TIME Retail

This Is Why Walmart Needs to Worry Now

Female shopper in Wal-Mart store aisle
Patrick T. Fallon—Bloomberg via Getty Images

Consequences for the fight over dollar stores

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

By Phil Wahba

Wal-Mart Stores executives could not have been too happy to wake up to the news this morning that dollar store dominator Dollar General offered$9.7 billion in an all-cash deal to buy out its smaller, struggling rival Family Dollar Stores, outdoing an earlier, accepted cash-stock offer by Dollar Tree.

Dollar General is by all accounts a supremely well run retailer: it has reported 24 straight years of same-store sales growth, all the while managing a massive expansion in recent years that has won it millions of shoppers looking to save money. Moreover, its operating profit margin has also improved in the last five years despite the costs of opening thousands of new stores.

That management prowess could turn Family Dollar into a far more formidable rival than it has been on the watch of CEO Howard Levine, whose father founded the chain in 1959. Family Dollar has expanded quickly but also has run into trouble in the last two years by misreading its customers and ramping up its offering of pricier items such as beauty products. It has since backtracked, ramping up its inexpensive offerings.

“Dollar General is going to do a better job of managing those Family Dollar stores,” BB&T Capital Markets analyst Anthony Chukumba told Fortune.

For the rest of the story, please go to Fortune.com.

MONEY Shopping

Why Dollar General and Dollar Tree Both Want to Buy Family Dollar

An unusual kind of price war is rocking the world of dollar stores, with two suitors seeking to buy out the same competitor. As you might imagine, a lot of dollars are involved in the competition—nearly $10 billion.

Three weeks ago, when Dollar Tree bid to buy Family Dollar for $8.5 billion, it seemed like more or less a done deal. On Monday, however, the biggest player in dollar stores, Dollar General, offered its own bid for Family Dollar, reportedly in the neighborhood of $9.7 billion. One way or another, it looks like one giant dollar store company will emerge after one of these bids is accepted.

But why are these companies involved in this unusual breed of “price war”? And what does it say about the low end of retail that either of these colossal mergers would make sense?

The dollar store has been one of the great success stories of the recession era, with chains such as Dollar Tree, Family Dollar, and Dollar General posting record sales figures, broad expansions, and soaring stock prices over the past half-dozen or so years. Ironically, though, the merger may be a sign that the era of rampant dollar store growth is plateauing, even while many household finances remain pinched and dollar store shopping continues to be popular.

Here’s a look back at the recent evolution of the dollar store, with a particular focus on why many shoppers have come to view them as handy neighborhood general stores—and not just for cheap stuff.

The Great Recession destroyed shopper budgets. In the late ’00s, the housing bubble burst, the stock market crashed, and the jobs market took an ugly turn. All of the factors combined meant that the free-spending habits developed by consumers in the preceding years would have to be broken and replaced by new strategies to live cheaply. The much-heralded demise of conspicuous consumption spelled trouble for products like GM’s Hummer, but it also meant boom times for low-price retailers—dollar stores especially.

With little money to spend, especially if they’d cut up their credit cards as many had in a move to a cash-only existence, consumers stretched what few dollars they had at dollar stores. Consequently, dollar stores flourished. Dollar General doubled its store locations in the first decade of the millennium, for instance. According to one study, by 2011 there were more dollar stores than drugstores in the U.S.

Dollar stores pushed one-stop shopping. Shrinking American household budgets helped the rise of dollar stores. So did the broad campaign by dollar stores to push beyond the idea that they were good only for junky throwaway trinkets, off-brand canned goods, and anything else that had grown stale on the shelves of mainstream stores.

Among the goods shoppers started seeing more of at dollar stores are groceries, home decorating items, and even beer and wine. In some cases, dollar store offerings have been celebrated as surprisingly chic: A New York Times columnist wrote about his adventures decorating his apartment with dollar store purchases, while the 99-Cent Chef developed a following based on recipes that use ingredients purchased only at 99¢ Only stores. According to one survey from 2010, 18% of shoppers said that they were buying food and drinks for holiday parties at dollar stores.

Chances are, they were also buying wrapping paper and some stocking stuffers at dollar stores too. And that’s the point. When a shopper can buy fresh bread, produce, a gallon of milk, birthday cards, laundry detergent, shampoo, Christmas presents, and maybe a few bottles of cheap Chardonnay at the dollar store, there’s less need to hit the supermarket, liquor store, drugstore, or big box retailer. Dollar stores have been actively promoting themselves as one-stop shopping options with almost anything you need to buy—and with more locations and a smaller, easier, more manageable layout than, say, the nearest Walmart.

They’re not as cheap as you think. While there are undoubtedly some great bargains at dollar stores, shopping experts also advise against the purchasing of certain items there. Like, say, electronics and pots and pans. If you’re surprised that dollar stores even have such items, bear in mind that oftentimes, not everything in a dollar store is priced at $1. Dollar Tree has stuck to $1 pricing for everything in its stores, but Family Dollar and Dollar General don’t bother abiding by the $1 price rule. Among other items, the Dollar General website lists a Craig Android tablet for $78 more than $1.

Dollar stores employ the age-old strategy of drawing shoppers in with bargains and hoping that they grab some other (non-bargain) goods while they’re at it. A Family Dollar spokesperson told the New York Times columnist mentioned above that low-priced cleaning supplies were “almost like the gateway product” for dollar store shoppers. “It starts with cleaning goods,” he said, “and ends up with a bedspread.”

Or perhaps a tablet, or a bottle of wine—which will also cost more than a buck ($2.99 and up, usually, when available.) Shopping centers have been embracing dollar stores in their slight turn upscale because they’re able to attract slightly better-off clientele. But budget-conscious consumers must be careful: In many cases, dollar stores charger higher prices per unit than what’s to be found at Walmart, Target, or a warehouse club such as Costco. It’s just that dollar stores seem like bargains because the items are low quality or they come in exceptionally small sizes. A few weeks ago, a controversy was stirred up when Dollar General offered a special on diapers in “all counts and sizes” that Walmart and Target failed to match, even though they have price matching policies. Why? Because Walmart and Target offer diapers in far bigger sizes than what’s available at dollar stores.

Speaking of Walmart and Target, they’ve slowly been rolling out a counteroffensive to dollar stores by way of smaller retail locations, often in the densely populated urban hubs where dollar stores are ubiquitous. Supermarkets have entered the battle too, with stores that are half the size of the usual grocery shop. The smaller size means these stores can easily fit in a strip mall or city block, making them a lot more convenient and practical for millions of shoppers.

So now we have a situation in which dollar stores do what Walmart and Target do best by stocking groceries, electronics, and a little bit of everything, and Walmart, Target, and grocery chains do what dollar stores do best by offering small, convenient locations (and more of them) and many bargain-priced goods. The retail lines are blurring. Every player wants to be the convenient, one-stop shopping destination for shoppers, and it has gotten much tougher for a dollar store or any retailer to stand out. When it’s hard to differentiate yourself in the marketplace, and it’s hard to grow, it’s probably time to combine with someone in the same boat to help you compete.

That’s what seems to be why both Dollar Tree and Dollar General want to buy Family Dollar. In today’s ultra-competitive marketplace, a merger represents their best chance to grow, or at least survive.

TIME Retail

A Target Near You Will Now Be Open Until Midnight

The chain is aiming to be more convenient for late-night shoppers as it steps up the fight against online retailers

Target is keeping its doors open until midnight at more than half of its U.S. stores in an effort to attract night-owl shoppers after a challenging year.

The chain’s 1,800 U.S. stores typically closed at 10 p.m. on weekdays and Saturdays, and at 9 p.m. on Sundays, but the new hours will keep many stores open until midnight on weekdays, the Wall Street Journal reports.

Target is betting that the 0.3% of people that a Labor Department survey found shop at 10 p.m. will be attracted to its open locations, and give the chain an advantage in its battle against online retailers.

The company has been cutting prices to woo customers, and recently cut its outlook for the year as it loses traffic and U.S. same-store sales.

Walmart keeps 70% of its stores open 24 hours a day.

[WSJ]

 

MONEY Health Care

WATCH: Walmart Wants to Be Your Doctor

Walmart is testing in-store health clinics in select parts of Texas and South Carolina.

TIME Retail

Amazon Takes Fight to Captain America and the Mighty Mouse

Amazon CEO Bezos Introduces Smartphone to Take on Apple, Samsung
Jeff Bezos, chief executive officer of Amazon, speaks after unveiling the Fire phone during an event in Seattle on June 18, 2014 Mike Kane—Bloomberg/Getty Images

The online retailer is reportedly restricting preorders of some Disney movies in an apparent contract dispute

Amazon has stopped preorders for some DVDs and Blu-ray discs released by Walt Disney, as part of an apparent contract dispute.

The Seattle-based online retailer is making it more difficult for customers to preorder physical copies of the films, a strategy Amazon has employed in the past in dealing with recalcitrant suppliers, including Time Warner’s Warner Bros. as well as in an ongoing dispute with the publisher Hachette.

Maleficent, Muppets Most Wanted and the latest Captain America movie were unavailable for preorder, the Wall Street Journal reported, though customers could still buy digital versions in advance.

Amazon has been engaged in an increasingly acrimonious dispute with Hachette over e-book pricing, with Amazon restricting the sale of Hachette books until the two parties arrive at terms. Over 900 authors, including Malcolm Gladwell and Stephen King, have signed an open letter criticizing Amazon’s policies.

Amazon hasn’t yet publicly commented on the apparent dispute with Disney.

[WSJ]

TIME Retail

Amazon Publishes Hachette CEO’s Email in Latest Salvo Over E-Book Pricing

Amazon Unveils Its First Smartphone
Amazon.com founder and CEO Jeff Bezos. David Ryder—Getty Images

One author called the move 'overtly divisive'

Updated at 2:05 p.m.

In its latest move in an escalating battle over e-book pricing, Amazon attacked book publisher Hachette in a strongly-worded letter Saturday which includes the Hachette CEO’s email address and encourages authors to contact him directly.

Amazon and Hachette have been locked in a duel over the pricing of e-books. Amazon argues their price should be lower, while Hachette’s holding out for higher prices. Hachette’s camp has also accused Amazon of making it more difficult for customers to find and buy books from publishers with which Amazon is negotiating new terms.

In its letter, the Seattle-based online retailer reiterated its case for lower e-book pricing, saying that because of the absence of shipping, handling and printing costs, “e-books can and should be less expensive.” On top of that, Amazon has argued that e-books are just 1% of the revenue of Hachette’s parent company, and that the company could agree to Amazon’s demands with little financial impact.

In its letter, Amazon compared e-books to the advent of paperback books, which it said aroused resistance from authors like George Orwell who ostensibly argued paperback books would ruin the industry. “Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment,” Amazon says in its letter.

(In fact, George Orwell was not opposed to paperback books, and Amazon’s letter quotes the 1984 author misleadingly, as the New York Times reports. Orwell also was ambivalent about lowering book prices, calling cheaper books a “disaster” for authors and publishers.)

Amazon’s note also urges authors to email Hatchette CEO Michael Pietsch with specific talking points and publicly disclosed Pietsch’s email address.

“We will never give up our fight for reasonable e-book prices,” reads Amazon’s letter. “We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.”

One author who received the letter and has published e-books through Amazon spoke out against the company’s tactics.

“It’s overtly divisive, pitting authors against one another,” San Francisco-resident Ron Martinez told the Wall Street Journal of Amazon’s latest salvo. Martinez is the CEO of an e-book discoverability service. “It’s astonishingly poor form to publish an executive’s email.”

Amazon’s letter comes just after over nine hundred authors signed a separate message to Amazon calling on the company to stop blocking the sale of Hachette books. Literary icons Malcolm Gladwell, Stephen King, Douglas Preston, Robert A. Caro, Junot Díaz, Malcolm Gladwell, Lemony Snicket (the pen name of Daniel Handler), Michael Chabon, Michael Lewis, and Jon Krakauer are just a smattering of the names who signed that note, the New York Times reports.

The authors’ letter, which also publicly discloses Jeff Bezos’ email address, is set to run as a full-page ad in the Times this weekend.

MONEY online shopping

Why Retailers Actually Want You to Unsubscribe From Their Spammy Email Lists

Wooden "SPAM" stamp
Bill Truslow—Getty Images

Gmail made it easier than ever to unsubscribe from unwanted email lists sent by retailers that somehow got hold of your email address. So go on, unsubscribe. Marketers won't mind (much).

This week, a message posted by Google + explained that a change at Gmail makes it quicker and easier to unsubscribe from unwanted email lists. “Sometimes you end up subscribed to lists that are no longer relevant to you, and combing through an entire message looking for a way to unsubscribe is no fun,” the note stated. To simplify things and save users time, Gmail is now automatically putting an “Unsubscribe” button at the top of the email, just to the right of the sender’s email address. Click it and those annoying emails you’re tired of deleting will soon go away (in theory at least).

Google made the case that the “unsubscribe option easy to find is a win for everyone. For email senders, their mail is less likely to be marked as spam and for you, you can now say goodbye to sifting through an entire message for that one pesky link.”

Not everyone is viewing the change in quite the same win-win light, however. Adweek described the Unsubscribe button as potentially “a huge blow to email marketers” because making it easier for people to unsubscribe will naturally result in more people unsubscribing. That means fewer people getting the messages of retailers, activist groups, and others that are constantly seeking ways to bolster their ranks of email list subscribers.

So this is awful for the retailers that rely on such lists to spread the word about new products and deals and thereby boost sales, right? Well, not necessarily. One email marketing expert told InternetRetailer.com that there’s an upside to the change at Gmail. On the one hand, yes, putting the Unsubscribe option in a more prominent position will put the idea into the heads of more subscribers and cause subscriber numbers to shrink. But Chad White, lead research analyst at the email marketing firm ExactTarget, said that the people who will utilize the quick Unsubscribe option are problematic subscribers to begin with. They’re the consumers who are most likely to complain about the emails and/or the company, and they’re more apt to categorize the emails as spam. Reporting an email as spam to Gmail is worse for the sender than unsubscribing, as it damages the sender’s reputation in the eyes of email providers.

“While marketers don’t want people to unsubscribe, that may be a better option than them hitting delete without reading an e-mail or hitting the Spam button,” said White. “This is the least bad option because it doesn’t hurt the sender’s reputation.”

Gmail’s Unsubscribe option has actually been around, but flying under the radar, for a few months. It was only just this week that the company introduced and explained it in a big public way. The development follows the much more significant innovation at Gmail last summer, when the service introduced a system categorizing emails into separate boxes for one’s Social, Promotions, and Primary messages. Retailers and marketers worried (and still worry) that the system segregates Promotions into an easy-to-ignore folder.

Yet as with the Unsubscribe button, some think there is an upside to Gmail’s categorization system. When the Gmail categories were introduced, Forrester Research analyst Sucharita Mulpuru told us via email, “The segregation could actually be helpful because people can quickly scan in one place things that may/may not be relevant without having to hunt for personal emails in a sea of mixed clutter.” She also argued that the category system could help marketers reach a much more targeted audience, providing “a ‘destination’ for people that’s not unlike getting a pile of Sunday circulars.”

Now that it’s easier to unsubscribe, marketers can assume that the people who remain subscribed are more of a core group that find the messages relevant and appealing. In other words: They’re really great customers. “There are actually people who love marketing emails–that’s the reason they still stay subscribed to email lists in the first place,” said Mulpuru. “It’s very opt-in and self-selected.”

TIME Retail

Target Expects $148 Million Loss from Data Breach

Target Corp. Reported A 4 percent increase in second-quarter profits
Customers walk outside a Target store August 14, 2003 in Springfield, Virgina. Alex Wong—Getty Images

The bill comes due for one of the largest security breaches in retail history

Target estimates that losses from a 2013 data breach that compromised credit cards and account information for 40 million shoppers could cost upwards of $148 million, the company said Tuesday.

The announcement came in advance of Target’s second quarter earnings report, which would detail the losses incurred from claims placed by payment card networks alleging fraudulent charges.

“Since the data breach last December, we have been focused on providing clarity on the Company’s estimated financial exposure to breach-related claims,” said Target’s interim CEO, John Mulligan.

The losses would be offset by a $38 million insurance payment, the company said. It cautioned that loss estimates were based on a preliminary tally of current claims, and included projections that were subject to change over time.

“These estimates may change as new information becomes available and, although the Company does not believe it is probable, it is reasonably possible that the Company may incur a material loss in excess of the amount accrued,” the company said.

The massive data breach prompted Target’s CEO to resign last May after executives reportedly ignored warning signs of hackers infiltrating the company’s networks. Target announced that the Board had selected Brian Cornell, former CEO of Sam’s Club, as its next Chairman and CEO.

TIME Retail

This Company Wants to Kill Your Supermarket

Aisle at supermarket with shopper and shopping cart
Aisle at supermarket with shopper and shopping cart Diana Angstadt—FlickrVision

Farmigo, a small farm-delivered food service, has an audacious dream

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

Benzi Ronen thinks that the supermarkets’ time is up. And his company is just the thing to speed up its demise.

“Our goal is to make the supermarket obsolete from a fresh perspective,” Ronen says.

Farmigo, his five-year-old 30-employee startup, sells produce and other products like milk and cheese purchased directly from farmers for 10%-20% less than equivalent grocery store items. He does it by shrinking the supply chain, essentially taking out the middleman. Users place an order online; the order is fulfilled by a farmer who transports it to a centralized packing hub; and then Farmigo delivers it to community drop-off points for the customer to pick up. This all happens within 48 hours.

“We don’t have a retail store,” Benzi explains. “We get rid of all of that. We source just in time.” That means there’s no waste and produce is brought directly from harvest.

Other sellers, such as Fresh Direct, also cut out the physical store. But Ronen argues that they’re just an extension of the supermarket model, with similar warehouses that keep a huge inventory on hand. By contrast, Farmigo’s hubs are filled exclusively with product that’s just been delivered by farmers and is going out for delivery.

“Our entire food system is based on economies of scale,” he explains, adding that it has contributed to the hub-and-spoke distribution model in which food travels hundreds of miles and can sit on shelves for weeks. “You don’t get fresh in supermarkets, and you also have waste,” he says.

For the rest of the story, please go to Fortune.com.

 

TIME Retail

Target Openly Supports Gay Marriage in Legal Brief

Hackers Grab 40 Million Accounts From Target Stores
A Target store is seen on December 19, 2013 in Miami, Florida. Joe Raedle—Getty Images

The major retailer has joined a group of companies in filing an amicus brief in support of gay marriage

Target announced its support for gay marriage Tuesday by signing onto an amicus brief in a case before a federal appeals court, after years of criticism for its neutrality on the issue.

“It is our belief that everyone should be treated equally under the law, and that includes rights we believe individuals should have related to marriage,” said Target Executive Vice President Jodee Kozlak in a statement Tuesday.

The retail giant joins a group of national companies signing onto an amicus brief filed in Wisconsin’s appeal of a lower court decision that struck down that state’s gay marriage ban. A similar case in Indiana has been folded into this case.

Kozlak said Target already offers benefits to LGBT employees and families. In announcing the move, Kozlak couched the decision in both ideological and economical terms regarding the challenges created by having contradictory marriage regulations in different states.

“This position is particularly challenging for a large organization that operates nationally, such as Target,” Kozlak said. “Current laws — in places like Wisconsin and Indiana that are addressed in this brief – make it difficult to attract and retain talent … We believe that everyone – all of our team members and our guests – deserve to be treated equally. And at Target we are proud to support the LGBT community.”

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