🏪 E-Commerce Goes Brick & Mortar

Online retailers went uno reverse by expanding into brick-and-mortar. May 17, 2024 | Peel #712 Silver Banana goes to... [Nunk. ]() In this issue of the Peel: - 💳 Yall gotta keep spending… the fate of the economy depends on it - 🛒 Walmart managed to beat earnings estimates because of that spending. - 🗿 Online retailers went uno reverse by expanding into brick-and-mortar. Market Snapshot 📸 Banana Bits 🍌 - Reddit and OpenAI strike a deal to bring content [from the text-based social site to the chatbot](=) - Housing completions came [back to life in April]( - After the botched deal with Adobe, Figma’s new tender offer values the firm at $12.5bn, [a 37.5% to Adobe’s proposed acquisition price]( Stop wasting time on grunt work Are you tired of spending long nights updating clunky Excel trackers during due diligence? Do you hate constantly having to gather people’s availabilities for calls that will be rescheduled anyway? Do you feel overwhelmed staying on top of insane email traffic and dozens of workstreams across the countless people and advisors working on your deal? In short, do you spend way too much time handling mundane, frustrating tasks that keep you from doing the work that really interests you? If this sounds familiar, you should check out Nunk, a project management tool built specifically for the unique challenges faced by buyside professionals. We’ll launch soon, so make sure you [join our waitlist](=) today! Or even better - [take our 2-minute survey]( to move up the list and be one of the first to try our app. Macro Monkey Says 🐒 Defending Our Spending No, you’re not “wasting money.” You’re just “contributing to the economy.” Be sure to use that line the next time your parents lose it over your Saturday night bar tab. The economy needed you, and I’m sure that will go over well with them. That’s especially true now because we might have to ramp up that overspending already. In April, Retail Sales data suggests that we weren’t even trying to donate to this beautiful and more-than-deserving charity we call the economy. However, other spending reports would make Bill Belichick happy, showing that we were still “doing our job” and throwing cash everywhere we saw fit. Let’s get into it. The Numbers In the last week, two of my all-time favorite monthly economic reports have dropped, and so has my self-esteem now that I’ve admitted to having favorite economic reports. Anyway, let’s start with the more recent one. On Wednesday, the Census Bureau released its advance estimate of Retail Sales spending in April, implying that we didn’t increase spending at all on a monthly basis. [Source]() The Federal Government should be taking notes here, as the idea of “controlling spending” is apparently a foreign concept to them. But, it’s certainly not that foreign, as their own citizens clearly had that ability last month. Further, that’s the exact opposite of what we want for economic growth—growing spending from consumers and controlled spending from the government. Unfortunately, “controlled spending” has become an oxymoron in D.C. Back to the report—according to the Census Bureau, their 90% confidence interval for April’s estimate overlaps on 0.0% but implies a 0.4% margin of error, so April’s spending could’ve contracted/expanded anywhere from -0.4% to 0.4%. That’s not very hot, and considering that total Retail Sales grew just 3.0% from April 2023, that implies that real spending actually declined. As we learned yesterday, 1-year consumer inflation grew at a rate of 3.4%, implying -0.4% real YoY spending growth. At the same time, March’s Retail Sales growth was revised lower from 0.7% to 0.6%, outpacing inflation but not getting us to the post-season. However, there was strength in the sections of the report that matter. Nonstore retailers (a.k.a. online sales… a.k.a. Amazon) saw spending grow 7.5% while restaurants reported spending growth of 5.5%. Overall, the takeaway here is that spending is slowing alongside inflation, both good and bad news, as usual in macro. The spread between spending and inflation ticked up in April but is still well below that of recent highs, so I haven’t soiled myself just yet. Other Numbers Sure, the Census Bureau is great, but it takes them 10 years to even count how many of us citizens there are. With the current state of the southern border, I can understand why counting that is hard, but let’s go to a firm we know is great at counting money. Bank of America’s Consumer Checkpoint might be the fifth gospel the New Testament has been looking for, and their latest report was released last Thursday. [Source]() According to the guys that can count, total real credit and debit card spending for BofA households grew 1.0% compared to April 2023, growing rapidly compared to 0.3% in March. Monthly, total card spending grew 1.3% after a 0.7% decline in March, according to BofA. Lower-income consumers carried the team once again, driving the fastest spending acceleration both monthly and annually. BofA cites recent trends higher in low-income wages, outpacing growth for higher-income earners, as the primary driver. That’s the thing about low-income consumers—when they get money, they (very generously) spend it, contributing to the U.S. economy. Wages for Americans earning less than $50k/yr grew 4.0% annually, much faster than higher income brackets. [Source]( Again, BofA’s data suggests restaurants are leading that spending growth, especially among lower-income consumers. That’s a good sign on its face, but this also potentially implies that fear of slowdowns in discretionary spending could be overblown. We all know the “we have french fries at home” line our parents used when our 6-year-old selves just wanted a little McDanks on the way home from ripping dingers at t-ball practice. Clearly, parents are saying no to that less and less, which is good for the economy and the mental (but not so much physical) health of America’s youth. [Source]( The Takeaway? Consumer spending is not at a rate worth worrying about… yet. The most important dataset here is likely the spread between inflation and spending, so seeing that grow last month makes our palms a little sweaty, but not our knees weak, nor our arms heavy, and hopefully no thrown-up mom’s spaghetti. Secondly, we’ll keep a close eye on low income restaurant spending, some of the highest-beta spending data (no rhyme intended) in relation to inflation, disposable income growth, and overall economic performance. Spending in the U.S. is of titanic importance to GDP growth and improvement of our standard of living, given that ~2/3rds of GDP comes from consumer wallets. But like the Titanic, it seems that we’re wading into potentially icy waters. We haven’t hit the iceberg yet, but we just hope our economic overlords aren’t as drunk and blind as the “unsinkable” ship’s captain. What's Ripe 🤩 Walmart (WMT) 📈7.0% - And if you still aren’t convinced spending remains relatively strong, just check out Walmart’s earnings. The world’s largest retailer beat across the board. - Revenue of $161.5bn came in $2bn above estimates while EPS of $0.60/sh beat by 15.4%. E-commerce growth of 22% was a key driver, along with… - … strength in China, India via Flipkart, and LatAm via Walmex. The company also managed to attract a larger portion of higher-income consumers in Q1. Chubb (CB) 📈4.7% - Holding Chubb on Wednesday was the portfolio manager’s equivalent of winning prom queen, the lottery, and getting proposed to on the same day. - The Oracle of Omaha revealed yesterday that Chubb is the super secret stock that Buffett & Berkshire have been loading up on without disclosing in their 13F. - Honestly, I’m surprised shares of the Swiss-based insurer didn’t spike more. But, an insurance firm with a >$100bn market cap isn’t exactly the next GME. What's Rotten 🤮 Deere & Co. (DE) 📉4.7% - Country singing may be in a bear market given a dismal outlook for U.S. farming later this year. Morgan Wallen’s not the only one in trouble—just ask Deere. - The agricultural equipment supplier beat estimates with earnings of $8.53/sh on $13.6bn in sales vs $7.86/sh on $13.2bn. But guidance was lowered. - Deere now expects full-year income of $7bn, down from their prior range of $7.5bn-$7.75bn alongside a 25% cut in national expected farm income in the U.S. from the Department of Agriculture. Meta Platforms (META) 📉1.7% - Damn, I almost feel bad for Meta as they’re apparently getting “deeply” “probed” down a rabbit “hole.” Sus. But it’s the EU, so I can’t say I’m surprised. - The EU is probing Meta’s hole to check the social media firm’s controls over content directed to children with a focus on sending them into “rabbit holes.” - Shares tanked on news of the investigation as, historically, the EU’s fines and penalties actually impact shareholders, unlike most in the U.S. Thought Banana 🤔 E-Commerce, But IRL There’s a hot, new trend going on in retail around the world that, as far as my research indicates, has never been tried before. Online retailers are attempting a bold strategy of creating real, physical, brick-and-mortar buildings called “stores” to sell their products out of… like, in real life. I didn’t realize this was possible, but just ask Wayfair. What’s Happening? Shoutout to any apes out in Chicago as Edens Plaza in the “village” of Wilmette (idk sh*t about Chicago) will soon become home to Wayfair’s first physical location. The online retailer has seen shares rise over 37% since first making the announcement as reviving physical retail is ostensibly the new wave. [Source]() As we can see above, thanks to CNBC, this trend of shopping in person—as crazy as it sounds—has been on the rise in recent years. Amazon began its foray into physical with its purchase of WholeFoods, but has since launched a few checkout-less stores in places like D.C., Seattle, and New York. Other firms, like Allbirds, Warby Parker, Bonobos, Rent the Runway, and many more overpriced Instagram stores, all have physical locations after originally launching as online-only brands. Another thing these firms have in common is that their share prices are all down over 70% since market highs in late 2021. Obviously, there are other reasons behind this, and I’m sure we can all think of at least 5.25%-5.50% reasons off the top of our heads. But, something about opening retail locations brings further scrutiny. The goal in opening these stores tends to be to build a “temple to the brand,” as NYU marketing professor Scott Galloway refers to Apple stores. The downside is that having that “temple” exposes firms to brand new risks in reputation and, most important of all, margins. So, effectively the tradeoff these stores are making is—“we will sacrifice some margin and control now in order to (hopefully) increase our brand image and awareness to eventually reach scale and improve revenue and margins in the long-term.” The problem is that while most shopping is still done in person (amazingly), most of the growth is still found through digital channels. [Source]() Since the pandemic, the trend of booming e-commerce growth undoubtedly has slowed, however. In 2021 and 2022, you could argue it’s people wanting to get back outside, but 3-years post-lockdown, I’m not sure if that qualifies anymore. The key element of success in moving from online-only to some-physical retail is the “experiential” aspect of it. Consumers would only choose to go to a physical location over shop online if—all else equal—they thought they’d get more utility in person. For a furniture company like Wayfair, this especially makes sense, especially for high-ticket items that customers want to “test out” before buying. The need to test a shirt vs a couch is totally different on a cost and hassle-to-return side, making us optimistic that Wayfair’s foray into physical retail could be one of the more successful brands to make the transition. The Takeaway? The dream of retail firms seems to be to have most sales come from digital channels to elevate margins, but still have some physical location in densely populated, high income areas around the U.S. to build a monument to their intended brand reputation. Anecdotally, I buy my glasses from Warby Parker. The first time I did, I went to the store down the street from me. But, once I knew my preferred size and style after going to the store once, I pretty much buy exclusively online now. And, maybe that’s the whole goal right there. Getting shoppers to come in once, try out the items to see what they like while giving a fun experience so they have a good brand connotation, and then let them buy online from there on out seems like a great way to squeeze the most out of customers onto your bottom line. Did we just solve U.S. retail? 💭 The Big Question 💭: What kind of retailers will be most successful using the omnichannel strategy? Should other online-first brands take similar steps? How will this impact the share price long-term? Banana Brain Teaser 💡 Previous 🗓 Working simultaneously and independently at an identical constant rate, 4 machines of a certain type can produce a total of x units of product P in 6 days. How many of these machines, working simultaneously and independently at this constant rate, can produce a total of 3x units of product P in 4 days? Answer: 18 machines Today 🕐 Last year Joe grew 1 inch and Sally grew 200 percent more than Joe grew. How many inches did Sally grow last year? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Life’s too short to hang out with people who aren’t resourceful” — Jeff Bezos How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA](=) // [ACADEMY]( // [COURSES](=) // [LEGAL](=) [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States