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Retailer Alert: Holiday Sales, TRU & New Innovations

The economists have weighed in, and it looks like holiday sales will be strong this year.

  • Deloitte projects that holiday sales between November and January will rise 4% to 4.5% from a year earlier to as much as $1.05 trillion. Online sales will rise at a much faster pace, gaining 18% to 21% to as much as $114 billion, or 11% of the total holiday retail sales.
  • AlixPartners expects holiday sales in November and December to rise 3.5% to 4.4% from the year-earlier period. The rise marks one of the highest holiday growth rates the company has tracked since the recession.
  • RetailNext projects November and December holiday sales will rise 3.8%, led by a 14.9% increase online.
  • eMarketer predicts that total retail holiday sales growth will be 3.1%, with ecommerce sales rising 16.6%, the strongest growth observed in six years.
  • The International Council of Shopping Centers (ICSC) estimates that holiday sales will grow 3.8% year-over-year this holiday season.
  • While the NRF hasn’t yet released its holiday sales forecast, it expects “stronger sales” heading into the fall and holiday season. Earlier in the year, NRF cut its total 2017 sales outlook to reflect sales revisions by the Census Bureau.

TRU Isn’t Dead

Chapter 11 is the best thing to happen to Toys ‘R’ Us, and top toy firms like MGA know it. According to Bloomberg, Mattel and Hasbro are also expected to be strong advocates of the toy retailer. Speaking up in support, MGA Founder & CEO Isaac Larian summed it up: “Oh my God, they are very important, and people don’t understand … There is no toy business without Toys ‘R’ Us.”

TRU has lined up a $3.1 billion bankruptcy loan, and received court approval to begin using roughly $1 billion toward retiring its bank debt, paying vendors to keep shipments coming, and paying employees throughout the end of the year.

The potential restructuring would help TRU simplify its capital structure—the complexity of having three institutional owners (KKR, Bain, and Vornado) can’t be underestimated—and potentially get out of expensive, oversized leases. TRU’s troubles began when the three firms initiated a $7.5 billion leveraged buyout more than a decade ago to take the company private.

While slightly reduced by now, the debt hasn’t gone away—at the end of Q1 2017, TRU’s net debt was 7.8x its earnings. Over the years, TRU is estimated to have paid out nearly $6 billion in total interest payments, including $910 million in 2016 and 2017. That means that the retailer had little left over to count as profits; virtually all excess cash was marked for reinvestment.

In court papers, TRU CEO David Brandon stated that the retailer “has fallen behind some of its primary competitors on various fronts, including with regard to general upkeep and the condition of our stores, our inability to provide expedited shipping options, and our lack of a subscription-based delivery service.”

But despite the limited opportunity to invest in itself, TRU is doing quite well in comparison with other brick-and-mortar stores. According to TTPM, “If they didn’t have the debt, they would be making $500 to $600 million a year in profit.”

While ratings agencies rushing to cut their credit ratings for the retailer, TRU appears dedicated to maintaining solid relationships with its vendors and paying them what’s due (right now, at least). Holiday stock is coming in, and there are no current plans to sell stores. And although the retailer hasn’t announced its plans for financing 2018 operations, its partners will have a lot of leverage in negotiating deals and planning for next year’s holiday season.

Retail Innovation Around the World

American Eagle stores are coming to India thanks to a new multiyear license agreement with Aditya Birla Group, a multinational conglomerate with subsidiaries in the retail and textile industries. American Eagle storefronts will appear in Mumbai and Delhi by spring of next year. American Eagle and Aerie merchandise is available internationally through licensees in 24 countries. Other companies which have made inroads into India this year include Amazon, Armani Exchange, Cole Haan, Muji, and Kate Spade.

Eighty-two Kohl’s locations in and around L.A. and Chicago will accept, package and ship returns from Amazon shoppers back to warehouses—for free—beginning in October. The locations will have dedicated parking for the returns, cited by Amazon as “convenient” drop-off locations. The arrangement arrives after Kohl’s announced it will be giving Amazon 1,000 sq. ft. in 10 of its L.A. and Chicago stores to showcase the ecommerce giant’s range of smart devices and in-home services, while also serving as a location to shop its web site.

Walmart is collaborating with Barrows Global to launch a pop-up pilot, expected to hit California in Q1 2018, according to WWD. The pop-up is expected to be a few hundred square feet and “oriented toward commodity and grab-and-go products, technology, and”

Walmart is also testing a new service that enables busy families to allow a delivery person to walk into their homes when they’re not there and drop off packages or stock groceries in their fridge. The initial test group are tech-savvy shoppers in California’s Silicon Valley who have internet-connected locks. Delivery persons are given a one-time code to open the door and customers get an alert on their smartphones when someone enters.

U.K. toy retailer Argos literally sent a Star Wars BB8 toy into space with the help of Sent into Space to promote its newest range of Star Wars: The Last Jedi toys. BB8 reached a height of over 120,000 ft., capturing some impressive images in the process. The entire flight lasted just a couple of hours before coming back to Earth, reaching speeds of up to 200 mph in the process.


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