NEW YORK — Already struggling for holiday sales, retailers could be dealt a major setback on the final weekend before Christmas because of wintry weather.
This story first appeared in the December 19, 2008 issue of WWD. Subscribe Today.
A storm barreling its way from the Midwest might dump as much as 8 inches of snow and slush on New York and other parts of the Northeast, creating another downward pull on purchases, Barclays Capital analysts said Thursday at a retail roundtable here.
“If this happens, it will be devastating to their sales expectations,” broadlines retail analyst Robert Drbul said.
The 10 days before Christmas account for about 25 percent of holiday sales, Drbul said, with the five most profitable days starting the Saturday before the holiday. The weather is a frequent scapegoat for weak sales, but this year conditions could exact a harsh toll.
“Each day going into Christmas is more important than the prior day,” Drbul said. “If retailers miss these sales, they will be forced to mark down even more.”
With retailers eager to clear holiday merchandise after a season characterized by steep markdowns and soft margins, Drbul said he has already seen “real-time” adjustments to slumping sales.
“There are anecdotal stories of negotiations. You can go into a luxury retailer and negotiate the price of shoes,” Drbul quipped.
Overall holiday sales are expected to decline 1.5 percent versus last year because of an economic environment that Barclays’ analysts are comparing with the recession of the early Nineties, he said.
“We think it could take eight to 10 quarters for earnings to turn the corner,” said specialty retail analyst Jeff Black, who projected the downturn would last until 2010. “We just don’t see a snapback.”
Retailers like Abercrombie & Fitch Co., Ross Stores Inc. and The TJX Cos. Inc. are well positioned to improve their balance sheets with cost-cutting initiatives, but Black was negative about the prospects of Gap Inc., Aéropostale Inc., J. Crew Group Inc. and Urban Outfitters Inc., saying they have yet to lower inventory and costs significantly.
While there are some bright spots in specialty retail, Black said that, as the downturn deepens, the misses’ apparel sector may be susceptible to consolidation.
Store growth for mature women’s retailers contracted 4.7 percent last year and net income shrank 9.5 percent, according to Barclays. Misses’ retailers such as Coldwater Creek Inc., which began 2008 well, and rival Chico’s FAS Inc., which is carrying too much inventory, need “very aggressive sales,” Black said.