. The result is a rapidly evolving ecosystem where traditional supermarkets are experiencing contraction and consolidation, opening the way for niche markets and specialty grocery stores. Drug stores have been bedeviled by the volatility and uncertainty of health care. Department stores are hemorrhaging sales as an aging customer base continues to shrink. Discounters are pressured to provide customer services and amenities pioneered by online merchants, while specialty stores are losing the sharp focus that brought them success in the past.
In the proverbial nutshell, the activity of Walmart vs. Amazon.com is a metaphor for the whole industry. Amazon, which has defined online retailing for most of its existence, now operates nearly 500 stores. Walmart, which became the world’s largest retailer by virtue of its network of brick-and-mortar stores around the globe, has invested billions of dollars in trying to be more like Amazon when it comes to web-selling. The two are often described as being direct competitors, with Walmart trying to keep pace with Amazon, the online upstart.
In reality, Walmart competes with Amazon only in the areas of groceries and seasonal merchandise, said Dave Marcotte, svp/market insights at Kantar Retail. “Three or four years ago it was head-to-head. Now Walmart is more confident doing what it is doing,” Marcotte said. “Walmart is comfortable being the alternative to Amazon.”
The really fierce competition for Amazon is in the international theater, Marcotte continued. “If anyone is going head-to-head with Amazon, it is most likely Alibaba in Asia and even more so Mercado Libre, the big platform in Latin America. Amazon isn’t comfortable with the challenging logistics in some of those countries.”
Primed For Home
When it comes to housewares retailing specifically, the fluid nature of the industry today allows consumers to purchase tabletop in clothing stores, health devices in appliance stores and pots and pans just about anywhere.
This broadened retail base has helped boost sales of housewares across the board, noted Laura Kennedy, vp/retail, sales and shopper practice at Kantar Retail.
“In recent years, post Great Recession, key macroeconomic factors have been in favor of more home-related spending, including improvements in income and strength in jobs, as well as rising home values,” Kennedy observed.
The rise in home values, she added, “Sends the message to consumers that investing in their homes could yield a return.”
In addition, “Younger consumers are also moving into household formation stages,” she said, even though aging Baby Boomers “are still driving large shares of home-related spending.”
This is corroborated by Joe Derochowski of NPD Group. He said that Millennials, who are often outfitting a kitchen for the first time, and younger Baby Boomers, who are upgrading their kitchens, account for more than half the sales in the $2.5 billion cookware category.
Amidst the changing demographics and the disruptive turmoil of e-commerce and omnichannel retailing, it is not surprising that the structure of retailing itself is changing to meet the evolving preferences of consumers.
A recent study by retail analysts at UBS predicts that online retail’s share of market will rise to 25% over the next seven years. This increase, in turn, will precipitate the closing of as many as 75,000 stores over the same time period, or roughly 7% of the stores in operation today, according to the Bureau of Labor Statistics.
Almost in defiance of the forecast of such a retail apocalypse, the grocery channel of retailing is thriving.
“We are seeing supermarkets recover from the slow growth that plagued them a few years ago. There have been some traditional supermarkets that went bankrupt or closed stores and that is contributing to the growth of the remaining players, but I think the bigger factor at play is that supermarkets have been working to reinvent themselves,” said Tory Gundelach, vp/retail insights at Kantar.
“There are two major areas we have seen supermarkets evolve in over the past two years— digital capabilities and in-store experience. While slow to get on the online bandwagon, most supermarkets have now rolled out online fulfillment capabilities either of their own or through a partnership with a third party like Instacart,” she noted. “This allows supermarkets to fit into shoppers lives even when it’s not convenient to go into the store. On the in-store experience front, we have seen supermarkets adding services such as cooking classes, dietitian services, and even events like speed dating. In addition, supermarkets, have expanded further into the prepared food space with the explosion of grocerants.”
“Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year,” observed James Cook, director of retail research at JLL, a real estate services firm. This year is more of the same, as “even more grocery stores rolling out their smaller-format stores as they battle razor-thin margins in prime locations, while still serving evolving consumer needs,” Cook said.
In a report entitled “U.S. Grocery Tracker 2019,” JLL notes that supermarkets added 17 million square feet of space last year, as new store openings grew nearly 30%.
The activity was not evenly distributed, however, with California, Florida and Texas receiving more new stores than the other states, with the expansion spearheaded by five chains: Aldi, H-E-B, Kroger, Publix and Sprouts Farmers Market.
The JLL report also took note of changing shopping patterns. “Many shoppers make short, frequent trips to the grocery store for items needed that day. Shorter trips are best served by smaller stores that are easier to navigate. Grocers are responding by building smaller stores and focusing on local offerings that appeal to the community,” the report stated.
Aldi is one of the fastest growing of the small format supermarket operations, adding 82 locations last year as part of a five-year, $5.3 billion campaign to open 800 new stores and remodel older units.
Aldi stores are well under 20,000-square-feet with a limited assortment of groceries and other merchandise, all at deeply discounted prices. The housewares offerings are surprisingly diverse, built around the private label Kitchen Living small appliances.
This summer, the chain promoted a floating cooler— large enough to hold a buffet and beverages— along with floating wines glasses for swimming pool living. Aldi also features new housewares items, such as a floral cookware line, as limited time specials.
Other chains opening smaller footprint stores include Aldi’s hipper sibling Trader Joe’s, as well as Lidl, another German-owned retailer like Aldi and Trader Joe’s. Sprouts Farmers Market is a homegrown small store operator.
Many traditional grocery chains are experimenting with downsized locations. Giant Foods, for example, has a smaller, urban prototype called Heirloom Market that it is testing in the Philadelphia area. The company plans to have four such stores open by the end of this year.
Hy-Vee unveiled its downsized format, called Hy-Vee HealthMart, last year near its headquarters in West Des Moines, Iowa. Additional locations were added this year in Sun Prairie, WI, and Kansas City. The stores, in the range of 19,500 square feet, are about twice the size of the health food sections in typical full-size Hy-Vee supermarkets. The company plans to open 50 to 60 more HealthMarts over the next few years.
Hy-Vee also operates a smaller concept called Fast & Fresh, often in conjunction with HealthMarts, which are essentially 9,500-square-foot convenience stores with fuel pumps.
Publix’s newest stores are in the 45,000 to 55,000-square-foot range, while its Greenwise markets come in at under 30,000 square feet, selling natural and organic groceries and sustainable non-food items. Publix started this year with two Greenwise stores in operation, four on the drawing boards and two more in the pipeline.
Kroger is not only the largest of the traditional supermarket operators, it is also the pacesetter in terms of incorporating technology, big data and analytics into its day-to-day operations.
“Kroger has placed an increased focus on building out e-commerce capabilities and alternative revenue businesses such as media since selling its convenience stores in October 2017,” said Kantar’s Gundelach. “I don’t think e-commerce and c-stores are competing forces, I see them coming together to offer people options on how to best fitting shopping into their lives. Shoppers have because accustomed to getting what they want when they want it, and that requires a network of fulfillment options.”
Improving Home Improvement
In the home improvement and hardware channels dominated by national chains Home Depot, Lowe’s, Ace Hardware, and True Value, Menards has made a name for itself as a strong regional competitor.
A major point of differentiation is Menards merchandise offerings, which include groceries, health and beauty aids, and a broad range of housewares. There are vacuums and floor care; storage and organization, and small appliances from toasters and coffeemakers to fryers and mixers.
The smaller, independently-owned stores that comprise co-operative chains Ace Hardware and True Value are beefing up their housewares selections in an effort to outmaneuver larger rivals. The big home improvement stores Lowe’s and Home Depot have a large focus on big-ticket contractors and professional customers. Home Depot CEO Craig Menear said he hopes to have a million pro customers using its B2B website by the end of this year.
In the 2019 Home Improvement Retailer Satisfaction Study by J.D. Power, Ace Hardware and True Value finished first and second, respectively, ahead of Lowe’s and Home Depot. The difference maker was customer service. When customers walk into stores, they are looking for help, but don’t really want to wait around a long time for it.
This was acknowledged by John Venhuizen, president and chief executive of Ace, when he accepted the award. “We are humbled to receive this award which reflects our Ace owners’ passion for their neighbors and the outstanding service they and their red-vested heroes seek to provide every customer, every time,” Venhuizen said.
“In our focus groups one message we always hear concerning hardware/home improvement stores is: customers seem to look to big boxes for larger issues/projects while looking at stores such as Ace and True Value as local and quick answers to their immediate needs,” noted Rich Kizer, who describes himself as a consumer anthropologist with Kizer & Bender, a retail strategy firm.
“These customers also indicated that they felt the big box stores had associates such as retired plumbers, carpenters etc., supplying important professional advice on larger projects, even though they might be harder to find,” Kizer added. “The strength of Ace and True Value and all other smaller footprints is to make absolutely sure the associates are smiling and nearly immediately available to help. And importantly the cashier, the last point of contact, is brilliant and friendly.”
It is the big box discounters and warehouse clubs that are some of the biggest sellers of housewares. It is groceries, however, where they compete against each other and much of the rest of the retail industry.
BJ’s Wholesale sells more groceries than it does general merchandise, while supercenter pioneer Meijer has long considered itself primarily a grocer and even rankled at being described as a discounter.
Target, which attempted to follow Walmart’s lead into groceries, has been nowhere near as successful. In fact, during a recent conference call with Wall Street analysts, Target’s chief operating officer, John Mulligan, said the company wants to create more compelling displays, particularly in food and beverage, and staff the area with more product-knowledgeable associates.
Staying in the grocery category, Target is again turning its attention to smaller footprint stores, a concept Target has been tinkering with for a few years. This year’s variation is taking it into such college towns as East Lansing (Michigan State University), Seattle (University of Washington) and Lexington (University of Kentucky).
These smaller stores, designed to fit in with college campuses and perhaps other urban locations, depend heavily on snack foods, select grocery items, household and personal products and school supplies. Target hopes to open as many as 30 of these scaled-down units a year for the next several years.
At the same time, Target is also attempting to keep up with rivals Walmart and Amazon by using its stores as fulfillment centers for online orders and providing ever-faster delivery times for such orders.
“One-day delivery, or less, is becoming the new customer expectation,” said Arpit Jain, vp/cross-functional delivery and capabilities at Nerdery, a digital business transformation consultancy. “While Target’s same-day delivery comes at a price, it won’t be long before the industry expectation is for it to be free.”
Target’s deliveries are being handled by Shipt, where contractors pick the orders and deliver them from about 1,500 Target stores.
Walmart may be No. 1, but it is still under pressure to offer a lot of the customer amenities pioneered by online retailers, including Amazon.com. The first one to say so is Doug McMillon, Walmart’s CEO.
“Obviously brick-and-mortar stores are one thing. E-commerce in some ways started out feeling like an independent channel or an independent business,” McMillon said. “Yeah, we fell behind and have been playing catch up and have been doing a number of things to accelerate that progress and learning along the way and getting better as it relates to the customer experience.”
Acknowledging Amazon’s many innovations and its head start in retailing online, McMillon said, “We’re not proud; we’re not egotistical. If somebody’s doing something better than we are, let’s copy and paste what we should. In the case of Amazon and others, clearly customers are responding to convenience.”
As a result, Walmart— which began blurring lines 30 years ago when it brought groceries into a discount store— is prepared to define what omnichannel retailing is all about.
“Today we’re very focused on creating a seamless experience for the Walmart brand, bringing the stores and e-commerce together,” McMillon said. “Stores have some advantages and we’re trying to make the most of those. And then catch up in e-commerce and get better with the customer experience and put them together in a way that’s unique and customers will find not only saves them money and time, but creates the optimal experience.”
Another step Walmart has taken in the omnichannel direction is fully integrating Jet.com into its core business. Walmart paid $3.3 billion in 2016 to acquire the e-commerce retailer based in Hoboken, NJ. The site purveyed groceries, electronics and apparel to a customer base skewing younger, more urban and more affluent than Walmart shoppers.
“Because strategy is so fluid these days,” McMillon noted, “we are constantly debating and working through what sequence do we do these things in and how much do we invest?”
Last spring, Walmart introduced a service called InHome in three cities: Pittsburgh, Kansas City and Vero Beach, FL. Linked to online grocery orders, Walmart employees will deliver dairy products and other perishables directly to a refrigerator in the customer’s home or garage. The delivery people wear body cameras that stream their activity to customers, whose homes must be equipped with Internet-connected smart locks.
Value Beyond Price
Dollar stores, junior discounters, small format value retailers— however one describes the likes of Dollar General, Dollar Tree and their competitors— are adding food and beverages but not abandoning the inexpensive kitchen gadgets, utensils, cookware and tabletop that have been core categories.
“Value-based retail creates value well beyond price, and many of them have different value propositions,” explained Bryan Gildenberg, chief knowledge officer at Kantar Retail. “Dollar General is a basic needs store for shoppers living from pay event to pay event, and despite the strong economy about 26% of American households are what we call ‘cash flow statement’ shoppers managing their lives through the cash they have in their wallets.”
Dollar General is adding fresh produce and healthier snacks to its food offerings, but it is also looking for ways to shore up operating profits that have been squeezed by low-margin groceries.
One way to do this, said Todd Vasos, Dollar General’s CEO, is to attract customers with more discretionary spending power. To this end, Dollar General is expanding the home furnishings, kitchenware and party supplies categories.
Modeled on the general merchandise selections of apparel retailers like T.J. Maxx, Burlington Coat Factory, and Ross Stores, Vasos said the idea is to create a “treasure hunt experience” for customers that generates a “sense of urgency” while they are in the store.
Dollar General also offers some amenities associated with higher-priced stores, such as a Starbucks coffee counter in some locations. Vasos hopes more customers will say to themselves, “‘Just because I don’t have a lot of money, that doesn’t mean I don’t feel like having some of the finer things.’”
Now, Vasos added, “We can offer her both value and an indulgence she may want.”
Dollar General has also been slowly expanding its experimental format called DGX. These stores, about half the size of a typical Dollar General store, are designed to appeal to a youthful shopper in the center of such urban areas as Nashville, Philadelphia and Raleigh, NC. Offerings include ready-made sandwiches, snacks, the occasional California wine, prepackaged sushi and a scan-and-go payment option.
Dollar Tree, of necessity, is testing higher pricepoints in its stores. The sense of urgency has been heightened by the prolonged tariff-induced trade war with China, from where the retailer sources about 40% of its inventory. Grouped as the Dollar Tree Plus collection, this costlier merchandise first hit the stores in May and has been rolled out to more than 100 stores.
Also challenging Dollar Tree is the effort to make its 2014 acquisition of the Family Dollar chain profitable. Close to four hundred stores will be shuttered by the end of the year. In addition, at least 200 units are being rebranded with the Dollar Tree banner. In about a thousand of the Family Dollar locations, coolers are being installed or enlarged to accommodate alcoholic beverages.
The verdict is still hanging on the Dollar Tree-Family Dollar tie-up, but at least one industry watcher sees progress being made.
“In our view, Family Dollar remains a drag on performance and its transformation will continue to absorb both management time and company capital for the remainder of this year and beyond,” noted Neil Saunders, managing director at GlobalData Retail. But, he added, “Fortunately, the steps being taken to improve performance at Family Dollar appear to be working.”
Home Goods Directions
There is a lot of unrest among home goods retailers, what with Bed Bath & Beyond self-destructing, Pier 1 Imports shuffling top management, Ikea getting into the furniture rental business, and West Elm partnering with Rent the Runway to rent a variety of furnishings.
Bed Bath & Beyond cut its headquarters staff by 7% this summer, and this was two months after long-time CEO Steven Temares jumped ship. Investors forced the shakeup and an interim chief executive was installed, but improvements are hard to judge.
“Visibility into the turnaround remains very limited, given the company’s poor track record in recent years, lack of a permanent CEO, and an essentially new board,” observed Cristina Fernandez, an analyst with Telsey Advisory Group. “Overall, we believe Bed Bath & Beyond is making some necessary and difficult decisions to address its longstanding problems. A new strategic plan and greater focus on a few key initiatives should help.”
At Home, which may or may not by shopping itself around, continues to push out toward both coasts from its Texas base. The company opened its first California stores this year, as well as units in Florida.
Unlike many retailers, which were slow to react when the tariff battle between the U.S. and China was heating up, Williams-Sonoma took action at the first sign of trouble. Last year, after duties of 10% were placed on $200 billion worth of Chinese goods, Williams-Sonoma moved production of some goods to Vietnam and Indonesia, as well as back to this country. It also opened a plant in Tupelo, MS, to make upholstered furniture.
“I think you are better off preparing for the worst,” said Laura Albers, Williams-Sonoma’s CEO. “Unfortunately, that pessimism has come true and we are more prepared.”
The Container Store is going into the closet in a big way, aiming at consumers inspired to get organized and tidy up by Netflix guru Marie Kondo.
“We love Marie Kondo,” said Melissa Reiff, CEO of The Container Store. The retailer began expanding its customer closet departments last year and this year opened a freestanding Custom Closets store in Southern California, with a second one earmarked for Dallas.
Crate & Barrel has been moving in a few different directions, continuing to slowly grow its 20-year-old urban-oriented CB2 format as well as opening a restaurant in its Chicago store. In addition, Crate & Barrel has acquired Hudson Grace, a retailer of “modern tabletop and entertaining essentials evoking the coastal California lifestyle,” with five stores in California and one in Atlanta.
And then there is Wayfair, which has shown it can increase sales in double-digit bunches but has yet to make any money for its owners, even with an online technology operation second only to Amazon.
Kantar’s Marcotte said it is possible that Wayfair is not looking to turn a profit. “It just wants to build market share and impress its investors to keep investing more money,” he suggested. “They make their money through investors rather than shoppers, though eventually they’ll have to make money.”