Holiday 2009 could see profits victory snapped from the jaws of sales defeat.
The annual guessing game that surrounds the all-important holiday season has become a study of contradictions — with observers believing that even as the holiday sales performance could be one of the worst on record, retailers’ moves over the last nine months to slash inventories and control costs could mean their bottom lines actually improve in the fourth quarter.
A forecast from Retail Forward on Tuesday indicated a 2 percent drop in apparel and accessories sales for the fourth quarter, reflecting a continuation of the consumer retreat that pushed sales down more than 9 percent in the same period a year earlier.
Overall retail sales, excluding auto, food and drug sales, are projected to come in flat after falling 4.5 percent a year earlier, teeing up the upcoming fourth quarter as the second worst in 42 years.
The Retail Forward study adds to the steady knell of downbeat projections for holiday, with most projecting the season’s performance to range from flat to down in the single digits. And the consensus is that consumers — having been trained by last year’s steep discounts at retail — are going to wait until the last possible moment to see who blinks first.
Even with the poor sales outlook, Wall Street remains generally bullish on the sector. Retail stocks, which dipped modestly Tuesday, are up 37.8 percent so far this year, and Wall Street is trumpeting the industry’s gross margin potential in the wake of better inventory controls and price reductions from factories.
“You could end up with a fantastic earnings report card,” said Deborah Weinswig, broadlines analyst at Citi. “With inventories so low, even if you have negative [comparable-store sales] you could still have a very positive earnings number.”
Technological updates are helping chains get goods to their stores more quickly and some companies are considering shipping goods via air, Weinswig said. Air freight is a costly but effective way to get inventory where it needs to be, when it needs to be there.
“There are some real changes happening here,” she said.
Weinswig upgraded Macy’s Inc. to “buy” from “hold” Tuesday, based on the store’s My Macy’s initiative to bring more local relevance to its offerings, price cuts from suppliers and the company’s efforts to increase its speed-to-market. The analyst said falling product costs could boost the company’s gross margins by 50 basis points next year.
Shares of Macy’s rose 5.5 percent to $18.77 Tuesday even as the S&P Retail Index fell 0.2 percent, or 0.87 points, to 384.92, and the Dow Jones Industrial Average advanced 0.5 percent, or 51.01 points, to 9,829.87.
Given the time it takes to design, plan, produce and ship apparel — nine months in some cases — the changes retailers made following last year’s financial fallout are just beginning to show up in stores. It remains an open question if firms have cut back too much or too little on inventory, or even whether they’ve played it too safe from a fashion perspective.
For some, the dollars and cents could add up quite nicely even if shoppers are shy at the sales counter, as expected.
“Retailers have had the opportunity to proactively plan for the reduction of consumer demand and, in many cases, have been overconservative because of being caught the way they were for holiday ’08,” said Antony Karabus, chief executive officer of Karabus Management.
But the financial crisis and the severity of the recession could have succeeded in bringing scarcity back to fashion, Karabus said.
“If consumers want something, they’re going to have to pay much closer to full price than they would have a year ago because that glut of inventory will be gone,” he said. Increased full-price selling, along with trimmed corporate structures and cost bases, mean better gross margins.
“From a company’s health perspective and a stock perspective, there are other things to look at than just purely top-line growth, and one of them is gross margin improvement,” said Paul Lejuez, specialty store analyst at Credit Suisse. “It’s true that top-line trends are likely to be on the weaker side. The question is how much has better inventory management led these companies to better gross margins.”
And although consumer confidence has recovered some, shoppers are still jittery. The unemployment rate is at a 26-year high of 9.7 percent, and the signs of economic pain persist across all sectors — even as some data, such as home starts and the index of leading indicators, show an uptick.
A further indication of the pressure the retail sector is under came Tuesday when Taubman Centers Inc. said it would write down the value of two of its properties, The Pier Shops at Caesars in Atlantic City and Regency Square in Richmond, Va., reducing its earnings by $161 million to $169 million. The Taubman write-downs are the latest in a string in the retail and apparel sector ranging from Neiman Marcus to Liz Claiborne.
“We’ve invested a significant amount of time and capital in these two properties,” said Robert Taubman, chairman, president and ceo. “Unfortunately, the current economic environment has worked against our best efforts.”
The real estate firm said it would stop financial support of The Pier Shops and begin discussions with the property’s lender.
“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
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast