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.”
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews