While some analysts, vendors and store executives were looking for pent-up demand to drive business, that hasn’t been the case even as warm weather and price promotions mustered some mall footfall.
There’s been some improvement from the first quarter — but that’s not saying much. By June it seemed everything was promotionally priced. Retailers would have preferred to be reordering or “chasing” products rather than having to clear them out to make way for fresh goods.
“Traffic is really tough out there,” said Rebecca Duval, analyst at BlueFin Research Partners. “The Fourth of July was more promotional this year. It was 50 to 60 percent off. Last year it was 30 to 40 percent off.”
While Duval said stepped-up promotions were driving people to the malls, she noted that high inventory levels are a concern for many stores.
“Now 40 percent off is just like the table stakes to get shoppers to cross the lease lines,” said Craig Johnson, president of Customers Growth Partners. “Late April was OK and May was OK. But it was like a false spring with a certain amount of pent-up demand that really didn’t indicate a lot of underlying organic growth. The false spring started petering out the second week of June. Retailers have got to clear summer and spring inventory because back-to-school receipts are coming in and real fall isn’t that far behind.”
RetailNext’s analysis of more than 19 million shopping trips to brick-and-mortar stores in the U.S. last month revealed a 5.8 percent decline in sales, slightly steeper than May’s 5.7 percent dip but smaller than the double-digit decreases registered in February and March. While traffic was down 10.8 percent and transactions were off 12 percent, conversion dropped just 0.1 percent. Average transaction value rose 7.6 percent and sales per shopper increased 5.5 percent, the best marks so far this fiscal year.
The increase in sales per shopper offered some encouragement, especially since the number has been improving since seeing a 4.2 percent decline in March.
The best levels for all the metrics captured by RetailNext occurred in the days just prior to and including Father’s Day.
“Improvements in employment have been countered by higher gas prices and some inflation,” said Bennett Gross, partner at Callydus Group LLC, which specializes in expense reduction at retailers and other businesses. “In addition, there’s the psychological impact of the constant drumbeat out of Washington. When the government is viewed as incapable of functioning on issues from the economy, to foreign policy, to immigration, the horizon looks bleak, and people just don’t spend.”
The chief executive officer of a national women’s specialty chain said, “Maybe there will be a bump in sales for the second quarter, but it’s not happening with profits. April, May and June were better than January, February and March, but not to the point where you thought you could make up the difference.”
Many see a general sluggishness on the part of the shoppers.
“I don’t see a vibrant consumer. Consumers are just not excited to get out and shop,” said one former retail ceo.
“There’s not a lot of energy out there, but at the same time it’s our duty to create energy,” added Steve Siegler, president and ceo of J. McLaughlin. Siegler said “emotional products,” meaning those that are different and innovative, are selling, such as items in the brand’s signature Catalina cloth.
“People got started later [buying] on warmer-weather clothes. We feel it at our resort stores. It opened up later but it’s opened up,” said Siegler.
“Business continues to steadily improve,” said William Taubman, chief operating officer of Taubman Centers Inc. “The first quarter was tough and was more the aberration than the norm.”
Asked about perceptions that mall traffic is declining, Taubman said, “There is no question the customer is researching online, leading to the elimination of the marginal trip. They might go to four stores instead of six because they have already looked online to see what’s available. That’s leading to the perception of less traffic.”
Other retail sources agreed business is not all bad, citing stronger categories such as activewear, dresses, swim, shoes, accessories, rompers, jumpsuits, kimonos, soft flowy woven and knit bottoms, maxi and wrap-body skirts, handbags, and items with feminine details, particularly lace and crochet.
And there are retailers that are seen doing well, including Nordstrom, Macy’s, Victoria’s Secret, Williams-Sonoma, Crate & Barrel, Tory Burch, Michael Kors, Steve Madden and Costco.
Thursday’s comp-store sales releases didn’t clear up the picture. Victoria’s Secret comp sales gained 3 percent, though Bath & Body Works, which like VS is a division of L Brands Inc., rose just 1 percent.
The two teen retailers, The Buckle Inc. and Zumiez, both reported better-than-anticipated comps. Buckle, expected to decline 0.6 percent, was instead 0.7 percent ahead, and Zumiez, expected to grow just 1.8 percent, moved up 3.1 percent.
“Teen spending is considered a proxy of discretionary spending,” said Jharonne Martis, analyst at Thomson Reuters, “and the improvement in that group might suggest that consumers are starting to feel better about extending themselves.”
However, Shannon Greene, chief financial officer of Tandy Leather Factory Inc., appeared relieved as his firm reported increases in all three of its business segments for the quarter.
“The economic environment is tough right now for many retailers and for those of us who are selling nonessentials, it’s even tougher.”
Generally, drugstores, wholesale clubs, food staples, luxury products, outlets and Web sites are performing satisfactorily.
Gap Inc. said its comparable sales slid 2 percent, surprising analysts who, on average, were expecting the San Francisco-based apparel retailer to post a 0.7 percent increase for the month, according to Thomson Reuters. By brand, Gap and Banana Republic both comped down 7 percent, while Old Navy saw a 7 percent rise.
Jennifer Black of Jennifer Black & Associates said in a report that Fourth of July-themed merchandise at American Eagle Outfitters and Banana Republic’s casual summer dresses and skirts and Hampton pants were hits. But at the Gap brand, clearance levels were high, Black reported, with women’s merchandise “just not resonating” while Gap activewear is performing well. Old Navy, she noted, had a solid month, with “the fashion component on trend and the prices very compelling.”
Overall, the sportswear market is flat at best, while denim, particularly the core replenishment component, and jewelry are among the weaker categories. As Chip Bergh, president and ceo of Levi Strauss & Co., which reported a 76.2 percent decline in profits for the quarter ended May 25, said, “ongoing traffic declines and an increasingly promotional environment continue to pressure our Americas region.”
Planalytics said apparel was “relatively flat” in June compared with a year ago, though there were some small positives regionally. For example, women’s capri pants were up 1 percent for the month around the Great Lakes regions and T-shirts rose 1 percent in the Gulf region, said Planalytics, which provides weather forecasting to help retailers in their planning. The firm noted that the recent weather has been spurring seasonal apparel, such as swimwear and rainwear.
A year ago, the second quarter was marked by high inventories amid tepid sales. Most companies missed analysts’ estimates and revised forecasts for the second half downward. This year, the prevailing view is for an uptick in the second half. “Retailers are up against a weak Q4 from last year and there is a slow modest economic comeback happening,” said Johnson, at Customers Growth Partners.
A research note from Adrienne Tennant at Janney suggested that merchants are managing well enough amid the challenges. “Retailers are working through excess spring season inventory and have already guided for associated margin pressure; as such, we believe most retailers are ‘on-to-above’ their initial 2Q14 plans. We continue to believe that inventory levels (along with promotional levels) are sequentially improving from fall 2013 and expect them to continue to improve in fall 2014.”
BlueFin Research’s Duval said: “People are doing the right thing by trying to get rid of the inventory. We did see a decline in order size year-over-year going into Q3, a more conservative approach as we go into the back half of the year, but retailers have to give [consumers] something completely new and different — a compelling reason to buy. Gone are the days when you could take the bestseller and tweak it and expect to have the same sell-through [in the next season]. People might be too optimistic about the second half. We’re probably going to see a slow start to Q3.”
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