Retailers hope this week will remedy their holiday blahs.
Two big surges — Thanksgiving and Christmas Eve weekends — failed to offset thin traffic and lackluster sales in the dog days between. As a result, this week will be crucial for merchants as they seek to salvage the overall holiday period.
Retailers are looking for a wave of gift card redemptions, early spring and resort selling at full price, and winter clearances to unload excessive inventories of outerwear, ornaments, candles and gift sets to get them back on track for low-to-mid-single-digit holiday gains.
For mainstream department stores and specialty chains, week-five [Dec. 24 to 31] represents roughly 45 percent of week-four's volume; upscale stores generate over 50 percent during the fifth week.
It hasn't been all bad news so far, however. Overall, retailers kept their cool, held the line on markdowns, and said price cutting was no more severe than last year. As a result, margins should not suffer even though revenues might be below initial projections. And there are some big winners at this point — luxury purveyors such as Barneys New York and Bergdorf Goodman; aggressive mainstream promoters such as J.C. Penney and Kohl's that have been capturing market share for months from rivals; retailers that had momentum going into the season, such as Nordstrom and J. Crew; electronics and technology chains, and fashion Web sites, though Internet sales at multichannel retailers could have sapped business from their own brick-and-mortar stores.
Weaker performers during the period appear to have been certain moderate to better priced department stores, discounters such as Wal-Mart, and a few specialty chains such as Gap. Regionally, the Midwest and Northeast were said to be the weakest, with the exception of New York City where tourists jammed the streets and where "it was like catching fish in a barrel," said one retail chief executive officer.
On Friday and Saturday, traffic in the malls and stores around the country was huge and selling was strong. Retailers said volume far surpassed that of the corresponding day last year, but Sunday's crowds were thinner than expected, and by around 4 p.m., business came to a standstill. According to ShopperTrak RCT Corp., "super Saturday" generated $8.72 billion in sales, just short of Black Friday's $8.96 billion.While final figures for the five-week holiday period are not yet available, the National Retail Federation expects total sales to rise 5 percent to $457.4 billion, the lowest increase since 2002, and over a point below 2005, yet above the 4.6 percent on average over the past decade.
Product-wise, gift cards emerged as the hottest item of the season, followed by designer and aspirational handbags from Gucci to Coach; jewelry, particularly diamonds; party dresses; Uggs and other footwear; contemporary sportswear; early spring sellers, and electronics, including iPods, flat screen plasma TVs and game consoles, especially the PlayStation 3 if it could be found.
As late as Saturday and Sunday, stores were still pushing gift cards, with Nordstrom running full page ads, and Saks Fifth Avenue sending e-mails that said "short on time? Send a virtual Saks gift card." Consumers are seen spending $24.8 billion on gift cards this season, versus $18.5 billion for holiday 2005.
On the negative side, store executives said there were no red-hot, must-have fashion items this season that could have propelled related categories, and that the entire cold-weather category, from coats and furs to gloves and thermal sleepwear, was a bust due to the abnormally high temperatures, often in the high 40s and 50s.
Much of ready-to-wear was also tough. "People were driving around in convertibles with their tops down. I've never seen that in December," said Ken Lakin, chairman and ceo of the Reading, Pa.-based Boscov's department store chain. "It's been an up-and-down season."
"It seems to have been the two extremes this year — the early and the late bird," said Lori Randolph, manager of the Macy's West flagship in San Francisco's Union Square. And little in between.
"The mall is definitely on sale, consistently throughout, and traffic picked up over the last three days. Week five could be very big," said one hopeful executive at a national specialty chain.
Despite the current uncertainty, retailers and economists are optimistic for 2007, based on low unemployment, generally lower gas prices, whopping Wall Street bonuses, and what's been healthy consumer spending through much of 2006."The economy in 2007 will build on the strength we're seeing in the fourth quarter," said Richard Yamarone, chief economist at Argus Research Corp. "The most important thing to consider is that the consumer is fully employed. As long as that holds up, and we don't see any reason that it shouldn't, we're going to continue to see positive income growth and substantially strong or solid spending activity. The real driver of this economy has been and always will be the consumer and the consumer is equipped with full employment and rising incomes and salaries, and that's analogous to a car that's all fueled up and ready to go."
Scott Hoyt, director of consumer economics at Moody's Economy.com, was more cautious. "While consumer spending had held up and the economy during the fourth quarter has been better than many expected, the economy could still hit some bumps in 2007. The growth of spending is going to slow largely because of things related to the housing market and the resulting reduction in job growth and wealth accumulation and mortgage equity withdrawal." Still, he believes a slowdown might not materialize right away due to the lower energy prices and year-end bonuses.
In a breakdown by sector, here's how several retailers fared for the holiday.
DEPARTMENT STORES "This season is turning out well for us," said Pete Nordstrom, president of merchandising for Nordstrom. "Like most holiday seasons, there are calendar and date shifts that complicate the tracking of our results, and there have been some challenging weather scenarios that can create unforeseen problems. All in all, though, our customers continue to respond well to newness, fashion, and luxury."
Nordstrom's handbags at all price ranges were bestsellers particularly with Gucci, Chanel, L.A.M.B. and Juicy Couture. Chanel sunglasses, Michele and Burberry watches and jewelry by David Yurman and Lois Hill were also popular with shoppers, as was anything by Ugg. In apparel, the Seattle-based company scored with sweaters, particularly chunky, long items, and premium denim, notably skinny jeans. Nordstrom's recent push into edgier designer apparel yielded strong sales for brands such as 3.1 by Phillip Lim, Marni and Gucci.
For Bloomingdale's, "The New York business was truly spectacular, both uptown and downtown, said chairman and ceo Michael Gould, referring to his chain's 59th Street and SoHo stores. "It just shows the strength of tourism in the U.S. and the weakness of the dollar. Gould added that he was "really excited to see continued progress" on three stores opened last fall, in San Francisco, Chestnut Hill, Mass., and San Diego."The weekend was very good, but there were no pluses in the cold-weather businesses," said Boscov's Lakin. "So apparel, sweaters, boots, gloves and hats were under plan. What was really terrific was jewelry, cosmetics, gifts and electronics. TVs were huge. Panasonic and others really dropped prices on plasma TVs." He also cited iPods and other brand Mp3 players. "This will be a good week, Tuesday is a big day. There are a lot of returns, but a lot of activity. We won't know how the season plays out until we go through the next weekend," said Lakin.
At Lord & Taylor, "We are very pleased with sales for the past week leading up to Christmas," said ceo Jane Elfers. "Saturday was a huge day — the biggest day of the year for us. We are anticipating that the post-Christmas business will be in line with our plans and that our total results for December will be in line with our expectations. The big disappointment has been the warm weather in the northeast. However, the strength of jewelry, dresses, handbags and shoes has allowed us to offset the below planned sales in the cold-weather categories."
On Saturday afternoon, Randolph, the Macy's West flagship manager, said, "Traffic has definitely been strong the last two days." Sweaters in all fabrications were strong at the store, while "it's been an unusually strong [season] for jewelry and handbags, and even shoes, which are not usually a gift item. It tells us people are shopping for themselves," said Randolph, who added that gift certificates were strong.
LUXURY Sales at designer stores were noticeably smoother than at mainstream chains. At Barneys New York, "We had a consistent, really good month," said Howard Socol, chairman, ceo and president. "We are not a Black Friday type of store. We achieved a mid-teens increase. The luxury market has invigorated the customer with interesting fashions. The apparel business is good. Shoes are fantastic, along with handbags and jewelry. It's not localized in one category. People with money are spending. It's all about fashion innovation and not about price, and people are trading up."Socol cited Lanvin, Prada, Narciso Rodriquez and Balenciaga as apparel bestsellers; Vince, Marc by Marc Jacobs and Diane von Furstenberg paced the Co-op business; handbag bestsellers included Goyard, Balenciaga, Miu Miu and Marc Jacobs, and shoes were led by Christian Louboutin and Manolo Blahnik. "I think it was a luxury Christmas. It's good to be in the luxury business," Socol said.
"The best thing to do is to have a lot of fresh new merchandise in the Christmas selling period," he said.
Caryn Lerner, president of Holt Renfrew, Canada's luxury chain, characterized holiday business as "steady through Christmas" and up 14 percent. "We were strong in accessories, women's resort, and men's designer sportswear and furnishings. Sunday was really quiet, and I had expected Christmas Eve to be a strong day. It started off quiet, picked up by midday and by 4 or 5 it was very quiet."
Bestsellers were men's furnishings from Burberry, Hugo Boss and Zegna; fine jewelry from Jennifer Meyer along with Philip Stein watches and the D&G logo watch; women's resort from Marni, Prada, Etro, and anything Burberry from a bikini to "a perennial favorite" quilted jacket. This week will be primarily sales-driven at Holt Renfrew. "It's still a big week. We want to clear the rest of the markdowns and be as clean as we can going into the new year, but what happened before the holiday was more important," Lerner said.
"Luxury goods are doing extremely well, diamonds in particular," said Henri Barguirdjian, president of Graff in the U.S. "High end jewelers have been spending a lot of time promoting and advertising and marketing our product. It's paying off. My anticipation is that we will be 25 percent over last year for the year." Diamond rings, pendants and earrings, with an average retail of $45,000, are selling well at Saks Fifth Avenue, Graff's only retail outlet in the U.S. apart from its own stores.
SPECIALTY CHAINS At Brooks Brothers, the women's business has been flat, whereas men's wear is up. "Between the two, we're still up, but I'm not thrilled with the season," said Claudio Del Vecchio, chairman and ceo. "We planned to be in the high-single digits, but we're off our goal by 4 or 5 percent," putting December in the low-single digits. "The week after Christmas can make a difference. It did last year. For Brooks Brothers, the biggest day of the year is the day after Christmas," when the semi-annual sale kicks off.It continues until Jan. 6. The store stayed full-price up until Christmas, a shift from last year when markdowns on women's started around Thanksgiving. "This year we didn't do that because the early part of the season was good," Del Vecchio said.
The northeast, which accounts for about 60 percent of Brooks Brothers' business, has been the toughest part of the country, with the exception of New York-area stores which have been strong. Chicago, where it's been colder, and the West Coast have been strong. Del Vecchio said there are still a lot of sweaters on the selling floor, while shirts, particularly in the $70 range, and ties around $60, have been selling well. Gift cards are running 10 percent ahead.
At Abercrombie & Fitch, Tom Lennox, vice president of corporate communications, said, "As has been the case over the past few years, the week before and the week after are extremely important, between gift cards and post-Christmas clearance, the final week of December is enormous. The kids are quick. They get the gift cards, they're off from schools and back in the stores right after Christmas."
Lennox added that Abercrombie's spring preview assortment is larger this year versus last year, and entirely full price. It was effective Dec. 21, and will be filled in with a full spring assortment the third week of January.
At Mark Shale, the eight-unit chain specializing in better to bridge priced merchandise, "Last week was good. Friday and Saturday were the two biggest days of the season, probably 5 to 10 percent bigger than Black Friday. We've been pleased," noted Scott Baskin, president. "Sunday we were not expecting much."
Shale sold a lot of holiday party outfits, black pants, beaded tops, and dresses. "We seem to be in a dress cycle. The market was so separates driven for several seasons. Dresses are hot again, almost every kind, and in particular those in jersey, taffeta, red and turquoise." Baskin said the week after Christmas has been getting bigger every year for the last five years, and that he's in week-five over plan.
Goody's, the Knoxville, Tenn., based moderate retail chain, said efforts to manage inventory and control margins through fewer promotional markdowns had been successful, along with new measures to get customers in stores more often in December."In the past, we discounted so heavily, we became almost deflated," said Mary Beth Fox, vice president, marketing strategy and planning. Gift card sales rose 12 to 15 percent over last year and were offered in plush stuffed animals with personalized messages. "Customers say gift cards are impersonal, so if you had a personalized item, it helped," said Fox.
MALLS Deborah Gunn Downing, executive director of marketing for South Coast Plaza said Sunday that, "Traffic has been phenomenal all this week. Yesterday [Saturday] was one of the busiest days we've ever experienced. It's been a banner year for South Coast Plaza."
Tiffany in the center reported "traffic building all week. It had 6,000 people each day on both Wednesday and Thursday," said Gunn Downing. "Bulgari had their best December ever [fueled by] one-of-a-kind pieces."
At General Growth Properties, with over 220 malls nationwide, extended hours and discounts of 20 to 80 percent off helped boost traffic Saturday to the busiest day of the season, according to Wally Brewster, senior vice president, marketing. Brewster said sales overall for the season would be up in mid-single digits over last year, with luxury goods and jewelry top other categories over the weekend.
"Friday was our single busiest day of the season and both Saturday and Sunday were extremely busy as well both in traffic and sales — overall we saw lots of double-digit increases," said Christine Szalay, director of marketing and tourism at NorthPark Center. "Sunday was 75 percent male shoppers. Handbags and accessories were by far the hottest items of the season, with best-selling brands including Michael Kors, Ferragamo, Oscar de la Renta and Burberry as well as Fossil and Swatch."
Peggy Weaver, senior general manager at Galleria Dallas, said luxury merchandise was the top category through Sunday. "Within the luxury category, jewelry experienced the most significant gains, including watches and gold items. Affordable luxury brands like Coach also posted big upticks in business. We think apparel will be really strong the week after Christmas as people redeem their gift cards for the things they most want for themselves. This weekend and for the whole holiday shopping season denim and hoodies were the hot sellers," said Weaver.Taubman Centers Inc., which owns and or manages 23 shopping centers, said its Cherry Creek mall in Denver was closed Wednesday afternoon and Thursday due to the blizzard, but traffic and business were exceptionally strong on both Friday and Saturday, with significant full-price shopping, normal promotional activity and no ‘panic' markdowns.
BOUTIQUES Accessories reigned at Los Angeles' hip apparel specialty stores. At Filly, a contemporary shop on Third Street, co-owner J'nai Cameron said top sellers were really easy, vintage-inspired jewelry by Dirty Librarian and Angel Court, retailing for between $150 and $250.
At Forecast, a boutique in Capitol Hill. "It has been stronger this year," said owner Debbie Danielson. "People are feeling optimistic. We have men buying outfits for their wives and then we have women buying small gifts for friends." Among the big sellers were cashmere scarves by Portolano, priced at $110; red wool cardigans by Eileen Fisher, $178, and cotton cowl-neck sweaters by Klok for $120.
DISCOUNTERS Big discounters are seen posting low-to-mid-single-digits gains for the season, with Target bettering Wal-Mart.
At a Target in Saugus, Mass., the entire store was busy Friday afternoon, but candy, children's clothing, cards and Christmas decor were particularly active. Based on carts, shoppers were replenishing household basics as well as choosing last-minute gifts and stocking stuffers.
Deeply discounted items including preboxed gifts such as travel clocks, Behnaz Sarafpour for Target apparel, and decorator Victoria Hagen's Perfect Pieces home decor drew bargain hunters. Some shoppers climbed on their carts to reach for the last items in decimated racks.
At Wal-Mart in Danvers, Mass., lines were long Friday afternoon. In apparel, customers seemed to be responding selectively to markdowns. A George M.E. forest green fisherman's sweater, slashed to $19.82, was nearly gone while its full-priced ivory counterpart, at $34.82, appeared untouched. Faded Glory Henley shirts, down to $5, also were moving.
— With contributions from Emili Vesilind, Katherine Bowers, Evan Clark, Georgia Lee and Rusty Williamson
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