Stocks ended mixed, as disappointing results from IBM weighed on the Dow, and a surprise drop in gasoline inventories pushed energy shares lower.
The Dow dropped 118 points, with 22 of its 30 components retreating; the S&P 500 Index slipped by 4 points; and the Nasdaq added 13. Decliners topped advancers by about eight to seven on the NYSE. Advancers led decliners by about three to two on the Nasdaq. Treasury prices weakened. Gold futures decreased by $10.70 to close at $1,283.40 an ounce. Crude-oil futures fell $2.00 to settle at $50.85 a barrel.
In earnings news:
- IBM’s shares (IBM) fell 4.92%, after the tech firm posted its twentieth consecutive quarter of year-over-year revenue declines. IBM’s first-quarter profit dropped 13% to $1.75 billion from a year earlier, on revenue of $18.16 billion, down 2.8%. As the company’s legacy software and hardware businesses have struggled, IBM has worked to build out new offerings in fields such as analytics and cloud services. Gross profit margins declined across all five of the firm’s business units.
- Morgan Stanley’s first-quarter net income jumped 70% to $1.93 billion from a year ago. Revenue rose 25% to $9.75 billion, as the firm’s fixed-income trading revenue almost doubled from the year-ago period. Equity trading revenue slipped 1.9%. Profits and sales topped estimates, as did return on equity. Morgan Stanley’s shares (MS) ended 2.01% higher.
In other business news:
- Overall U.S. mortgage applications fell 1.8% last week from the prior week, according to the Mortgage Bankers Association (MBA). The MBA’s index for applications to refinance edged up 0.2%. Its index for applications to purchase decreased 3%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell to 4.22% from 4.28%.
- U.S. crude oil inventories fell by one million barrels last week from the prior week, according to the Energy Information Administration. Gasoline supplies rose 1.5 million barrels, in sharp contrast to forecasts for a decrease. Stockpiles of distillate, which is used in diesel and heating oil, were down by 2 million barrels.
- Brick-and-mortar retailer PetSmart agreed to buy pet food and supply website Chewy.com. Although terms of the transaction were not disclosed, Recode reports that the deal may be worth $3.35 billion. This would be the largest e-commerce acquisition in history. The deal is expected to close this summer. Both companies are privately owned.
- The U.S. economy grew at a modest-to-moderate pace from mid-February through the end of March, according to the Federal Reserve’s (Fed’s) Beige Book, which features economic anecdotes from each of the Fed’s 12 District banks. The report noted that wage growth showed progress, while hiring and labor retention offered a mixed picture. Consumer spending was also mixed. Inflation was modest with selling prices posting slight gains.
What happens when a retailer realizes its complementary offerings might be as, or more, popular than its core product line-up? For furniture giant Ikea, the a-ha moment likely came when 30% of customers who visit the retailer’s in-store cafeterias admitted they come to the store only to eat, not shop.
It turns out that the siren call of Swedish meatballs, hot dogs, and soft-serve ice cream are big-time sales generators. According to consumer blog Curbed, Ikea grew its in-store food sales by about 8% to $1.8 billion between 2013 and 2016. This growth is intentional, not simply the result of frustrated shoppers who just want to find their Malm dressers and quietly decompress with a plate of mac and cheese. Ikea Food has a growth strategy propelling its success, from reducing waste with data analytics tools to rolling out meatless dishes so vegetarian and vegan customers can enjoy Ikea’s campy cafeteria food, as well.
Ikea’s focus on food isn’t new. According to Fast Company, the Swedish firm’s founder installed a sit-down cafeteria in the first Ikea store in 1959. The idea then was that, if you give furniture shoppers something to eat, that takes the edge off and makes them more amenable to talking with sales reps and making purchase decisions. It’s similar to the children’s book “If you give a mouse a cookie,” except in Ikea’s case, if you give a mouse a Swedish meatball, it will buy a 100-piece nightstand that requires assembling, take it home, and slowly devolve into foaming-at-the-mouth primal beast mode, upon realizing it jammed dozens of small wooden dowels into the wrong holes for the past two hours.
Cut to a concerned friend with a concerned face asking me: “You’re not really talking about a mouse here, are you?” Of course not! I vent all my frustrations through “If you give a mouse a cookie”-themed role-play discussions.
But I digress.
Now, Ikea is considering taking the meatball out of the Malm and opening up a chain of cafes in cities across the globe, completely separate from the brand’s big-box stores. While that might seem quirky to some, the company actually sells food to 650 million diners a year in 48 countries, says Fast Company. If you single out the 30% of Ikea customers who only visit stores to eat from that 650 million, you get roughly 195 million customers. That’s not a bad place to begin, if you’re thinking about launching a fast casual food chain.
Ikea’s news reminds me of the once-popular retail strategy of creating original in-store restaurants in every location. Some of these still remain in place, like the Blue Stove restaurant in Nordstrom’s Burlington location. But as department stores shutter and discount stores streamline, you see less and less of this. As a kid in the 1980s, I recall going out to eat at K-mart, Bradlees, Montgomery Ward, and wherever else you could get a $2 sandwich on the go. As an adult, I remember putting a bookmark in my Fodor’s guide, so I’d remember to visit the famed Frontera Fresco in Macy’s flagship Chicago location.
Ikea’s cafeterias have somehow not only outlasted the genre of in-store, family-friendly eateries, they’ve emerged as a viable standalone business with cheap but good-tasting offerings that take into account consumers’ growing taste for sustainable foods (but without sacrificing their most venerable product: The meatball). Perhaps other big-box retailers should embrace this trend. It would be nice to see a struggling department store post a comeback after boasting the best cheeseburgers in America. If you give this mouse a cheeseburger, he’ll probably make an impulse purchase. “Hey, is that a Malm dresser? That looks easy to assemble. I’ll take it!”