Guess could trim back its store base in a tough brick-and-mortar environment.
Retailers are sharpening their axes and looking at their store bases.After a tough holiday season with often-dismal foot traffic in stores, executives at the annual ICR retail conference said they were going over the fine print on their leases or planning to just let many of them expire — or use that as a negotiating point with landlords — as they seek to right-size operations.Macy’s Inc. said last week that it would close 63 doors this spring under a plan first laid out last year and Sears Holdings Corp. is shuttering another 150 stores.That looks like just the beginning of what’s going to be a rush of store closures from retailers of all stripes.Investment conferences tend to include a lot of posturing and chest-thumping growth strategies, but the latest outing to ICR showed a more sedate retail crowd, favoring a toolkit heavy on closures of one sort or another, expense cuts and just about anything to drive business online.“It's a very tough environment out there,” said Sandeep Reddy, Guess Inc.'s chief financial and accounting officer. “And it's true also that it's expected to be tough for the coming years as the environment is continuing to be a very difficult one for most players in the marketplace.”Reddy noted that the company, which just cut $25 million from its global expense structure, gets 60 percent of its revenues from overseas, helping to make up somewhat for weakness in the U.S.“With traffic being the headwind that it is for just the business in general, we really have to focus on the cost side to actually squeeze more profitability out,” he said.The company’s closed about 50 stores over the past couple of years, leaving it with a base of 450 doors that could be cut by another 50 stores over the next 15 months, Reddy said.“If realized, that's about a 25 percent reduction in our store count in a three-year period," he said. "The good news for us is we have a lot of flexibility in our leases, and we are able to actually get out over a number of stores through lease expirations over the course of the next few years. What's happening is when we go into landlords and explain that the economics to make sense, we may have to get out, they are actually looking with us on the rent reductions.”Theoretically, the company can trade revenues for a boost in profitability and better returns on invested capital.The calculus is much the same at American Eagle Outfitters Inc., which has 550 doors with leases that expire over the next three years. Chief financial officer Bob Madore told analysts on Tuesday that, “We will definitely see a decrease in our U.S.-based real estate portfolio over the ongoing years, particularly, as traffic gets more challenged in some of the C locations.”But even solid store portfolio’s are being scrutinized.Frank Conforti, Urban Outfitters Inc.’s cfo, said out of the company’s nearly 600 stores, only two of them are unprofitable.Even so, he said the migration of more business to the web has the company looking at its store base and that Urban Outfitters and Anthropologie would probably have fewer doors in five years — although some of the existing doors could be replaced with larger locations.“I think with Urban, we'll probably open in the ballpark over the next three years, two to three new stores, but…will start to bring the unit count down just a little bit,” he said.Stuart Burgdoerfer, cfo and executive vice president of L Brands Inc., also acknowledged the weakness in the market, although the company’s Victoria’s Secret brand was set for a tough year as it exited swim and apparel to refocus its business.“It certainly seemed to be a somewhat more challenging macro environment,” Burgdoerfer said. “How much was election? How much was calendar? How much was the ongoing changing nature of gift giving? How much is the ongoing change of brick-and-mortar retail versus all these cardboard boxes showing up on doorsteps? A lot of dynamics for sure.”But the broader business of retail also hasn’t changed.“What matters most in this business is about the merchandise,” he said. “You've got to have compelling brands and great categories, which we think we do and then the next most important thing is how do you have a regular flow of compelling new items for her merchandised in-stores and online in a way that where she says, ‘I just got to have that,’ and that's where we're focused on,” Burgdoerfer said.
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