U.S. Retail Shares Rally as Target Wows Wall Street; Lowe's Shares Rise as Stores Set to Close; Boxed Takes on Big Retailers with Online Wholesale
PAULA NEWTON, HOST, QUEST MEANS BUSINESS: Hello, I'm Paula Newton, and there's more QUEST MEANS BUSINESS in a moment. When retail's old guard comes roaring back, Target is the latest proof it's ready for a fight with the digital competition. And almost Hawaii right now is preparing for Hurricane Lane, before that, this is CNN, and here the news always come first. The White House says President Trump did nothing wrong, that despite his former lawyer saying under oath that Mr. Trump directed into paying hush money to two women who said they had affairs with him, and that was in order to influence the presidential election. And the White House points out there are no charges against the president. War torn Korean family members reunited after decades apart. They said their final goodbyes Wednesday, buses of mostly elderly South Koreans departed North Korea, leaving loved ones behind just a few days after coming together for the very first time in decades. The reunions were part of the Panmunjom Declaration signed by the leaders of North Korea and South Korea earlier this year. Donald Trump's national security adviser John Bolton says Washington is prepared to exert, quote, "maximum pressure" on Iran to prevent it developing its nuclear program. Speaking in Jerusalem today, Bolton added the United States isn't seeking regime change in Iran. Here, we've been saying this for quite some time on QUEST MEANS BUSINESS, it's sink or swim for the big American retailers. Target shares are up 3 percent, so they just had -- get this, their best quarter in more than a decade. Sales are up, customer traffic is also up and it's upgrading forecast for the rest of the year as well. Now Lowe's shares are also up, although it's not necessarily on good news, it's closing stores and cutting forecast. Our Paul La Monica is here. You know, Target, let's start with them, really stellar results from a company that some people didn't believe could actually project this kind of growth into what is an incredibly competitive retail market.</s>PAUL LA MONICA, CNNMONEY DIGITAL CORRESPONDENT: Yes, I think Target deserves a lot of credit, their CEO Brian Cornell for really turning things around, particularly on the digital side. Target is gone out and they bought this company, shaped to really try and help with same-day delivery. And their digital sales probably were up more than 40 percent in the quarter. So that is better than a lot of other retailers out there, and it's showing that Target just like Wal-Mart can go toe-to-toe with Amazon.</s>NEWTON: And before we get to Lowe's though, bricks and mortar also worked for Target, didn't it?</s>LA MONICA: Yes, the bricks and mortar are still a very important aspect of Target's overall, you know, blueprint of course. The sales there are improving and I think what retailers that are doing it right are finding is that you can have this scenario where people may want to order online, but go pick up at the store. And maybe while they're there, they buy other things as well. And that is something that is helping them boost overall sales.</s>NEWTON: Yes, well, they mentioned that before, right? So getting the customer in the store is important because that's where sometimes you're going to get a higher price purchasing point, one for each trip. Lowe's, very interesting story here because the stock is up because I guess people, analysts just thought they're finally getting down to pairing down some of their inventory or --</s>LA MONICA: Yes --</s>NEWTON: Their source?</s>LA MONICA: They're cutting back on inventory, they are also shutting a separate subsidiary they own, has some stores in California and arguing, and I think what's really important for Lowe's though is that under new CEO Marvin Ellison who was formerly of J.C. Penney, he recognizes that they need to slash that inventory to be more competitive with Home Depot and Wall Street. But the news is the stock was surging today even though the numbers were more mixed than they were at Target where they were unabashedly good.</s>NEWTON: Before I let you go, high point for retail, what are we thinking?</s>LA MONICA: I think that as long as the overall economy is doing well, this is probably not going to be the best that we see this. Remember, the holidays are right around the corner and consumers typically find a way to keep spending.</s>NEWTON: They do indeed, people like me.</s>CHIEH HUANG, CHIEF EXECUTIVE OFFICER, BOXED: We started in a garage, kind of where I grew up --</s>NEWTON: Hear that story again --</s>HUANG: Yes, here we go again --</s>NEWTON: Back in the garage --</s>HUANG: All great things happen in a garage. And really was just I didn't have a car, later in life, as I moved into the city to drive to and from the local Costco. And so, I always thought, OK, you can either buy in bulk and save a little bit of money or you can just buy the single items at your local kind of convenient store downstairs and pay like three, four, five, six times the price. And so I thought, why not create a service for folks who didn't have the physical means to get to and from a warehouse club. But what we found over the last four and a half years was that the bigger opportunity was folks who didn't have the time or the patience to go. And that's where we are today.</s>NEWTON: Patience, clear. But some people would say, look, I can do this at Wal-Mart, they don't have a fee item, I can do this at Target, they don't have a club fee item. What's the difference?</s>HUANG: So one, when we sell things, that we only sell the big bulk items, so you will save money versus like buying the smaller packs. So individually, it's a lot more expensive than buying that 68 counts of Royal Scot's Biscuits that you just saw. No membership fees, and we deliver this directly to your door. And so on a basket of goods for around 10 items or so, we're just about the cheapest online including versus some of the names that you just mentioned.</s>NEWTON: OK, I do check you guys online, for some --</s>HUANG: Yes --</s>NEWTON: Of the products that I get --</s>HUANG: Yes --</s>NEWTON: Your price is competitive, but --</s>HUANG: Yes --</s>NEWTON: I wouldn't say you're always the cheapest, which is why I'm asking you, how do you feel you can get the competitive edge, and what -- I know that you had some big name investors come in --</s>HUANG: Yes --</s>NEWTON: To try and expand. What are you saying -- what are you telling them about the kind of revenue growth that you've seen in this industry, because I have to tell you, when I look at it, I think this is a no brainer, they're always going to be bought by someone bigger or they're going to be pushed out of business by someone bigger.</s>HUANG: Well, that's what makes our jobs, including mine so exciting and heroic at the same time. So --</s>NEWTON: Yes, I know that one --</s>HUANG: We're in this -- we're in this industry where it's not the biggest retailers in America, it's not the biggest retailers in the world, it's actually the biggest companies in the world. But what's interesting is that no one has really figured out online grocery. If you think about someone who's dominated online grocery, has the playbook and is scaling it worldwide, there's that name today, Amazon, Wal-Mart, Target included. Everyone has different services right now in a multitude of different services, not because they found the winning formula, but they're all trying to test to see what's working. So for us, we have our hat in that ring and you know, we're no longer in the garage --</s>NEWTON: And --</s>HUANG: Anymore, so getting to scale at the right time.</s>NEWTON: And I'm going to challenge you on one thing, I always see that North America is mid-evil in comparison to really the city of London, I lived there for five years, I ordered groceries like those --</s>HUANG: Yes --</s>NEWTON: From every single solitary corner of the world, and think -- I wasn't there when we had the app, but they have the app now. It is so easy. What are you doing in terms of taking that kind of model and refining it, because I know you've looked at players like Ocado for instance and seen what they're doing.</s>HUANG: Yes, so one of the biggest things for our model is that instead of shipping one thing to your house or to your door, like how Amazon has pioneered ecommerce in the U.S. at least. What we do is actually get folks to buy eight, nine, ten items. And so as you get that big box with eight, nine, ten items, in effect, you're actually paying less to ship per unit, per item. You're paying a price that's actually less than when Amazon pays to ship one item in a single box. And so when you think about higher margin items like -- I don't know, TVs or remote controllers or whatever it is, you can kind of hide those unit economics by just making a lower margin. But when it comes to the food items that you just saw, you can't really hide behind that because the margins are so thin that the economics don't work out for you to just mail a single item. So I -- going back to your original question, our model is different because we do ship, big bulky items and ship a lot of it to your house. Which ironically enough is cheaper to do as a business than it is by shipping a single item.</s>NEWTON: Which is still really interesting in terms of -- in terms of a model. Where do you see your biggest challenges though in terms of expansion?</s>HUANG: A bunch of things. So I would say making sure that we're keeping up with consumer trends, like you just said, ironically enough, the rest of the world, they're probably way ahead of the U.S. when it comes to online shopping and online grocery shopping. But here in the U.S., staying ahead of the trends as the trends are being set because we don't know if the same flavor is going to happen here as it has in the U.K. But staying ahead of those consumer trends is really high on a list of things to do.</s>NEWTON: Millennials, how big, how important are they in terms of this game?</s>HUANG: They are really important. You know, like to your point, you know, we're competitive on price. When you go in-store versus online, you will pay a little bit of a premium until maybe they meant driverless cars. But folks like millennials are leading that charge to pay for a little bit of convenience in their lives, and I think not just millennials, but busy folks like me, like you. I think what we found is that their trend is not going away. So I don't think the trend of having less time, wanting to go in store is the trend that's going to be reversed in the next 10, 15 years.</s>NEWTON: OK, Hawaii is bracing for a powerful