Know your customer
Good morning, lots covered today. Not sure if it’s due to these Thesis nootropics I started this morning or not, but let’s get into it ??
McKinsey published results from their awesome, monthly US Consumer Pulse survey which I’ll break down instead of a strategy this week.?
According to Nielsen, streaming just claimed the largest share of TV viewing in July. Audiences watched an average of 190.9 billion minutes of streamed content per week, surpassing the 169.9 billion minutes that audiences watched during the pandemic lockdown period back in April 2020.?
In the breakdown below, you can see YouTube continues to be the #1 ad-supported platform to deliver both reach and watch time (i.e. efficiency and effectiveness). If you’re not currently running ads on YouTube, I’d love to learn why so we can help you tap into the opportunity.?
What’s going on in retail?
While retail sales in July rose 0.4% m/m to $683B, margins got hammered this quarter due to excess inventory, elevated inflation, and shifting consumer shopping behavior.?
Coming off of a booming shopping season, Walmart & Target both misforecasted their needed merchandising mix and stock levels, leaving them stuck with excess inventory they’ve been forced to clear out through markdowns. Target’s quarterly profit fell nearly 90% compared to last year.
Target’s Chief Growth Officer said customers are feeling the bite of inflation, stretching their budgets by taking advantage of promotions and consolidating store trips. She said Target shoppers still have spending power, but “confidence in their personal finances continues to wane.”
While both retailers saw top-line sales growth (2.6% for Target and 8.4% for Walmart), profits were tightened as consumers turned to purchasing lower margin items like groceries and essentials.?
Walmart is seeing signs of a budget-strapped consumer who is trading down “in terms of quality and quantity,” said their CEO. Shoppers are “increasingly using credit more than debit and are opting for smaller packages of food and buying items like canned tuna and beans instead of deli meats and beef.” Yum.
Both retailers are sticking with their full-year forecast, exhibiting confidence that these short-term moves to lower prices and clearout inventory, have improved their position for a rebound. Target expects its full-year revenue growth to be in the single digits while improving their overall operating margin rate to 6%, from the 1.2% rate seen this past quarter.?
The struggles are similar over in D2C land, where many popular brand names like Warby Parker, Wayfair, Allbirds, Glossier, Peloton, Stitch Fix, Klarna and even Shopify have unfortunately turned to layoffs as a cost-cutting measure.
Here’s a look at some of the unprofitable results from recent earnings reports:
Allbirds: revenue increased 15% to $78M with sales from physical retail up nearly 120%. However, gross profit declined 26% leading to a net loss of $29M for the quarter.?
Purple Mattress: reported Q2 revenue of $144M, which is a 21% decrease compared to last year. This quarter deliver a net loss of $8.8M compared to a $2.6M gain last year.?
Warby Parker: Net revenue increased 14% to $149M made up of a 9% increase in active customers and 8% increase in avg. revenue per customer. Net loss this quarter reached $32M as they opened 9 new stores.
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Bark: Sales increased by 12% to $131M while their net loss of $15M declined by -38% y/y. I’ll leave you with a few quotes from their CEO, who in addition to trying to combat inflation by guaranteeing dog food prices (below), touches on a number of themes we often do:
“Our overarching goal was and continues to be to drive towards profitability by transforming our customer base to focus on higher value customers, that is customers who spend more with us and make purchases across multiple product categories.
We have also made it simple for customers to purchase add-on products such as slow-feeder bowls for dogs that eat too quickly, toppers for picky eaters, and supplements tailored to each breed’s unique needs. These add-on products improve the margin of each shipment and allow us to better serve each dog individually.”
Consumer Corner
McKinsey’s latest consumer pulse survey is out which highlights the continued economic uncertainty that consumers and businesses have been facing. I’ve pulled out some of the most interesting insights below, with my retail relevant takeaways being:
Here are insights from the report:
Consumer confidence has plummeted to a new low. Thirty percent of respondents say they are feeling pessimistic, and that we may be headed toward one of the worst recessions we’ve ever seen. That’s twice as many feeling glum now than throughout the entire pandemic.?
Inflation woes are top of mind. When asked about their top three concerns right now, nearly two-thirds of our survey respondents say inflation tops their list, far outweighing other economic, political, and personal concerns, including COVID-19.
Consumers are changing how they manage their finances. In response to rising inflation, 66 percent of consumers are taking action. Within this group, 44 percent are either dipping into their savings or reducing the amount they’re setting aside. Eighteen percent are charging more to their credit cards, and another 18 percent aren’t paying their bills in full. Thirteen percent are taking on extra work for more income
Most US consumers have good nest eggs. Over the course of the pandemic, as stimulus checks arrived in the mail and people pulled back on spending on expensive experiences like travel, bank accounts grew larger, with wealthier households saving twice as much as they did prepandemic. For middle-income families, the growth has been more modest. Low-income households are just now starting to see their bank accounts shrink, with cash holdings reduced by 0.5 percent between the fourth quarter of 2021 and first quarter of 2022.
Consumers are changing their shopping habits—but not all in the same way. Seventy-four percent of survey respondents say they’re trading down, with half of them saying their money doesn’t go as far as it did before, 43 percent making adjustments to save more, and 29 percent saying that they can’t pay their bills.
Most of those trading down either adjusted the quantity or pack size of their purchases (60 percent), which is the primary method of trading down for necessities, or decided to postpone a purchase (44 percent), typically for nonessential items. Across categories—but particularly in footwear, groceries, home improvement, and apparel—more lower-income consumers say they delayed purchases than those with higher incomes. People are also trading down by going to lower-priced stores, switching to brands that cost less, or adopting a buy now, pay later approach.
?That’s all for this week.?
Email Marketing Expert | Podcast Host: The Growth Engine Guys | Author of 'Light Your Own Fire' | Founder & CEO at Spike.
2 年Q4: What's holding you up? I answered (d) to see what was the next question. But the answer is (e) It's next on the list to kick off. We just hired someone to help with our marketing so I can get youtube up and running now.