commerce and payments mid-year review - first data€¦ · how walmart is going after brands like...

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Commerce and Payments

Mid-Year Review

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2019 Commerce and Payments Mid-Year Review

Top trends

Retail

Digital

Advances

Retail-as-a-Service

(RaaS)

Tech and Banking

Payment

Partnerships

Digital M&A

Cashless

Stores

Retail

Advertising

Platforms

How America

Eats

Cryptocurrency

Luxury

Living

Digital

Banking

Success

Digital

Banking

Failure

Economic

Outlook

SpendTrend

UpdateRetailer

Performance

Bank

Performance

3

Retailer performance (traditional retailers)

Retailer sales bounced back in 1Q19, after a weak holiday season.

Note: 1. Retailer composite sales performance is the quarterly revenue performance of 89 publicly traded retailers with market capitalization over $100 million.Source: Thomson Reuters Eikon.

Retailer composite sales performance1 (YoY)

0%

1%

2%

3%

4%

5%

6%

7%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19

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Retailer performance (eCommerce)

eCommerce retailer sales are growing well above traditional retail, but tough comps are a headwind on performance.

Note: 1. eCommerce retailer composite sales performance is the quarterly revenue performance of 10 publicly traded predominantly eCommerce retailers with market capitalization over $100 million.Source: Thomson Reuters Eikon.

eCommerce retailer composite sales performance1 (YoY)

10%

15%

20%

25%

30%

35%

40%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19

including Amazon excluding Amazon

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Is it retail, or is it technology? (maybe its both…)

We don’t get a ton of credit for being a tech

company, but we have been for a long time.

“– Jeremy King

former Chief Technology Officer at Walmart2

And at the end of the day, we’re a tech

company, but we’re still a food company.

“– Jeffrey D. Lawrence

Executive Vice President, Chief Financial Officer

at Domino’s Pizza3

“We’re going to use technology to transform

food and create the biggest food company in

the world…

– Jonathan Neman

Co-founder of Sweetgreen4

Source: 1. TechCrunch, May 5, 2019. 2. CNBC, March 10, 2019. 3. Domino's Pizza Inc. at Stephens Investment Conference, November 8, 2018.4. Recode, “Why Sweetgreen thinks like a tech company”, December 17, 2018.

“Fundamentally, at this stage, Nike is a

technology company. It’s a technology company

that builds upon its historical strengths…

to solve problems that no one else can solve.

– Michael Martin

Global Head of Digital Products at Nike1

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Digital deals for retail

Increasingly, retail and digital/technology are converging.

Traditional retailers are turning to startup M&A to catch up on the retail transformation.

Source: General industry information.

Online shopping Mobile AR/VR/3D

Product selection Chat/messaging Big data

Logistics Personalization Robotics/automation

Strengthen eCommerce reach Connecting with customers Add digital capabilities

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Digital deals for retail (cont’d)

Issuers 20192018

Digital and technology acquisitions are becoming a source of competitive advantage.


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Retail in the digital age

Online sales grew over 24% in

fiscal 2018 and represented

~8% of total sales.1

In its last fiscal year,

Walmart U.S. eCommerce

sales increased 40%.2

First quarter comparable digital

channel sales grew 42%, on top

of 28% last year.3

For 2019, it expects

eCommerce to grow in the

20% to 30% range.4

Nike’s digital business grew

36% in its most recent quarter,

the first billion dollar quarter.5

In 2018, digital sales grew

16%, representing 30%

of business.6

Source: 1. Earnings release, February 26, 2019. 2. Earnings release, February 19, 2019. 3. Earnings release, May 22, 2019. 4. Earnings release, May 30, 2019. 5. Earnings transcript, March 21, 2019. 6. Earnings release, February 28, 2019.

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Retail-as-a-Service – Lowering the barrier to entry

Emerging Service Providers

Not just for

online retailers

looking to

expand offline

Traditional

retailers are

investing in

it as well

Offers small

pop-up stores,

to full-size

modern stores

Offers modern

tools/technology,

and associate

training

Handles all

leasing and

real-estate tasks

Low up-front

investment

Flexible terms

Source: General Industry Information, TechCrunch, and Digiday.

Reminiscent of the Apple Store?

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Rise of retailers as advertising platforms

Retail Ad-Scape TrendsRetailers Generating Advertising Headlines

Source: 1. Business Insider, June 4, 2019. 2. AdAge, March 4, 2019. 3. B+C, May 2, 2019. 4. Progressive Grocer, April 4, 2019. 5. Company press release, April 4, 2019.

ADV

Key 1H19 Highlights

WPP’s Triad “Targeted” For Acquisition

As Retail Media Takes Center Stage

May 24, 2019

Grocery Media: Agencies Are Spending

More CPG Ad Dollars On Online Grocers

May 29, 2019

Amazon Has a Big Advertising Business.

Walmart Wants One Too.

February 11, 2019

How Walmart Is Going After Brands Like

Kellogg’s For Retail Ad Dollars

May 31, 2019

Amazon’s advertising services grew 35% YoY in 1Q19 to

well over $10 Billion in annualized revenue1

Walmart brings its digital ad operation in-house to

accelerate ad sales which could roughly double to

$5 Billion within a couple of years2

Albertsons’ digital ad platform executed 300 campaigns on

behalf of 150 CPG companies in its first year5

Target renamed its ad network to deliver the right ad to the

right people at the right time on the right channels,

whether on Target platforms or off platform3

Kroger announced a partnership with Pinterest to enable

CPGs to target Kroger shoppers on Pinterest4

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Rise of retailers as advertising platforms (cont’d)

Note: Google includes ad revenue from YouTube; Facebook includes Instagram. Includes advertising that appears on desktop, mobile, and other internet-connected devices,across all ad formats after paying traffic acquisition costs from partner websites.Source: Business Insider, eMarketer, and IAB Internet Advertising Revenue Report.

Leading Players in Digital AdvertisingSignificant Growth in Digital Advertising

$0B

$25B

$50B

$75B

$100B

$125B

$150B

$175B

$200B

$225B

2016 2023

15%+

CAGR

2016 2023

Google and Facebook

58%

Amazon2%

Other40%

Google and Facebook

51%

Amazon14%

Other35%

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Cashing in on cashless


Largely a Food Phenomenon thus far But Opponents have been Vocal this Year

Cashless Stores Are The Hot New Thing. Now

Politicians Are Stepping In

May 28, 2019

Retailers Want To Go Cashless. But Opponents

Say That's Discriminatory

March 26, 2019

Philly, N.J. Inspire A National ‘Movement’ To

Ban Cashless Stores

May 17, 2019

For The 1st Time, A New Amazon Go Store Accepts

Cash As Lawmakers Push Cashless Retail Bans

May 7, 2019

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Bank performance – Large financial institutions

Revenue growth is at it’s lowest point in three years.

Note: 1. Large bank composite revenue performance is the quarterly revenue performance of top 20 (ranked by total assets) US publicly traded banks.Source: Thomson Reuters Eikon, S&P Global Market Intelligence.

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19

Large bank composite revenue performance1 (YoY)

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Tech and payments – Partnering to deliver financial services

› In March, Apple partnered with Goldman Sachs and Mastercard to issue a new

digital-first credit card

› Bundles instant issuance, loyalty, P2P transfers, contactless mobile payments, and

personal financial management

› Offers incrementally larger cash-back offers for using Apple Pay or in Apple Stores

› T-Mobile and BankMobile have partnered to offer a mobile-focused checking

account, T-Mobile Money

› Account comes with overdraft protection, no minimum balance or monthly

fees, and up to 4% interest on balances

› Service comes with a Mastercard debit card for ATM usage at ~55K+ ATMS

› Uber continues to target various financial services: credit cards, leasing, and transit

› Following a $500 Million investment from PayPal, Uber is also planning to

hire a FinTech team in NYC

› Grab, which launched its own financial arm last year, is teaming up with Citi for a

co-branded card

Consumer Credit

Mobile Money

Ridesharing Rewards

Source: General industry information; PaymentsSource, June 11, 2019; The Philadelphia Inquirer, April 18, 2019.

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Digital-only banking – Not for everyone?

Some prominent digital-only spin-offs from banks are shutting down.

Underlying dynamics:

› Insufficient differentiation

› Customer and revenue cannibalization

Source: The Wall Street Journal, June 6, 2019; American Banker, June 6, 2019; The Financial Brand, June 10, 2019.

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Digital-only banking –Success is out there

What digital banks aim

to solve:

› Make it easier for users and/or

businesses to open an account

› Serve overlooked or under-penetrated

consumer segments

› Increase transparency

› Provide customers better insights and

cash management tools

Success stories

4M

4M+

2M

2M

4M

$1.5B+

$1.7B

$1B+

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$30B+

Valuation

Valuation

Valuation

Countries

Deposits

Users

Users

Users

Users

Users

Source: General industry information; “Disrupting Finance: Digital Banks,” Forrester, May 2019.

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Facebook aims high in payments

Source: General industry information. 1. TechCrunch, June 18, 2019.

› Reportedly, 27 invested members so far

($10MM required from each1) and goal is to

reach 100 members (representing $1B in assets)

› Investors span segments such as: capital markets,

blockchain, telecom, eCommerce, travel, ride-share,

media, and payments, and includes Uber, Lyft,

PayPal, and Stripe

› Thus far, global financial institutions and large/traditional

tech companies appear to be absent

› At first blush, an innovative solution with

applicability across several broad-scale

commerce use cases

› Has attracted a diverse set of constituents

› Consumer adoption of crypto remains in

nascent stages

› Regulators around the world have been quick to

jump into the fray

Who is Involved? General Observations

› Facebook announced Libra, a new global

payments system based on cryptocurrency/

blockchain technology

› Initially designed to enable consumers to make

global P2P transfers and buy digital goods

› Will be comprised of the Libra Currency, Libra

blockchain, and Libra Association

› Based on blockchain technology; backed by real

financial assets, (presumably to lower volatility)

› Unlike many cryptocurrencies, Libra will be

centrally managed. Governed by the

independent Libra Association; a not-for-profit

based in Geneva, Switzerland

› The Calibra Wallet will be integrated into

WhatsApp and Messenger

What Happened? How Will it Work?

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Economic Landscape

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The economic narrative remains positive

Retailers Banks

Public mentions of “trade”, “China” and “tariffs” far outnumber

those about the “economy”

“The U.S. business continues to benefit from a healthy

economic environment.”

– Brett Biggs, CFO of Walmart; May 16, 2019

“So just kind of where I look at the consumer right now, still

healthy …consumer confidence is still strong.”

– Jeffrey Gennette, CEO of Macy’s; May 15, 2019

“I think the economy is in pretty good shape in the U.S.”

– Greg Creed, CEO of YUM! Brands; May 1, 2019

“All the indications continue to be really strong in terms of

unemployment, customer confidence …we do see the

customer as healthy.”

– Michelle Gass, CEO of Kohl’s; May 21, 2019

“We continue to see a healthy economic backdrop for our

business, which is evident across multiple metrics.”

– Brian Cornell, Chairman & CEO of Target; May 22, 2019

“When you look at GDP, you look at unemployment, …all of

those factors seem to be holding up.”

– Mark Mason, CFO at Citi; June 11, 2019

“But if you look at the American economy, the consumer's in

good shape.”

– Jamie Dimon, Chairman & CEO at JPMorgan Chase &

Co.; April 12, 2019

“We continue to see a good, strong solid U.S. economy.”

– Paul Donofrio, CFO at Bank of America; April 16, 2019

“The U.S. economy is healthy and supportive of growth, and

the credit quality environment is stable.”

– Andrew Cecere, Chairman, President & CEO at US

Bancorp; April 17, 2019

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Macro update – Sentiment and employment

Source: St. Louis Federal Reserve; University of Michigan, Surveys of Consumers; Department of Labor, Unemployment Insurance Weekly Claims.

Consumer Sentiment (University of Michigan)

Initial Unemployment Claims

Recession

Consumer sentiment has trended upward in recent months, after reaching a recent low earlier this year.

The job market remains robust as low levels of unemployment claims persist.

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Macro update – Wages and housing

Note: Change in Consumer Wages is YoY. Housing starts is the seasonally adjusted annual rate.Source: St. Louis Federal Reserve; U.S. Bureau of Labor Statistics, Employment Situation; U.S. Census Bureau, New Residential Construction.

Change in Consumer Wages (YoY)

Housing Starts

Recession

As the job market remains tight, wage growth has reached a level not seen in almost a decade and

we continue to see sustained levels of construction of new residential homes.

22

Macro update – Consumer financial health

Household debt levels have risen in the last year, but are still well below the levels prior to the most recent recessions.

Likewise, credit card delinquencies are trending upward but remain below long-term averages.

Source: St. Louis Federal Reserve; Federal Reserve, Charge-off and Delinquency Rates, Household Debt Service and Financial Obligations Summary.

Personal Obligations/Income

Credit Card Delinquencies

Recession

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SpendTrendUpdate

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2Q19* Highlights (YoY Growth)

In line with

1Q19

By Channel

+2.7% Brick & Mortar

+1.5% eComm

In line with

1Q19

eCommerce’ portion

of Total spend

Top Growth Categories

+6.6% Travel

+4.9% GrocerySlowest Growth Categories

+4.3% San Francisco

+4.1% Philadelphia

+4.1% Dallas

Regional Spend

+2.3% +1.0%

33%

Total Spend

Retail Spend

+3.1%

South

Winner

+1.7%

Middle Atlantic

Slowest Grower

Top Growing Cities

-4.8% Furniture & Furnishings

-1.7% Sporting Goods

RestaurantSpend

+4.6% Growth

+8.9% QSR

+0.6% Upscale Dining

@

+2.9%

Gasoline Stations

acceleration from

1Q19

SpendTrend executive summary

Note: 2Q19* represents spend activity in April and May 2019 only.

Source: First Data® aggregated same-store spending data.

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Total spendYoY Growth

March saw a decided

reversal of consistently

declining growth trends,

though April and May

resumed the downward

trajectory.

25Note: Figures include all tracked spend across all categories, including Brick & Mortar and eCommerce channels.


5.1%

4.2%

3.7%

2.6%

2.2% 2.1%

0.2%

4.3%

2.8%

1.7%

0%

1%

2%

3%

4%

5%

6%

Aug

18

Sep

18

Oct 1

8

Nov 1

8

Dec 1

8

Ja

n 1

9

Fe

b 1

9

Ma

r 1

9

Apr

19

Ma

y 1

9

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Total spend by component YoY Growth

While transaction growth

has been relatively steady

over the last 3 quarters,

there’s been a steady

slowdown in average

ticket growth which has

stalled total spending

growth.

3.1%

-0.8%

2.3%

-2%

0%

2%

4%

6%

2Q18 3Q18 4Q18 1Q19 2Q19*

Transactions Average Ticket Total Spend

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Note: Figures include all tracked spend across all categories, including Brick & Mortar and eCommerce channels.2Q19* represents spend activity in April and May 2019 only.


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Performance by industry Selected Categories

While the pace of spending

has increased in 2Q19 in

areas that could be

considered essentials, we

are also seeing a

simultaneous slowdown in

most discretionary areas.

Across most industries, spending

is slower in 2Q19 compared to

4Q18.

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Note: Figures include all tracked spend across all categories, including Brick & Mortar and eCommerce channels.2Q19* represents spend activity in April and May 2019 only.


Movement Across Last 3 Quarters 4Q18 1Q19 2Q19*

Food and Beverage 2.8% 3.3% 4.7%

Gasoline Stations 7.3% -0.9% 2.9%

Clothing and Accessories 1.7% -1.0% 1.4%

General Merchandise Stores 0.8% -0.6% 0.6%

Travel 7.4% 6.8% 6.6%

Restaurants 4.6% 5.0% 4.6%

Retail Car/Truck Parts 4.3% 4.9% 4.3%

Electronics and Appliances 4.4% 4.4% 2.3%

Specialty Retailers 2.8% 2.3% 2.0%

Building Materials 1.7% 1.9% 1.5%

Other Services 1.3% 1.6% 0.3%

Leisure -0.2% -0.2% -0.1%

Furniture and Home Furnishings -3.2% -3.4% -4.8%

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Total spendby region

Brick & Mortar growth

was fairly consistent

across the South,

Midwest, and West

regions – with each

accelerating from 1Q19.

In contrast, growth in the

remaining regions was slower

for 2Q19*, and could not keep

pace with their 1Q19 results.

YoY Growth (Brick & Mortar Only)

Midwest

2.6% (1Q19)

3.0% (2Q19*)

South

2.7% (1Q19)

3.1% (2Q19*)

Southwest

2.6% (1Q19)

2.5% (2Q19*)

West

1.5% (1Q19)

3.0% (2Q19*)

New England

4.2% (1Q19)

2.6% (2Q19*)

Middle Atlantic

2.6% (1Q19)

1.7% (2Q19*)

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High 2Q Growth

Low 2Q Growth

Total Spend Growth

2.4% (1Q19)

2.7% (2Q19*)

Note: Brick & Mortar only. 2Q19* represents spend activity in April and May 2019 only.


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Sector Look –Dining / Luxury

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How America eats

Since 1H17, consumers

have continued their

steady shift in total food

expenditure away from

Grocery and toward

Restaurants.51%

49%

Split of Total Food Spending

1H17

Grocery Restaurant

54%

46%

1H19*

30

Note: Figures include all Brick & Mortar and eCommerce spend. Grocery includes only traditional supermarket formats, and excludes non-traditional specialty food retailers, farmers markets, meat markets, bakeries, liquor stores, etc. 1H19* represents spend activity in January through May 2019 only.


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How America eats

While restaurant growth

outpaced grocery for

much of the last year,

momentum has been

steadily building at

grocery. Grocery is on

track to outpace

restaurant spending for

2Q19.

Strong QSR growth is driving

Restaurant numbers upward.

YoY Growth

4.9%4.6%

0%

2%

4%

6%

Grocery Restaurants

2Q18 3Q18 4Q18 1Q19 2Q19*

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Note: Figures include all Brick & Mortar and eCommerce spend. Grocery includes only traditional supermarket formats, and excludes non-traditional specialty food retailers, farmers markets, meat markets, bakeries, liquor stores, etc. 2Q19* represents spend activity in April and May 2019 only.


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Segment look:Restaurants

Strong QSR growth

continues into 2Q19.

Digital enablement has been a

key driver of QSR growth.

Upscale Dining has struggled

for growth over the past five

quarters, while Casual Dining

has slowed of late.

Family and Fast Casual Dining

have also both slowed since

4Q18.

YoY Growth

0.6%

2.9% 3.1%

8.9%

0.6%

-2%

0%

2%

4%

6%

8%

10%

Casual Dining Family Dining Fast Casual QSR Upscale Dining

2Q18 3Q18 4Q18 1Q19 2Q19*

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Note: “Casual Dining” includes full service restaurants which serve alcohol. “Family Dining” includes full service restaurants which do not offer alcohol. “Fast Casual” is a quick service restaurant that serves wine/beer. “QSR” represents traditional fast food restaurants. “Upscale Dining” includes full-service restaurants which serve alcohol, and are characterized by certain service standards and comparatively higher average ticket sizes. Data does not include coffee houses and other sub-categories of Dining. 2Q19* represents spend activity in April and May 2019 only.


33

Segment look: Luxury

Brick and Mortar activity

within Luxury has

tapered off significantly

over the last 4 quarters,

and dipped into negative

territory in 2019. As a

result, overall Luxury

spending has effectively

stalled year-to-date.

eCommerce continues to be

the primary driver of growth in

the Luxury category.

YoY Growth

-0.7%

2.8%

0.0%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Brick & Mortar eCommerce Total Luxury

2Q18 3Q18 4Q18 1Q19 2Q19*

33

Note: “Luxury” is defined by a collection of well-known consumer brands which offer high-priced designer clothing, accessories, and shoes. 2Q19* represents spend activity in April and May 2019 only.


34

Macro backdrop – Putting it all together

Note: 1. As of June 26, 2019.Source: Thomson Reuters Eikon.

Positives

› Retail and financial institution executives

continue to tout the strength of the U.S.

consumer

› Underlying (consumer-centric) economic

measures remain sound

› Capital market performance remains strong

(e.g., S&P 500 up 16% year-to-date1)

› Trade war and tariff overhang (much could hinge on

G-20 meeting)

› Continued deceleration in same-store-sales trends

(SpendTrend)

› (Some) sector-specific measures indicate fundamental

consumer weakening… or at least bear watching

Concerns

Glenn Fodor, CFA

https://www.firstdata.com/en_us/insights/spendtrend.html

[email protected]

212-515-0278

Senior Vice President and Head of First Data Insights

mailto:[email protected]

https://www.firstdata.com/en_us/insights/spendtrend.html

https://www.firstdata.com/downloads/spendtrend-pdfs/YearEndInfographic2018.pdf

commerce and payments mid-year review - first data€¦ · how walmart is going after brands like...

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