When even Wal-Mart Stores Inc. falls short of expectations, the depth of the consumer slowdown can no longer be denied.
Such was the case in December, a month in which same-store sales came in for retailers just as advertised, a dispiriting coda for the toughest holiday season in more than a generation. While every sector tracked by WWD declined, department stores were hit particularly hard, and high-end stores such as Neiman Marcus and Saks hardest of all.
And although revenue results and month-end inventory levels were in some cases a bit better than anticipated, these sources of solace came at the expense of margins, auguring ominously for fourth-quarter and year-end earnings that will be reported beginning next month.
The one surprise was that Wall Street took the retail beatings relatively in stride, with the Standard & Poor’s Retail Index rising for the day even as the Dow Jones Industrial Average fell.
Wal-Mart, until now one of the few beneficiaries of consumers’ recent aversion to shopping and acquisition in general, not only fell short of comparable-store sales expectations, posting a 1.7 percent advance in its U.S. stores, excluding fuel, versus analysts’ estimates of a 2.8 percent pickup. But also, concern about the performance of its Sam’s Club stores and international operations, coupled with the recent settlement of 63 class action wage and hour lawsuits, led it to reduce its fourth-quarter earnings guidance for continuing operations to a range of 91 cents to 94 cents a share, down from its earlier projection of $1.03 to $1.07.
Apparel and jewelry were cited as particular soft spots for the world’s largest retailer.
Lowered earnings guidance went hand-in-hand with cuts in store counts and jobs for many stores. Macy’s Inc., which recorded a 4 percent dip in comps, said it would close 11 underperforming department stores. Discounter Stein Mart Inc., with December comps down 8.5 percent, said it would eliminate over 200 jobs and reduce salaries of remaining managers by 5 percent. New York & Company Inc., which doesn’t report monthly comps, said it would eliminate between 40 and 50 of its 600 stores.
Terry Lundgren, chairman, president and chief executive officer of Macy’s, said, “With our business coming in at minus four, we would never feel good about negative results, but it looks like we are taking market share from our competitors. It’s obviously a very challenging time. We expect it to be challenging going forward. But we have done a terrific job of getting inventories in line with lower than expected sales,” 7.5 percent lower than last year at this time. The company is also forecasting over $1 billion in cash on its balance sheet at the end of the year, versus $583 million at the end of fiscal 2008.
“We’ve had too much supply, too much inventory, too many stores,” Lundgren continued. “We are very focused on getting supply and demand back in line again.…We will get our inventories down very tight and in fact it will be the opposite of what we had in the last six months. We’ve all been scrambling to reduce orders. We will get to the point where we will be scrambling to increase orders. Inventories will be lean and that’s a good way to make money, a good way to raise margins, and a good way to improve sell-throughs.”
Regarding markdowns, Lundgren said prices will continue to be sharp. “Consumers will benefit, but I think retailers like ourselves will do a better job of planning for it now as opposed to just reacting,” he said.
Last year, he noted, customer demand fell off faster than anybody anticipated, leaving stores stuck with overinventories. “That’s going to change in the first half in 2009. Inventories are much more in line, so there’s less of a need to mark the inventory down, just to get them down.” Markdowns will become “more strategic, rather than rampant to reduce inventories. There will be less of a panic and more of an orderly process.”
Lundgren described the 11 store closures as part of a “regular pruning process.” He noted that last year eight units were closed. About half of the closings are in older malls and not far from newer malls where there are also Macy’s stores, which should gain some business from the closings.
The 11 Macy’s stores to be closed range in size from a 3,000-square-foot shop in the Mauna Lani Bay Hotel in Hawaii to the 210,000-square-foot unit in the Bellevue Center in Nashville. Two stores in Colorado and Pennsylvania and single units in California, Florida, Indiana, Minnesota and Missouri are also affected. A total of 960 jobs will be lost. Macy’s expects costs for the closures to total $65 million, about $12 million of that sum in cash, and the majority of these to be accounted for during the current fourth quarter.
But the closings added to the concern about escalating job losses. In a statement endorsing both a new stimulus plan from Washington and Congressional approval of the Employee Free Choice Act, Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union, commented, “In the wake of the worst holiday shopping season since the Great Depression, Macy’s Inc.’s decision to close 11 stores — at a cost of almost 1,000 workers’ jobs — is only a harbinger of what’s to come. But now it’s no secret that what’s happening in the retail industry is far different from the cyclical downturn retailers have seen in the past. Against the backdrop of the collapsing housing and credit markets, even unprecedented holiday discounts failed to revive what were already sagging sales. In 2008, roughly 148,000 stores closed their doors before the holiday shopping season even began. In November alone, 91,300 retail jobs were lost.”
Across-the-board promotions that began as early as October couldn’t save Christmas for most retailers this year, as consumers pinched pennies and curtailed holiday shopping in the face of frightening financial and job data.
“Even with all the discounting, retailers didn’t see that pop because everyone was doing it,” said Stephen Hoch, Wharton School marketing professor and director of the Baker Retailing Initiative, explaining why even mass merchants like Wal-Mart were seeing a comp slowdown. “The discounting all canceled itself out.”
The mantra for today’s retailer is “gotta cut, gotta cut, gotta make sure I don’t hit a main artery,” said Hoch, who added that the companies emerging from the current economic slowdown will do so with their brands intact, even if their scope is smaller. This will entail closer management of promotional activity, which was “widespread” during the holiday, he said.
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)
Breaking News: @hedislimane joins @celine as its new artistic, creative and image director. One of fashion’s preeminent image-makers and trendsetters, Slimane is to join the LVMH brand on Feb. 1 and unveil his first fashion proposition for men and women next September during Paris Fashion Week. It marks a major homecoming for Slimane, who cemented his reputation – and influenced men’s tailoring for more than a decade – as the designer of Dior Homme between 2000 and 2007. He went on to reinvent and ignite the house of Yves Saint Laurent, which he rechristened Saint Laurent, between 2012 and 2016 – all the while maintaining a close relationship with the Arnault family, which controls LVMH and Dior. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
“Personally I believe the Eighties have been the richest and more vivacious period for international fashion,” Giorgio Armani said when asked what his favorite decade of fashion is. It was a moment of disruption and experimentation and only thinking back to the first years of that decade is always an emotion for me, for what they have meant to me and my work.” The influence is clear in @giorgioarmani spring 2018 collection, pictured here, which was full of bright colors and unexpected prints. Read more about which decades designers loved most on WWD.com #wwdfashion #wwddecades (📷: @aitorrosasphoto)
For Lady Gaga’s only Italian show on her “Joanne World Tour,” the singer wore a range of @versace_official outfits. The standout piece: this custom-made bodysuit inspired by the brand’s spring 2018 collection. #wwdfashion (RG: @ladygaga)
@_camillaruth_ is expanding on the wellness-craze concept with @westbourne – a new NYC restaurant that’s both a healthy-minded café as well as a business that gives back to the community. Marcus works with the Robin Hood foundation to give back to The Door, a non-profit providing youth development services, and also hires employees through The Door. Read our full interview with Marcus on giving back through food on WWD.com. #wwdeye (📷: @lexieblacklock)