After a holiday shopping period that so far has been lethargic at best, America's retailers are hoping for a vital pick-me-up this week.
Save for two big shopping surges on Black Friday weekend and the three days before Christmas, the season, while not as bleak as originally predicted, still will go down as possibly the worst in the last five years, hit by concerns over the economy and rising fuel prices.
Now stores are banking on robust gift card redemptions and consumers responding to newly arrived, full-priced resort and spring fashions while also bottom-fishing for bargains on rapidly aging and drastically discounted third-quarter apparel. Retailers are generally managing inventories well, though there's a glut of sportswear that they're spotlighting by unleashing massive clearances. Inserts this week from Bon-Ton, J.C. Penney, Kohl's and Macy's, for example, touted 6 a.m. openings and promotions of 60 to 70 percent on a variety of seasonal items, men's and women's apparel, outerwear, as well as some home goods.
"So much rides on the 26th and 27th" of December, said Pete Nordstrom, president of merchandising at Nordstrom Inc. "We have been hanging in there. The atmosphere is a bit more cautious, but certainly is not dire. It's not bad."
"We expect to be up in the high single-digits for the season. That's pretty healthy for this environment," added Stephen I. Sadove, chairman and chief executive officer of Saks Fifth Avenue, which had a very strong November and sees December as "modestly negative."
Twenty-nine percent of the gift cards sold during the holiday period are expected to be redeemed the week after Christmas, according to the International Council of Shopping Centers. But whatever happens is unlikely to throw many retailers back in the plus column for the month. Several are expected to report negative December sales, thereby elevating concerns about the first half of 2008 and the possibility of economic slowdown.
Costco, J.C. Penney, Wal-Mart and Barnes & Noble have been the season's star performers, while Macy's, Circuit City, Borders and Dillard's were laggards, according to a national survey by America's Research Group.
Those doing satisfactory jobs were Sears, Old Navy, Sam's Club, The Sports Authority and Books-A-Million, while those just meeting expectations included Big Lots, Kohl's, Home Depot, Best Buy, Gap, Target, Kmart, Lowe's, Toys 'R' Us, TJ Maxx, Belk and American Eagle.
The survey consisted of 800 interviews conducted Saturday and Sunday, Dec. 22 and 23, 2007, at ARG headquarters in Charleston, S.C. "In today's competitive retail environment, a retailer must hold onto at least 90 percent of their regular customers in the Christmas shopping season," said C. Britt Beemer, founder and chairman of ARG. "On the downside, those retailers that lose over 20 percent of their customers in this intense shopping period are in jeopardy of not surviving over the long term."
"Caution is the word of the day," Citigroup analyst Kate McShane said in her outlook report on retailing and fashion for the remainder of 2007 and first half of '08, which will be driven by concerns over the housing market, gas prices, losses in the banking sector and weaker U.S. consumer spending.
For the past month, department stores, mass merchants and home chains have been the most challenged. Luxury merchants, electronics stores, Internet retailers, and flagships in tourist destinations such as New York, Las Vegas and Los Angeles did well, and there were pockets of strength in several merchandise categories — handbags, jewelry, shoes, coats, flat-screen TVs, GPS navigational systems and, surprisingly, some furniture. For the November-December holiday period, ComScore Inc., a global Internet information provider, projected Internet sales up 20 percent to $29.5 billion from $24.6 billion last year, and the National Retail Federation projects total retail sales up 4 percent, to $474.5 billion, compared to the 4.8 percent 10-year average.
Continuing a trend of the last few years, the season has also been marked by strong gift card sales, though the buzz hasn't been as great as last year. Price cutting certainly has, and store hours have been stretched to round-the-clock in many cases, heightening the sense of urgency. The most dramatic case was Macy's operating eight New York-metro stores, including Herald Square, 24 hours Dec. 21 to Dec. 24, though the company denied it was a desperation move but rather was long in planning. (See related story, page 7.)
However, as one principal from a general merchandiser, said, "You don't go 24 hours and have coupons every second unless business is challenging.""It's absolutely a tough season," said Arnie Orlick, ceo of Fortunoff. "This has been an incredibly promotional period. In my opinion, more than last year. Our competition has been much more aggressive than we've ever seen with promotional discounting. We are very conscious of what our competition is doing on a daily business. Unless you were able to control it reasonably, it means tighter margins. You have to get the sales lift to offset the margin declines. We don't do much discounting in jewelry, but in home we have been a little more promotional than we like to be."
Orlick said he noticed a shift in shopping somewhat away from luxury products, with fewer purchases of diamond jewelry in the $20,000 to $100,000 range, and greater purchasing of "practical" living room furniture. "We will be fine in home and a little short in jewelry [sales]" Orlick said, adding that this season, "The consumer is a big winner. They're getting incredible values. That will continue into '08, particularly the first quarter."
DEPARTMENT STORES WEATHER HURDLES
Retailers contacted this week said the season is confusing to read due to the calendar shift and weather factors. It must be judged by November's performance, which was strong and abetted by colder weather, as well as December's, which was brought down due to having one less week and severe storms in the Midwest and Northeast. A series of storms hit the Midwest last weekend, disrupting travel and retail.
"It's a little challenging for us to know exactly where we are, though my impression is that it's been pretty good," Nordstrom said. "There are pockets where things have gone well. There's strength in women's shoes, Ugg boots, and accessories continue to be pretty good. So are aspirational products in handbags and jewelry." Cosmetics, with fragrance a big part of that, are also strong and there are increases in gift card sales.
"A big part of our strategy has been to make sure we have a flow of new product," Nordstrom said. "We really want to make sure we have inventories in good position so January doesn't just become a clearance month." That includes new resort and the best items of winter at regular prices, and more luxury and designer goods. "People who come in with gift cards are not just sale shoppers. It's important to have a balance of regular price merchandise."Asked how he felt about the season, Nordstrom said he's nervous but that he's always that way. "That's kind of the nature of this business. But things have settled down and steadied over the last four weeks. Business is not real volatile. We're in pretty good shape going into '08."
Another department store executive who requested anonymity described business as soft until last weekend. "It really perked up. We underplanned and underestimated what we could do Sunday. This whole week will be clearance and gift cards. There is so much business to be had post-Christmas. People will spend for Christmas, but with everything that's going on, it could be a very difficult spring."
Michael Gould, chairman and ceo of Bloomingdale's, said simply: "It was a terrific weekend and really a solid week." And Jane Elfers, president and ceo of Lord & Taylor, agreed: "It was a very strong weekend, we are expecting that to continue in the post-Christmas period."
Gottschalks, based in Fresno, Calif., prepared for a difficult season by reducing inventory 6 percent. "Business this year generally hasn't been good for retailers, and has been softer particularly in California's Central Valley region," said Scott Manson, senior vice president of marketing. "Interest rates are going to be adjusting so that some homeowners will have to pay more on mortgages, and people are worried. There certainly is a downward trend in spending." Sweaters and sweater coats, velour, embroidered activewear and T-shirts emblazoned with large print were among the chain's bestsellers.
At Belk Stores, "Traffic was strong the last week, with a last-minute rush and an anticipated strong finish," said Steve Pernotto, executive vice president. "More people shopped later this year than last year." Pernotto said Belk did not change its promotional cadence going into the last week. Best-selling last-minute gifts were fragrance, accessories, jewelry, men's furnishings and pre-wrapped gifts.
At Dillard's, bestsellers were boots, handbags, bangle bracelets with engraved messages, women's cashmere coats, color block cashmere sweaters, jewel-tone holiday dresses, and men's argyle sweaters and sweater vests. FOR SPECIALTY STORES, IT'S A CATEGORY THINGAbercrombie & Fitch had "a strong November and entered the peak shopping season optimistically. We'll see how December works out," said Tom Lennox, vice president of communications. Since Dec. 16, the company has been adding spring products at full price to the stores, including a wide range of polos in various colors, lightweight fleece and plaid wovens in men's, and in women's, lighter-weight sweaters, denims, neutral and twill bottoms and knit tops. "We've maintained a full-price posture and therefore the gross margin should reflect that," Lennox said.
Coach has endured a rough season with its stock price slipping and some surreptitious marking down. Certain products have been retagged at lower prices without advertising the changes, as a strategy to maintain a full-price posture. "It's kind of a secret. They don't want to look like they're not selling bags by putting them on sale, so we retag the items," said one employee, who requested anonymity. The source said most of the markdowns were between 25 and 30 percent. According to a company statement: "Coach did reprice a few of our handbags styles — which are to be discontinued after holiday — in order to be consistent across channels. We have taken selective corporate price changes from time to time in the past."
At FAO Schwarz, "It's been a peculiar season," commented Ed Schmults, ceo. "We were going gangbusters through Thanksgiving, then it slowed up pretty dramatically in early December. Traffic was down, not as many people were buying, but the average order size was up....The year is good, December is not." One bestseller was a small remote-controlled "Venom" rescue helicopter, $50.
Lisa Sandberg, spokeswoman for Hennes & Mauritz, said the two weeks before Christmas "exceeded expectations." Following Macy's lead in the Queens Center mall, H&M experimented with an open-all-night marathon from Dec. 21 till Christmas Eve. Customers who spent $50 or more between midnight and 6 a.m. got an additional $10 off. Sandberg said it was a test to gauge customers' interest and the chain's ability to manage staffing changes. Tuxedo jackets for men, women and children, metallics in clothing and accessories, sequins and dresses with bold patterns were key items.While declining to provide specifics on the month, Gap Inc. spokesman Greg Rossiter pointed to sweaters and knits as popular at Gap, Banana Republic and Old Navy, particularly cashmere and large cable knits in bright colors. He said the chain anticipated robes and other loungewear would also be popular at Old Navy.
LUXURY HOLDS UP
"We felt very good about the season," said Saks Fifth Avenue's Sadove. "We had very strong traffic in New York on Saturday and in a number of stores. We saw a continuation of strong tourism in New York and are continuing to see strong performances in accessories, jewelry and shoes. Overall, the luxury consumer is remaining healthy. We haven't seen any change in the trend.
"We are having a record year with double-digit increases for the year and the season," said Pier Guerci, president and ceo, Loro Piana USA. The reason — a focus on core customers and unique products and categories where price doesn't seem to be an issue. One men's knit bomber jacket for $25,000 lined with mink virtually sold out. Other bestsellers have been ladies baby cashmere bombers lined with mink, priced at $12,445, and handbags in exotic skins, including a crocodile "Globe" bag for $18,500. "If you are an aspirational brand, appealing to the top 3 to 5 percent of the population, that's one thing. But if you are dealing with 1 percent of the top 1 percent of the population, they are not waiting for their bonus to go out shopping. This segment of the population is the last to be affected by any nervousness in the market."
At Graff, "We were very busy last weekend. You do see this last-minute procrastinator even in the high end," said Henri Barguirdjian, president and ceo of Graff in the U.S. "The season went very well and is still going strong. We sold a lot of diamond rings between 10 and 20 carats, and white diamond earrings were a favorite this year, so it is a very, very strong season — our best ever since we opened seven years ago." As far as 2008, "I wish I had a crystal ball, but according to what we've done in our stores and in our shop-in-shops at Saks, I'm optimistic. For sure, the subprime situation threw a curve ball in the economy and there is a ripple effect, but if I think selfishly, people with lower or medium incomes are suffering more than the Graff customer."MASS APPEAL
In the sprint to Christmas, Target and Wal-Mart pushed gift cards as the procrastinator's last refuge. Wal-Mart, which is working on shortening customer wait times, ran radio spots advertising dedicated gift card-only checkout lanes.
Both Web sites promoted e-gift cards. "Tick-tock" read Target's home page, which provided links for last-minute gifts and to stores with extended hours. Three displays of stretch knit gloves, a perennial bestseller at $1.49 for two pairs stood empty at a Target in Saugus, Mass., in the late evening of Dec. 23. About 20 percent of apparel was discounted, including Erin Fetherston and Isaac Mizrahi, both heavily picked over. The retailer also had cut prices on several basic sweater programs, which it promoted as "the perfect gift at the perfect price" throughout the season.
Some Target shoppers were even getting a jump on returns. The store had 20 carts full of merchandise ready to be displayed.
A Wal-Mart in Reading, Mass., one of the retailer's smaller stores, did not open for extended hours on Dec. 23. Customer traffic was light around 8 p.m. as the store closed.
Los Angeles-area Targets and Wal-Marts didn't appear to suffer from a lack of holiday shoppers, with checkout lines long and parking lots packed over the weekend. "The crowds are just as big as I remember them last year," said L.A. resident Janet Flass, who was shopping for gifts at Target on La Cienega Boulevard. "Closer to Christmas, the discounts are good, so it's worth waiting to come in."
LAST-MINUTE MANIA AT MALLS
"There's nothing striking here," said Tim Olson, president of the management division of Urban Retail Properties, in describing traffic. A handful of malls in the Chicago-based development and property manager's portfolio, including Newburgh Mall, Newburgh, N.Y.; Tanglewood Mall, Roanoke, Va.; Manhattan Town Center, Manhattan, Kan., and Kirkwood Mall, Bismarck, N.D., reported 3 to 4 percent comparable sales gains. Urban's upscale 900 North Michigan center in Chicago experienced high, single-digit increases.
Lenox Square in Atlanta was jammed with last-minute shoppers, with peak crowds Saturday afternoon. Traffic was in gridlock around the mall, with stretch limousines and Hummers lined up at valet parking. South Coast Plaza in Costa Mesa, Calif., reported 12 to 15 percent gains in the days leading up to Christmas. Jewelry, shoes, boots, patent leather handbags, novelty ready-to-wear like sequined dresses and tops, and new stores such as Bloomingdale's, drove the increases.
Galleria Dallas said traffic through Christmas Eve was up high single-digits with fine jewelry and designer accessories pacing the business. "Shoppers are spending in record numbers," said Peggy Weaver, general manager. "In addition to a stronger-than-expected traffic count, our stores are reporting an 8 percent increase in sales across the board, and some luxury retailers are reporting gains of up to 20 percent. Our mall gift card sales are on target to be much higher than in previous years."
One store in the mall, Ylang 23 fine jewelry, reported weekend traffic and sales about 17 percent ahead. Co-owner Joanne Teichman cited Cathy Waterman's gemstone muse pendants and Manak's colored diamond hoops, including some in blackened 18-karat gold as strong items. "In the mid-range, we have sold armfuls of Sydney Evan beaded bracelets with diamond charms. If the last week holds up, weather permitting, we should end the month with a 15-20 increase from last year."
— With contributions by Anne Riley-Katz, Los Angeles; Kate Bowers, Boston; Georgia Lee, Atlanta, and Rusty Williamson, Dallas
New York photos by Talaya Centeno and Thomas Iannaccone; Macy’s Herald Square by Zack Seckler; Atlanta by Philip Shone; Los Angeles by Todd Williamson; Dallas by Nan Coulter
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