Retailers muddled through August — weathering a spotty back-to-school season, a political storm in Washington, plummeting stock markets and Hurricane Irene — to chalk up a 4.4 percent gain in comparable sales.
The increase fell just shy of Wall Street estimates calling for a 4.6 percent rise and analysts are increasingly seeing a lackluster second half, with the unexpectedly weak recovery wearing on shoppers come Christmas and higher product costs pressuring retail margins.
Chains generally said that Irene shaved 1 to 3 percentage points off their comps, having hit the Eastern Seaboard on Saturday on the last day of the fiscal month. Some of those sales could be made up this month.
But consumers were already unsettled when the storm hit. Early last month, a host of economic and political concerns took the place of a general belief that the economy was strengthening, albeit at a maddeningly slow pace. Washington’s drawn out debate over the debt ceiling as well as the Standard & Poor’s U.S. downgrade and the market’s troubles all weighed on consumer confidence last month, pushing sentiment to lows not seen since April 2009 and the financial crisis.
“People were watching the news and feeling uncertain in the first half of the month,” said Erika Maschmeyer, an analyst at Robert W. Baird & Co. “It sounds like trends gradually got better throughout the month.”
Maschmeyer said consumers are still spending, but that they would remain skittish headed into the fall and holiday selling season. “A lot of what happens will depend on what we see on the news,” she said.
“The back half is definitely more uncertain,” said Randal Konik, an analyst at Jefferies. “I expect more volatility in sales trends.”
Konik said many chains had “decent” August sales numbers despite the hurricane and that business seemed to bounce back after the storm.
Even so, retail stocks weighed on the markets Thursday, with the S&P Retail Index down 1.2 percent, or 6.26 points, to 509.01, as the Dow Jones Industrial Average declined 1 percent, or 119.96 points, to 11,493.57. Among the retail decliners were Gap Inc., down 3 percent to $16.03, and Kohl’s Corp., 2.1 percent to $45.39.
A kind of status quo has settled over retail with the strong using their strength to maintain their position and the weak struggling to find traction. Luxe department stores continued to outshine their lower-tier counterparts with Nordstrom Inc.’s comps rising 6.7 percent and Saks Inc. gaining 6.1 percent as both Kohl’s and J.C. Penney Co. Inc. registered 1.9 percent declines. And in the specialty sector, Limited Brands Inc.’s Victoria’s Secret unit comped up 16 percent while the Gap’s namesake U.S. division slipped 8 percent.
Kevin Mansell, chairman, president and chief executive officer of Kohl’s, blamed the decline on lower customer traffic and said that the firm would be “aggressively increasing our marketing as well as sharpening our pricing focus for the remainder of the fall season to reverse this trend. We are optimistic that these steps, combined with the excitement surrounding the Jennifer Lopez and Marc Anthony launches later this month, will have a favorable impact on our sales for the remainder of the year.”
Despite all the talk about price, consumers are still keenly focused on what they’re buying.
“Those [retailers] who are on target with their merchandise seem to be the ones who are winning share,” said Samantha Panella, an equity analyst at Raymond James.
At the Gap chain, Panella said, “The tops business is the primary issue, whether it’s fit or color or just style — some things are too basic, others too fashion forward.” Gap ousted chief designer Patrick Robinson in May and has been searching for a successor.
So far, shoppers haven’t cut back dramatically on spending, but that might change.
“We’re going to start to see a bit of softening as the consumer psychology starts to manifest itself in the actual shopping behavior,” said Peter Brown, vice chairman at retail consultancy Kurt Salmon.
Brown said most retailers are prepared, having kept a tight rein on inventories.
“People have been pretty smart about their buying patterns,” he said. “People will be able to deliver on the earnings front without having to post real strong comp growth.”
The full impact of higher cotton costs remains a question mark, although most retailers seem to so far have been able to raise prices enough to make up for lower unit sales. Some could still get pinched as prices climb across the sector.
“It’s going to be difficult for a lot of these retailers to pass along higher prices,” said Paul Lejuez, an analyst at Nomura Securities. “We expect it to be pretty challenging across the board. On the gross margin side, you could see some surprises from people who think they have pricing power when they don’t.”
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia