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.”
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion
Eighty degree temperatures and outdoor installations at the annual Art Basel Miami Beach called for bright, elevated beachwear. See more street style pictures on WWD.com. #theyarewearing #ABMB (📷: @lifeinreverie)
Following September’s emotional tribute to her brother Gianni, Donatella Versace wanted to bring the spring show’s deep sense of intimacy to her @versace_official pre-fall collection. Donatella found inspiration in Versace Palazzo in Milan and from Gianni’s opulent apartment. Archival patterns and new motifs were splashed on silk shirtdresses and fitted jersey frocks. See the rest of the photos on WWD.com. #wwdfashion
Demna Gvasalia continues to shake up the Paris fashion calendar — and experiment with new runway timetables for his @vetements_official brand. WWD has learned that Vetements plans to stage its next coed show for the fall 2018 season on January 19 during Men’s Fashion Week in the French capital. Details about the timing and venue have not been confirmed — stay tuned on WWD.com to catch the latest. #wwdnews (📷: @giovanni_giannoni_photo)
@zacposen's go-to holiday gift? Cookies! "I'll usually bake cookies and send them as a gift," said the designer, who recently released his cookbook "Cooking With Zac: Recipes from Rustic to Refined." Get the recipe for his Brown Butter-Chocolate Chip Cookies via link in bio 🍪🍪🍪 #wwdeye #cookingwithzac
For @monsemaison’s pre-fall 2018 collection, Fernando Garcia and Laura Kim honed in on the brand’s many signatures — men’s wear, which was tweaked and feminized through deconstruction, proportion play and lots of bare shoulders. See the rest of the photos on WWD.com #wwdfashion (📷: George Chinese)
On Friday night, @yohjiyamamotoofficial received the Design for Asia Lifetime Achievement Award in Hong Kong. The 75-year-old designer has been celebrated for many years and is best known for his dark and avant-garde tailoring. “In my long career, in design, architecture, [I’ve been to] so many parties, this is the very first time that I have such a warm feeling, I really appreciate this,” Yamamoto said. #wwdfashion (📷: @dominiquemaitre)