Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes. I used Turbo Tax this year to file my taxes and ended up paying $100 or so for the service. Though the service is advertised as free, there are numerous hidden fees that will end up on the final page of your application if you are not careful. Plus, several weeks ago, companies like Turbo Tax successfully lobbied Congress to stop IRS from building an online portal, which is a terrible decision.
For the past two months, I lost interest in picking up a book for some reason. Nonetheless, the streak ended today as I finished this book.
The book offers a detailed and insightful view on hard discounters which usually act as disruptors in a local retail market. The book defines hard discounters as follows:
Hard-discount retailers offer basic goods and daily necessities at the lowest possible prices, while maintaining high-quality standards. A hard-discounter store differs from discount supermarkets or hypermarkets like Asda, Kaufland, or Walmart. Hard-discount stores are typically about 8,000-15,000 square feet, less than one-tenth the size of a Walmart Supercenter, with probably lower staffing levels.
To reduce costs, hard discounters often display items on shipping pallets and in the boxes in which they arrive. The store is minimally decorated and offers a limited assortment of consumer packaged goods and perishables – typically less than 2,000 stock-keeping units (SKUs). In contrast, the average US supermarket carried 40,000 to 50,000 SKUs in 2017, while a Walmart Supercenter sells over 100,000 grocery and non-grocery items.
Here is what I learned from it
Beware of potential threats in the market. The book told stories of retailers around the world that paid the price for under-estimating hard discounters. They dismissed the arrival of hard discounters at first and when they realized the threat was real, it was already too late to stop the hard discounters.
Benefits of offering a limited assortment of SKUs. I am usually overwhelmed by a plethora of choices at restaurants or supermarkets. As the book says, to shoppers who are under time pressure or who intend to buy rather than browse, a better shopping experience is to be offered streamlined options or a limited range of choices. Plus, retailers who sell a limited assortment, especially private labels, can negotiate a better economic deal with suppliers due to economies of scale. A better deal will help the margin of hard discounters. Additionally, a limited assortment of goods means smaller stores – lower rent, saved costs on logistics and staff.
Go-to-market strategy. Hard discounters tend to enter a new country through a specific market first. Get the foot in, the logistics and operations in and then expand. Also, each go-to-market strategy varies from one country to another due to a host of factors such as household income per capita, economic growth, shopping preferences. Blindly adapting a blanket strategy to different markets may lead to failures.
The book offers a comprehensive view on different aspects of hard discounters and retail in general. It confirmed my belief that a competing strategy can be made up of so many factors that are intertwined together, including to not limited to:
The size of assortments
Whether a retailer carries more private labels or national labels
How man perishable items a retailer carries
Whether it has a good brand name
Whether it has economies of scale
Whether the shopping preferences of local shoppers are a good fit
How much a retailer spends on marketing, promotions and discounts; and for how long it can sustain the effort.
A retailer’s culture
After penetrating a market, whether a retailer can survive the competition depends on the retailer’s ability to carve out a niche in the market where it can be competitive, using a combination of the above factors or more.
A few notable stats
Private labels account for somewhere between 70-90% of hard discounters’ assortment
In 2017, middle-class shoppers in the UK account for 60% of shoppers at Aldi and Lidl
In Germany, hard discounters accounted for three out of every ten euros spent on grocery purchases or 60 billion euros in 2017
Aldi entered Australia in 2001, and by 2017, had cost conventional retailers like Woolworths and Coles AU $16 billion in lost annual revenues
Trader Joe’s offers around 3,500 different items, Lidl between 1,500 and 2,000 while Aldi carries between 1,200 and 1,400 products
In Germany, Lidle was the largest advertiser among grocery retailers in 2017 (almost 280 million euros) and the sixth-largest advertiser in the country ahead of McDonald’s, Daimler, Unilever and Samsung
Trader Joe’s sales per square foot is $1,633, twice that of Aldi and Lidl, four times that of a Walmart supercenter and 8 times that of Dollar General
In Australia, 26% of Aldi shoppers were from high-income families in 2006. The figure shot up to 50% in 2014
For the average US grocery retailer, a loss of 1% in sales leads to a loss of 17% in operating profit
In this post, I’ll discuss what I have found to be the trends in retail. Since I already had to do some research for work, why should I not share it here?
First of all, all businesses want to achieve one or more of the following objectives:
Boost customer satisfaction
Retailers are not an exception. Trends, plans or strategies revolve around those objectives. From my perspective, there are three primary fronts where most retail actions take place: stores, digital presence and logistics.
Stores as a destination
Retailers are increasingly turning stores into a destination, aiming to make shopping an experience as much enjoyable as possible for shoppers. Nordstrom offers pickups from online shopping, alterations and tailoring, curbside pickup and services. More details on their well-known customer service can be found here and here.
You must have heard about Amazon Go Stores. On your way into the stores, simple scan your phone on a reader and Amazon automatically knows about you through your Amazon account. Grab any item you like and simply walk out of the store without any cashiers or checkouts.
Another example is how Nike is using their app to elevate in-store experience for shoppers. With the Nike app, consumers can scan QR code on products to get more information and have the products brought to the changing rooms or to themselves. The app can be used for payment as well so that consumers no longer have to stand in line.
One final example is Apple. Apple stores, in addition to fancy display of products and glass windows, also feature coding lessons, music labs and kid hours.
There are more examples of how retailers are making in-store shopping as enjoyable as possible for consumers. If shopping becomes more frictionless and customized, consumers are happy and retailers can boost their top line.
Real estate is limited and expensive. Hence, it is important for retailers to maximize revenue per square feet. One trend that I noticed among retailers is that stores get smaller and retailers become more conscious of what they display. Below is a quick look at some retailers’ footprint. The majority’s store size decreased from 2016 to 2018, but revenue per square feet increased
Even though there has been talk of the retail apocalypse, major retailers are opening more stores
One Carson’s store in
Illinois had shrunk from 250,000 to 120,000 square feet as the management team
went through 100 TBs of data to figure out what people really want to buy.
Apparel which was not selling well was reduced by 50% while popular categories such
as furniture, large appliances, toy department, bakery, hair salon and art
gallery expanded. Instead of restocking once a season, the store receives fresh
items daily and changes over all its merchandise every two weeks
I believe that when people talk about the demise of retailers because of technology, they are referring to retailers who fail to embrace technology. Physical stores nowadays are the showcase and extension of the technology that the retailers have in place.
The integration of physical stores and technology happen through your personal phone and digital accounts with retailers. Whether it’s QR code, digital app, mobile shopping, information research or online payment, everything happens through your phone. It is interesting that it’s no longer the case that online enhances offline by driving traffic to stores. Nowadays, data generated inside stores can be used to enhance the online experience. Imagine that retailers can use data such as what you buy or what you are so close to buying, but decide not to, in order to run targeted marketing on you through your mobile app.
As mentioned above, the use of mobile apps can make in-store experience pleasant. Mobile apps can help improve significantly revenue with mobile shopping and payment. With the integration of data generated in-store, theoretically, target marketing should be more efficient.
Below is one slide from the investor presentation of Casey’s Store, regarding its digital strategy
We all want our deliveries to arrive as fast as possible. Amazon is the trailblazer in this with Prime and then Prime Now. Other retailers such as Target or Walmart follow suit with two-day delivery with fewer and fewer restrictions. The challenge to retailers is how to achieve such a feat without breaking their bank on having many fulfillment centers and all other expenses.
First, on-demand Just-In-Time warehousing. The idea is to tap into unused space in a crowded U.S. industrial real-estate market. As buying behavior changes rapidly and demand forecast is more unpredictable, retailers prefer not being locked into long-term leases or rents. For example, per WSJ:
This holiday season, Walmart Inc. used Flexe Inc., a Seattle-based marketplace that connects warehouse operators with businesses in need of storage, to secure about 1.5 million square feet of temporary space to handle the mounting demands of e-commerce fulfillment. Hence, improving the logistics efficiency is of importance to retailers.
Another trend is micro-fulfillment. It’s about leveraging robotics to operate warehouses in confined urban spaces, speed e-commerce fulfillment, and reduce last-mile delivery costs. Micro-fulfillment focuses on leveraging software, AI, and robotics to operate small urban warehouses and fulfill online orders.
In short, technology is rapidly changing retail on different fronts. It is an exciting space and I am both curious and excited about it. I do believe that physical stores, as long as they are run properly and integrate technology, are here to stay.
I have been doing some industry research for work, specifically on the retail industry. One trend that CBInsights mentioned in their report was that retail stores were shrinking in size. CBInsights argued that retailers wanted to more conscious of how they made use of their retail space. The competition is so fierce that retailers cannot afford to do everything, be everything and sell everything. They tend to get more nimble in operations and conscious of what they have on display. Nonetheless, CBInsights’ latest year in their data was 2015. So I went through the financial reports by several retailers to find out if retail stores are actually shrinking in size. Before I go through the findings, below are a few important notes:
The list of retailers was from this article by WSJ. There are several retailers whose information was not retrieved. The omission was attributed to the way such retailers structured their data, making it time-consuming to retrieve data and complicated to explain. Hence, I decided to omit those retailers
Retail is a complex industry. The data is for reference only and may represent to some extent the players or trend in the industry. By no means do I believe that the data represents 100% the retail industry
Data from 2015 to 2017 was from the chosen retailers’ annual reports. Data in 2018 was from the latest quarterly reports. Only Walmart already filed their 2018 annual report
Apart from Walmart and Sam’s Club, no other companies had their revenue data retrieved. It doesn’t make sense to analyze revenue per square feet with only 3 quarters’ data recorded
Data is for the retailers’ US segment only
Revenue by Sam’s Club excludes fuel revenue
Number of stores
Among the surveyed companies, only Best Buy, JC Penny and Sam’s Club lowered their store count
Average Store Size
Best Buy, JC Penny and Sam’s Club increased their average store size. The rest decreased theirs, except Dick’s, which keeps their store size more or less the same for the past 4 years
Revenue per square feet
Only Target saw their revenue per square feet decrease in 2017, compared to 2016 and 2015. As the chart can show, 2018 looks to be a good year for Walmart. Both Walmart (the brand) and Sam’s Club increased revenue per square feet, especially the latter.
The majority of the surveyed companies reduced their total retail space, but managed to make the most of their selling space. This is in line with what CBInsights mentioned (I touched on it above as well).
The data I collected is available here on my Tableau profile