#716: Another Morning Brew Article - This Time It's Inventory Management

 From 8/14/20

We Made Too Much

Francis Scialabba

Months after the pandemic slowed retail to a standstill, brands are still struggling to move mountains of unsold inventory. Like the unfolded laundry pile staring at me as I write today, this mess has layers. The backstory: Retailers ended up with 525,600 minidresses largely because inventory forecasts didn’t predict the pandemic. And retailers often produce more than they can sell. A broken fashion system made the inventory crisis worse for designer brands, the NYT Magazine writes. Brands that partnered with department stores often created “novelty” or “exclusive” items for each wholesale account they opened.  Those items appeased corporate buyers...but shoppers didn't bite. The temporary solution: Brands are flocking to donation services to offload the goods they haven’t sold this summer, the WSJ reports.  Clothing donation firm Good360 expects to receive $660+ million in retailers’ unsold clothes by the end of 2020. That’s 2x the donations it received last year.  Gap alone has donated $60+ million of unworn apparel during the pandemic.  It’s a charitable choice, but it’s also to circumvent a controversial alternative: destroying inventory. A famous example? Burberry’s 2018 admission that it burned $37 million of unsold goods.  Shoppers and government agencies in some markets have stepped in to demand cleaner practices, but they’re not uniformly enforced across nations or even within large companies. LVMH has started partnering with a recycling company to process merchandise it can’t sell, but only for 11 of its 75 brands. Of those, some items are still destroyed. Amazon has started donation programs for merchants in the U.S. and France with unsold merchandise, but Amazon still destroys some unsold inventory in the U.S.  Another alternative: If retailers can’t get their orders in order, they can also sell inventory to off-price retailers like T.J. Maxx. But concerns about diluting their brands’ value makes this option less attractive. My takeaway: If retailers only produced what their customers truly wanted, the inventory glut would shrink. Now that the pandemic’s revealed the worst-case scenario for excess inventory, some brands may be convinced to create smaller batches at the outset.

#715: Walmart Reports Outstanding Earnings With an *

 Another great Morning Brew article from mid-August

Can We Get the Check?

Francis Scialabba

If you work in retail, you likely saw yesterday’s headline earnings beat. Walmart’s Q2 earnings defied expectations, led by a 97% jump in e-commerce sales.   But there’s an asterisk. Low-income shoppers who relied on federal stimulus checks make up a significant portion of Walmart’s customer base. And without a second round of $1,200 checks or renewed unemployment aid to keep filling carts, CEO Doug McMillon said Walmart’s boom period has already deflated. Comparable sales only rose 4% in July, compared to 9.3% gains for the quarter overall.  So far in August, “Consumers are still spending money but not at [the] pace they were in the middle of the quarter,” CFO Brett Biggs told Bloomberg.  It’s not just Walmart. Across retail earnings calls this week, leaders 1) dropped our forbidden words like Supreme collabs and 2) said that the end of stimulus relief is hurting sales.  Home Depot CEO Craig Menear: “When customers have more money in their pocket, there’s some benefit to that. So we don’t kid ourselves to think that that didn’t have some kind of impact.” Kohl’s CEO Michelle Gass: “Consumer behavior has been profoundly altered given safety and spending concerns, and we don’t expect this to change in the near term.” Analysts expected as much when overall retail sales rose only 1.2% in July, a marked slowdown from May and June surges.  The only exception? This morning, Target reported in-store and online sales rose 24.3% in Q2, a record for the Walmart rival. CEO Brian Cornell attributed rising sales to shoppers sitting out summer travel—not stimulus benefits. “The stimulus was a factor, but even as it waned we saw strong comparable-sales growth in June and July,” Cornell told Bloomberg. Looking ahead...Federal lawmakers will determine if the tide can turn in retailers’ (and consumers’) favor.  Congress is currently deadlocked over competing stimulus packages.  President Trump signed an order on August 8 granting supplementary unemployment benefits, but it’s short of the possible trillions the stimulus packages could offer and won’t reach beneficiaries for weeks. Bottom line: Stimulus or no stimulus, Walmart and company aren’t putting a restructuring expert on speed dial anytime soon. But waning benefits could set retailers of all sizes up for disappointing results in Q3.

#714: Apple's Stock Split

 From a recent edition of Morning Brew - a fabulous source of daily business news:

TECH

Apple’s Stock Must Be Using One of Those Big Charging Blocks

Francis Scialabba

Apple’s market cap surpassed $2 trillion for the first time yesterday, cementing its status as the biggest company in the world. Its stock, which will undergo a 4-1 split in the coming weeks, has increased over 50% in 2020. 

Apple wasn’t the first to break the $2 trillion valuation mark—that honor goes to the oil conglomerate Saudi Aramco—and it (probably) won’t be the last. Big Tech buddies Amazon and Microsoft are both sitting at valuations around $1.6 trillion.

A crazy stat: it took Apple 42 years to reach a $1 trillion valuation, but only two years after that to break $2 trillion.  

How’d Apple do it?

Pretty much by just being Apple. The iPhone maker hasn’t released an entirely new product since the HomePod in 2018, mostly focusing on tweaking or updating existing lines. But if there is one thing Apple does well, it’s make money: Despite the pandemic, Apple’s Q3 profits rose 12% while sales of every single product increased. 

But it doesn’t just sell iPhones: Part of investors’ Apple fever has been fueled by CEO Tim Cook’s increased focus on its services business that includes Apple Music, Apple TV+, iCloud, and the App Store. In 2017, Cook outlined his goal to double 2016 services revenue by 2020, which he achieved six months ahead of schedule. 

It was a prescient move. With iPhone sales plateauing worldwide, Cook’s pivot has investors valuing Apple less like a hardware company and more like a software one.

There will always be controversy

After Cook testified in the antitrust showdown with Congress last month, Fortnite creator Epic Games poked the bear by attempting to circumvent Apple’s 30% cut of in-app purchases. But even as other developers have joined in to criticize Apple’s alleged monopolistic control of the app marketplace, investors remain unfazed. 

Looking ahead...Apple optimism continues to abound. The iPhone 12 coming this fall is widely expected to come equipped with 5G connectivity.

#713: Major Shakeup at the Dow

 See also previous post (#712).  This article from Morning Brew details which stocks remain part of the Dow index.

#712: Apple and Tesla Set to Split Their Shares

 Here's an article that is relevant to ACC 201's chapter 11.  A perfect example of how stock splits increase access and then push the shares back upward as more investors show interest.  Evidently there is quite a bit of interest in fractional trading for Apple and Tesla, along with other popular stocks.

#711: Is Toilet Paper Bad for the Environment?

 Click here for this CBS This Morning segment on toilet paper and sustainability.  We need it, but we need better ways to manufacture is the message of this sustainability segment.

#710: The Flavorful Story of Vanilla

This story pairs nicely with post #510 from February 14, 2017.  That post illustrates well the effects of price fluctuations on the direct materials price variance and this post further supports why pricing on vanilla can fluctuate so much.  Lots of direct labor involved in production and weather factors influence as well.

#709: Personal Finance 101: The Complete Guide to Managing Your Money

Click here to read this great article from CNBC or visit by copy/paste: https://www.cnbc.com/2020/07/30/personal-finance-101-the-complete-guide-to-managing-your-money.html