Apple's Stunning Margin Growth
Economic Indicators Are Burning Hot As The Fed Weighs How To Balance Growth And Inflation; Apple Crushes Earnings
The economy grew at and inflation adjusted rate of 5.7%, the fastest rate since 1984. US GDP is at or above pre-pandemic growth trajectories and Americans have more savings and cash than ever. We have the strongest job growth in over 30 years. Wages are up 4% (although critics point out not as much as inflation), and unemployment is at new lows. “It appears that labor costs are actually accelerating at a much faster pace, and firms have already demonstrated that, in the aggregate, they have significant pricing power to pass those rising costs along to their customers,” said Stephen Stanley, chief economist at Amherst Pierpont. This is one reason why President Biden’s latest spending bill has hit a snag, as legislators worry that pumping more fuel into the economic fire might lead to out of control inflation.
Food prices continue to be up over 6% and ticket prices for sports are up a whopping 28%. and concerts 45%! Despite political polarization, inflation is clearly a global problem. Given the challenges in the supply chain, shippers are showering workers with new benefits and wages, which further increase the costs of goods. Luckily, EIA forecasts that gas prices will go down in 2022 and 2023.
Economists now expect the Fed to raise rates 4 times instead of 3 to combat the overheating economy with an expected rate hike starting in March. This roiled the market and led to a great deal of stock volatility last week.
On the backdrop of economic data of increased costs from supply chain, wages, inflation and increased costs of capital, return rates rose from 10.6% to 16.6% - representing a $760 billion challenge for the industry. “As online sales increase, the return rate has also increased significantly, and I don’t think it’s a secondary problem anymore,” said Mehmet Sekip Altug, associate business professor at George Mason University.
A new report shows what happens to all those Amazon returns and indicates the cost of the problem. While we all assume they get relisted, a whopping 1/3rd of returned Amazon products just get thrown out. “From all those returns, there’s now nearly 6 billion pounds of landfill waste generated a year and 16 million metric tons of carbon dioxide emissions as well,” said Tobin Moore, CEO of returns solution provider Optoro. “That’s the equivalent of the waste produced by 3.3 million Americans in a year.”
Apple Crushes Earnings With Massive Margin Growth, Despite Supply Chain Constraints
And we can’t not cover Apple earnings as a part of This Week In Retail. The numbers are simply staggering. Apple posted quarterly revenues of $123.9 billion beating estimates by 4.5% and up 11% year-over-year. Gross margins beat estimates by 2 points at 43.8% leasing to EPS of $2.10 beating estimates by a stunning 11.1%. Margins have jumped considerably in 2021, up nearly 6 points since 2019.
Macs continue to take market share in computers with the strongest growth of any of Apple’s hardware lines, growing 25% over last year to $10.85 billion. “Sentiment has shifted a bit more positive as the supply chain appears to have improved at a faster pace,” Barclays analyst Tim Long wrote ahead of the report.
Apple has recently announced business expansion in AR headsets (set for 2023), hints at the “metaverse” from Tim Cook, and recently business payments via NFC. Services revenues such as App Store revenue, ApplePay revenue, etc. has grown to 15.7% of revenues.
The Latest Retail Technology News
Every week we cover the top retail technology news in the industry. Brick-and-mortar retail has often been overlooked and is experiencing a technology renaissance from the ways products are sourced, managed, inventoried, merchandised, marketed, sold and delivered. New technologies are being delivered from computer vision, QR codes,RFID, loyalty programs, lift and learn sensor technologies,smart shelves and electronic shelf labels, supply chain management, in-store analytics, personalization and payments. We believe in thebright case for the future of brick-and-mortar retail, and we highlight the technology underpinning it all. And if you are looking to the future check out our annual 2022 Retail Industry And Technology Predictions from Trevor Sumner.
Walmart revealed its new concept store noting a shift from convenience and value being sacrosanct to a concept called “Time Well Spent.” It features room for “digital exploration” including dynamic displays with QR codes, digital screens in pets that help promote additional services, “lift-and-learn” screens attached to tethers for shavers. We predict a massive increase in digital screens and tools in our 2022 Retail and Retail Technology Predictions. The store also features updated decor that more resembles a department store. With big box responsible for more cannibalization of department store sales than eCommerce, this move along with Target’s and Kohl’s shop-in-shop strategies could spell even bigger trouble for the future.
Macy’s, Bloomingdale’s and other retailers are quietly deploying facial recognition technology to combat increased theft. While some tout the capabilities, others have objected because it has led to false arrests. Organized retail crime is up 60% since 2015, according to NRF with $69 billion worth of products stolen each year, or 1.5% of sales, according to the Retail Industry Leaders Association and the Buy Safe America Coalition.
Amazon announced it is opening a new format of its cashierlesss checkout store called Amazon Go targeted at the suburban market. The primary difference to their urban counterparts will be size, with front-of house retail space of 3,200, 80% bigger.
Walmart has joined a $400 million investment round in vertical farming startup Plenty. Vertical farming promises to scale pesticide free, organic produce at lower costs. Plenty CEO Arama Kukutai said the funding round “creates the opportunity to actually get to scale, not just being a niche provider of expensive greens, as the category has somewhat been accused of in the past. This isn’t just about high-quality, organic leafy greens. This is about getting to consumers on a more democratic and broad basis.”
Ocado announced a new lighter robot to help grocery chains like grocer more efficiently compete with Amazon via micro-fulfillment centers. It boasts higher energy efficiency which will hopefully aid adoption.
Sam’s Club has added inventory scanning equipment to its cleaning robots, adding new functionality with computer vision. Todd Garner, Sam’s Club’s VP of in-club product management. “By adding Inventory Scan to our current fleet of robotic scrubbers, we obtain critical inventory data that previously was time-consuming to obtain. This intelligence allows us to proactively manage our clubs in an efficient manner. Inventory Scan assures items are available and easy to locate in the club, freeing up time for our associates to focus on members and the shopping experience they deserve.”
Albertson’s has partnered with Afresh for AI generated analytics on when food is fresh or getting ready to expire to optimize supply chain and promote key products before they need to be replaced. “By partnering with Afresh, we are now able to improve our processes to better manage our fresh product supply and provide our store teams with a tool to better predict demand and monitor inventory," says Susan Morris, EVP and Chief Operations Officer at Albertsons Companies. "Managing these variables ultimately allows us to offer our customers even higher quality fresh products and further reduce our food waste."
Progressive Grocer released its annual retail technology trends survey. Top business opportunities in the next 18 months include advancing digital and mobile opportunities, analytics driven decision making, personalized marketing, click-and-collect and BOPIS, new product/service categories, upgraded backend systems, and house brand development.
Paris Hilton is set to drop her first NFTs with Super Plastic, a vinyl toy and digital collectibles company backed by Google Ventures and Justin Timberlake and we have added it to our Retail NFT tracker. Hilton has experience in NFTs, having sold her Iconic Crypto Queen NFT in April 2021 for $1.1 million and owning over 100 NFTS, including works by Grimes and Steve Aoki. “I think it’s important for people to not only be in the physical world but also to be in the digital world,” she said. “I see this is as the future of partying, going out, interacting with people and being social.”
Stories To Share At The Retail Water Cooler
Fashion Nova is the first company the FTC has fined for suppressing negative reviews on its website, an all too common practice. The $4.3m fine is substantive and industry leaders should take notice.
Lowe’s has launched mini shop-in-shops with Petco, which is a fascinating category expansion for Lowe’s in an attempt to attract more shopping trips and capture more spend for everything people need for their home. Each will be about 1,000 square feet and financial terms and scaling plans have not been announced. New ways retailers and brands bundle and unbundle services was one of our 2022 Retail And Retail Technology Predictions.
Amazon has been fined over $2m and has shut down it’s “Sold by Amazon” program, whereby third party prices were shared with Amazon and provided floors. The settlement ruled this was the equivalent of price fixing "Consumers lose when corporate giants like Amazon fix prices to increase their profits," Ferguson said in a statement. "Today’s action promotes product innovation and consumer choice, and makes the market more competitive for sellers in Washington state and across the country."
Kohl’s shares surges 36% on Monday when Sycamore and Acacia Research both indicated interest in acquiring the retailer. "We doubt Kohl's real estate has enough value to serve as adequate collateral," UBS analysts wrote in a research note Monday, estimating that the retailer's 400+ stores average in value $6-8 million. "We don't believe an operational turnaround plan exists which will convince creditors to lend enough capital to make the deal happen."
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