The key issues dominating the fashion and retail industries in the year ahead are likely to be the same ones they hoped they’d left behind when the clock hit 12:01 a.m. on Jan. 1. Chief among them will be the economy, followed by what could be called “the three Ps”: Politics, Production and Predicting — as in, what will consumers do next?
Having survived the financial spiral that began in 2008, the industry has seen improvement on most fronts. Both retailers and vendors are better at planning inventory levels, yet neither has figured out how to get consumers to make more of their purchases at full price. Holiday 2011 sales were up but returned only to 2007 levels, largely due to promotions linked to Black Friday and Cyber Monday, which essentially began a week earlier for some stores and e-tailers, and the relatively new Green Monday. That will likely come at the expense of margins.
After nearly four years, economic growth remains slow, with many indicators improving, even if only back to 2007 levels. It’s as if a new paradigm has emerged, one that requires growing pains before the next growth spurt.
Key issues in the U.S. will be the presidential election, health care and jobs. In Europe, the sovereign debt crisis will remain front and center. Stability in the Middle East and whether exports from China will continue to slow and costs there continue to rise are global concerns.
Of the major stock market indices, most ended up in their last trading session of 2011 on Friday. Hong Kong’s Hang Seng Index inched up 0.2 percent to 18,434.39, while Tokyo’s Nikkei 225 gained 0.7 percent to 8,455.35. In Europe, Frankfurt’s DAX rose 0.9 percent to 5,898.35, while Paris’ CAC 40 increased 1 percent to 3,159.81. London’s FTSE 100 rose 0.1 percent to 5,572.28, while Milan’s FTSE MIB increased 1.2 percent to 15,089.74. In the U.S., the Dow Jones Industrial Average slipped 0.6 percent to 12,217.56, while the S&P Retail Index lost 0.8 percent to 523.20.
Looking at the year in fashion and retail stocks, the top gainer in the U.S. was Oxford Industries Inc., whose shares jumped 79 percent to $45.12. True Religion Apparel Inc. was second, up 55.3 percent to $34.58. Ross Stores Inc. was the top U.S. retail stock, shooting up 52 percent to $47.53. Hermès was the big winner among European shares, rising 47.9 percent to $297.64, driven by the continued strong performance of the luxury sector as well as LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault’s unwanted attentions. Shares of Lululemon Athletica Inc., Wall Street’s darling in 2011, just missed the top 10, ranking at the number 11 spot, while shares of Macy’s, Ralph Lauren Corp. and Dillard’s Inc. all made the top 20. Among those that lost ground, shares of The Bon-Ton Stores Inc. were the biggest loser in the U.S., down 72.8 percent to $3.37. Trading on the Hong Kong Exchange, Esprit Holdings also lost 72.8 percent, to $1.29, while sourcing giant and major acquisitor Li & Fung lost 68.4 percent to $1.85. All conversions were at current exchange.
Looking ahead, there are many who believe the U.S. could see the stock market rebound in 2012 — and maybe even climb back to 14,000. It’s a possibility given that any unresolved debt and credit issues are likely to be pushed into 2013 for the presidential administration of whoever’s in office next year to deal with.
According to Walter Loeb of Walter Loeb Associates, “The stock market remains an enigma to everybody. The Dow Jones Industrial Average could climb up to 14,000, and then head down again after the presidential election results are in. Before then, consumers could be in an optimistic mood due to the promises heaped upon them by the candidates.”
Loeb expects retailers to work harder as they fight for share of market, regardless of distribution tier. And he expects oil prices to be above $100 a barrel for most of 2012. That’s not good for consumers when they see home heating bills and gasoline prices at the pump rise. It also means retailers should expect consumers to continue to cherry-pick deals at the stores, much as they did with Black Friday sales and after-Christmas clearances, Loeb concluded.
Still, the general sense is that the U.S. economy is improving, albeit slowly, as jobless claims fell over the last four weeks. Initial jobless claims rose last week, but the four-week measure was at its lowest since June 2008. The rolling indicator is supposed to present a better picture of the U.S. labor market. It remains to be seen whether the lower claims were due in part to higher part-time employment as retailers geared up for the holiday sales rush.
Consumer confidence rose in December and is back to levels seen in April 2011. Early indications of increasing positive sentiment were seen during New York’s Fashion Week in September, if one believes fashion can predict consumer mood six months in advance. Investment banker William Susman of Susman Partners said of the shows for spring 2012 that he saw, “Clearly color was everywhere. In economic times like these, the consumer wants inspiration. She wants to feel good. The trend of colors and prints was very uplifting.”
Obviously there’s caution ahead. Kevin Logan, the chief U.S. economist at HSBC Securities (USA) Inc., said that if Congress can’t find a way to renew the payroll tax reduction and extend unemployment benefits for another year, there is the risk of “plunging the economy into a recession.” HSBC’s 2012 outlook “remains tepid,” and it forecasts sub-par GDP growth of “between 1.5 percent and 2 percent.”
Ryan Sweet, senior economist for Moody’s Analytics, expects this year to be better than last year, although still not a booming one for the economy. “It’s a tale of two halves. The first half will be weak as Europe catches up with the U.S. economy. Europe is in a recession, and that will hurt U.S. exports to the region. [In addition, U.S. consumers] went into savings to finance their holiday spending...and in early 2012 will be replenishing their savings cushion,” he said.
Sweet expects consumers to spend more in the second half, after they’ve replenished their savings buckets. And with increased demand for goods later on, it’s a good bet that job growth will pick up.
“The nonfinancial corporate balance sheet is in pristine shape. Companies are sitting on top of a pile of cash. The issue is their willingness to spend. Companies in 2012 will continue to hang onto their cash, but at some point businesses will recognize that they can’t squeeze that much more out of their [existing] workforce,” Sweet said.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, believes that 2012 is one of transition for the global economy, and that this year could finally provide a conclusion to the economic debate in China over “soft-landing and hard-landing risks.”
Rosenberg expects a continued deleveraging as the world moves through the year, which will be “accomplished by some combination of default and write-downs, debt repayment and rising savings rates.” All of which, he concludes, will be “very deflationary.”
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