As stores promote their way through a reasonably good holiday season so far, there’s mounting concern about what happens after the Christmas trees come down.
This story first appeared in the December 15, 2010 issue of WWD. Subscribe Today.
Retailers and analysts, while sticking to or, in some cases, even elevating their forecasts for holiday sales, continue to have strong concerns about consumers and their willingness to spend in 2011.
“I would say the holiday is one thing. Post-holiday and next spring I would not necessarily predict the same business climate,” said Lou Amendola, chief merchandising officer for Brooks Brothers. “I am not sitting here saying I will now reevaluate our forecast for spring. We are still planning spring quite conservatively.”
“As you think about 2011, consumers are cautious and watching carefully to ensure that their finances are secure. Quality, price, how an item fits into their wardrobes — they’re putting more thought into each purchase,” observed Dana Telsey, chief executive officer of Telsey Advisory Group. As for Christmas shopping at the moment: “Consumers have a fixed amount of money [they] are willing to spend, but they’re looking to get the most innovative, newest buys out there.”
According to David L. Bassuk, managing director and head of global retail practice at AlixPartners LLP, Americans are opting for “fewer, but higher-priced, higher-quality items purchased at sharply reduced prices.”
“After some positive reads, our clients are seeing things taper off a bit,” he continued. “We will see the same trend as the last holiday and back-to-school seasons — an initial pop, then things [through the Christmas season] really slow down till the last minute.”
In the days leading up to Christmas, Bassuk expects to see promotions “like we’ve never seen before.” And the key reason: “There are pockets of categories burdened by high inventory,” he said.
Already, stores have been running aggressive sales. The buy one, get one at 50 or 60 percent off promotions, known as “bogos,” are widespread. It’s often difficult to tell for sure whether the discounts were planned well in advance, working closely with vendors, or were reflex reactions to stimulate buying, though retailers have said so far it’s the former.
“Retailers came into season with a better understanding of the promotional cadence they need and the pricing structure they need to be able to afford the promotions,” said Richard Jaffe, managing director at Stifel Nicolaus. “Everything seems to be on sale and that is the desired effect. How much [merchandise] was bought in March to be sold on sale in December is the question. More was planned to be promotionally sold this year than ever before. The economy didn’t start getting better” until after many stores made their buys.
Industry sources said consumers remain extremely selective in their shopping because they’re insecure about their jobs and the economy, worried about rising fuel and food prices and concerned their stock portfolios are fragile amid the improved yet volatile financial markets.
As a result, many observers don’t expect the holiday momentum to continue into 2011. “You’re going to see discounts of 75 percent in January,” predicted Marshal Cohen, NPD Group’s chief industry analyst. “[Profit] margins are going to look a little less rosy than the sale volumes” in February when fourth-quarter results are announced. “Retailers have been discounting their way to get consumers to come into their stores,” said Cohen. “It will be an OK holiday, but not a great holiday. A select group of retailers had to get overly aggressive to get their inventories back in line. Fashion, overall, is not going to do well. Apparel has lost 18 percent of its gift-giving strength in the last decade. Electronics, is now only 5 points behind apparel. [Apparel] used to account for half of all gifts given. It’s now not even 40 percent.”
The best areas in apparel are said to be men’s relaxed sportswear, with a general resurgence in men’s wear seen; bold statement jewelry; handbags, particularly designer bags such as Marc Jacobs’ single-quilted leather bag; footwear, especially boots such as Hunter rain and over-the-knee styles in leather; suede jeggings; puffers, and boot-cut jeans and other newer silhouettes in denim.
By retail channel, luxury is rebounding with Saks Fifth Avenue, Neiman Marcus and Nordstrom each over 5 percent ahead in November. The value sector performed well, too, with Costco and B.J.’s advancing 9 and 5 percent, respectively, according to Kantar Retail. However, Kantar sees holiday sales for the mass channel growing just 1.5 percent and slowed by the nation’s high unemployment. Still, Target in November posted a 5.5 percent comp-sales gain and has strengthened its appeal to budget-minded consumers by highlighting gifts for $5, $10 and $15 in its weekly circulars and elevating its Merona private label by moving it to the front of the apparel department in the space traditionally reserved for the more expensive Go International area, which on Dec. 19 will feature William Rast.
Within hard goods, iPads and other e-readers, Android phones and kitchen gadgets, such as the Keurig single-cup coffee maker, have been strong sellers.
Gains in toys are expected to be in the low-single digits. Highlights include the Dance Star Mickey robot from Fisher Price, the Barbie Collector 2010 doll and Squinkies plastic bubble-encased figurines. Toys ‘R’ Us cited Nerf Sonic Series, Dave the Funky Shoulder Monkey, Sing-a-ma-jigs and Fast Lane Wild Fire as among its bestsellers.
Consumers also are gravitating to store exclusives, with Macy’s citing its private brands, which include INC, and J.C. Penney pointing out its Liz Claiborne and a.n.a. sportswear, men’s Stafford flannel sleep pants and Cooks small kitchen electrics. Gift cards — one of the strongest single gifts the last few holiday seasons — are expected to come through as a big, last-minute seller, even as they haven’t generated enormous firepower yet.
Brooks Bros.’ Amendola said, “Men’s wear does seem to be rebounding, but we’ve also had increases in women’s, especially in accessories.” He said Brooks’ expanded offerings in younger men’s styles, including relaxed and refined wear-to-work sportswear, are giving a better balance to the assortment, which was weighted more toward dressier looks before.
Despite the widespread caution, on Tuesday the industry was lifted by a string of upbeat trade group reports on retailing, even though a major snowstorm snuffed out sales over the weekend in parts of the Midwest, particularly Minneapolis and the Mall of America, which closed four hours early Saturday and reopened on time Sunday. “The snow definitely negatively impacted sales over the weekend, but I don’t think people are freaking out,” said one specialty chain ceo. “I’m just glad it wasn’t Black Friday or if it hit next weekend, it would be bad.”
Taubman Centers said the storm hurt centers such as Woodfield Mall in Schaumburg, Ill., and Great Lakes Crossing Outlets in Auburn Hills, Mich., though for the week overall, Taubman malls around the country were generally up in the single digits, consistent with the industry forecasts. The National Retail Federation said it was revising its November and December holiday season forecast upward to 3.3 percent from 2.3 percent. And the International Council of Shopping Centers revised its holiday sales forecast upward by 0.5 percent to a range of 3.5 to 4 percent and noted, “Holiday store sales growth is still expected to be the strongest since at least 2006,” despite the lull in traffic after Black Friday weekend. For the week ending Saturday, sales rose modestly by 0.8 percent from the week prior, and 3.1 percent on a year-over-year basis, ICSC reported. Last year, Christmas sales rose 1 to 2 percent, and in Christmas 2008, sales were negative-3 to -4 percent.
In the online channel, comScore, which tracks the digital world, said sales were up 12 percent in November through Monday, and up 12 percent from Dec. 6 to Sunday. A comScore survey of 500 consumers indicated that two-thirds haven’t completed their holiday shopping yet, with most explaining that they are cash strapped, while others said they haven’t had enough time to shop or are waiting for better deals at the last minute.
“The reasons consumers give for not finishing their holiday shopping reveal some important dynamics driving the retail industry today,” said comScore chairman Gian Fulconi. “The first is that we are offered a stark reminder that many consumers are still strapped for cash.” They are also strapped for time, and holding out for better deals at the last minute, comScore added.