There’s no bailout for retailers this holiday season.
This story first appeared in the December 23, 2008 issue of WWD. Subscribe Today.
Despite slashing prices and extending hours, stores appear to be giving in to reality with just two days left before Christmas. The traditional late surge of shopping is nonexistent because of the deepening recession, which is likely to make this season the worst in memory.
Even with schools and many consumers on vacation, merchants are holding out little hope of recouping lost ground.
“It’s really bad,” said Crawford Brock, owner of the luxury Stanley Korshak boutique in Dallas. “Everybody’s discounting, so the margins are terrible and sales are strong double-digit down with no real bright spots. It’s just miserable….I don’t think it will be better until the fourth quarter” of 2009.
Stanley Korshak sells to affluent customers, but this season even the well-off don’t think it’s fashionable to make expensive and multiple purchases. “They are getting each other one gift or maybe a stocking stuffer,” Brock said. “Nobody’s doing the big Christmas. Everybody is terrified.”
That goes for the moderate market, as well.
“Results were disappointing during the critical week before Christmas,” said Keith Fulsher, executive vice president and chief merchandising officer of Dress Barn. “The weather [snowstorms during the weekend] has definitely not played in our favor. We continue to focus on managing our inventories. A few highlights however, are our social special occasion dresses, as well as career and casual jackets.”
At the Maurices division of Dress Barn, Lisa Rhodes, executive vice president and chief merchandising officer, acknowledged difficult business, though she added that embellished dressy tops and novelty screen tees in sizes 1-24, remain bestsellers in the tough environment.
“We are probably off, but I haven’t looked at the figures — I’d rather not know,” said Connie Sigel, owner of Elements boutique in Dallas. “I have to say this much, I knew this was coming in March — Bear Stearns’ [demise] was a big wake-up call — so I cut back on my buy about 30 percent, so that helped tremendously.”
The economic nosedive has “taken the thrill out of shopping because everybody feels bad for everyone else,” she said. “But most everyone has taken a hit in their portfolios, so everybody feels poor no matter how rich they are.”
A chief executive for an upscale chain, who spoke on condition of anonymity, said a clearer picture of December business will emerge on Jan. 8, when major retailers report same-store sales figures. Then, stating what has become all too obvious, the executive added, “December is going to be a tough month.”
Retail sales for the six weeks to Dec. 13 were off 2 percent from the same time a year ago, and there are five fewer shopping days this year between Thanksgiving and Christmas.
The backlog “of inventory created monstrous value,” said another ceo at an upscale national chain. “To make up for reductions in price it would be near impossible. When the markdowns are what they are, you can’t make it up.”
Underscoring the acutely promotional environment to move goods, J.C. Penney Co. Inc. will stage its biggest after Christmas sale ever, with stores opening at 5:30 a.m. — the earliest opening on the day after Christmas in Penney’s history. More than 100 doorbusters, twice the number of last year’s sale, will be offered. Penney’s called the day after Christmas one of the biggest teen shopping days of the year, and said it will set all new merchandise in its teen departments.
A few retailers said Thursday’s sales were decent; Friday’s were poor, as stores in northern regions were hurt by storms; Saturday saw a pickup, and Sunday was slow again.
Typically, the Saturday before Christmas is the biggest volume day of the year for many retailers, particularly moderate and lower-end chains and department stores catering to those living paycheck to paycheck or counting on tips. “The lower the economics, the higher the business,” in the week before Christmas, said a retail ceo.
Stores appealing to the affluent would typically see a surge during after-Christmas sales. That might not happen this year since chains such as Neiman Marcus and Saks Fifth Avenue have already played the discounting card.
Although mall traffic in the third week December was better than in the first two weeks, the rate of sales didn’t accelerate. Mall denizens were more apt to dine or take in a movie, rather than make purchases. There is also much disappointment surrounding gift cards, which up until this year had gained in popularity.
“Parking lots were full in many of the malls we visited but as told by mall management, the cars were deceiving with respect to sales levels,” Pali Capital analyst Amy Wilcox Noblin wrote in a research report Monday. “In the northern states, wintry conditions hurt traffic and resulted in store closures.”
She listed Bebe Stores Inc., Chico’s FAS Inc., Gap Inc., J. Crew, TJ Maxx, Urban Outfitters Inc. and Zumiez Inc. as among the chains with above average exposure in the Northeast.
“The weather could not have come at a worse time with retailers already suffering a dismal December and looking to make a big push in the final weekend before Christmas,” Noblin added. “The better the deal, the better the traffic. Consistent with what we observed on Black Friday, shoppers were hunting for deals and there were plenty to be had. Discounts of 50 to 70 percent typically reserved for post-Christmas clearance were prominent across the mall, particularly among the luxury retailers.
“Retailers with the bigger bargains experienced higher relative levels of traffic,” including Aéropostale Inc., American Eagle Outfitters Inc. and J. Crew,” she said. Traffic at Abercrombie & Fitch remained soft despite increasing promotions over the last couple of weeks. Business is better at the lower-priced and more broadly discounted Hollister.
Todd Slater, managing director and specialty retail, apparel and footwear analyst at Lazard Capital Markets, said in a report that traffic accelerated from week two to week three, as expected, but markdowns were substantially higher, which cut into margins. “Retailers are still behind plan, in most cases, based on our analysis, and with fewer gift cards in circulation, we doubt that there will be enough momentum post Xmas to generate many positive 4Q surprises.”
Slater told WWD, “The business was where retailers reacted by increasing promotional activity, day by day all last week.”
Looking ahead, “I expect more of the same — accelerated discounting, even though retailers have done a fairly good job of reducing exposures and inventory levels and have reduced [orders]….It will take the better part of the first half to clean up the situation and the excess.”
Slater cited American Apparel Inc., Ugg and Coach Inc. as winners in week three, and American Eagle Outfitters Inc., Limited Brands Inc. and Old Navy as getting good traffic driven by markdowns. “The award for the longest register lines [most consistently] goes to Bath & Body Works.” He cited The Talbots Inc., J. Jill Group Inc., Gap and Pacific Sunwear of California Inc. as losers.
Next year, “We are not going to see wholesale bankruptcies,” Slater said. “The ones that were very leveraged and didn’t have strong business models [have] started to go way.” he added, referring to chains such as Linens-N-Things, Sharper Image and Circuit City.
Some southern locations, distanced from the bad weather, had better results. Perimeter Mall, just north of Atlanta, “was much busier than Black Friday,” said Dennis Kemp, general manager of the property, which is owned by General Growth Properties Inc. “By Saturday afternoon at 3:30, parking lots were at 100 percent capacity. There were no lookers; they were all shoppers.”
Women’s apparel, premium denim and cosmetics sold best, and Macy’s and Nordstrom were busiest, Kemp said. Specialty stores such as Sephora, Guess, Metropark and Lucky Brand Jeans “were packed like sardine cans,” he said. Housewares and consumer electronics also performed well.
At H&M, shoppers picked up short party dresses in ruffled satin for $34.90, peep-toe Mary Janes for $34.90, wool peacoats for $49.90 and cable-knit hats and scarves for $7.90 and $9.90, respectively. Men’s wear also sold well, particularly short wool jackets for $69.90, tuxedo blazers for $69.90, tuxedo shirts for $39.90 and woven hats for $4.90.
“People are shopping on a budget, especially during this tough economy, but they are starting to think ahead to celebrating New Year’s Eve,” said Shaneika Haskins, a spokeswoman for H&M. “Short party dresses and blazers are huge right now.”
The Swedish fast-fashion behemoth slashed prices as much as 70 percent on Dec. 18 and will continue the promotion through Jan. 9.
Some retailers pointed to this year’s overlap of Hanukkah and Christmas as a factor in the weekend sales.
“We saw our largest sales volume since we opened [U.S. stores] on Saturday and Sunday,” said Chris Tate, vice president of U.S. retail for Australia-based sleep and loungewear brand Peter Alexander. “I think the collision of Christmas and Hanukkah made for an explosive weekend.”
The chain’s three California stores saw about a 30 percent uptick in foot traffic, just like Black Friday, but with a better conversion rate.
Fraser Ross, who owns the Los Angeles-based Kitson chain and opened a new Melrose Avenue location on Friday, said despite disappointing sales in apparel, traffic over the weekend was up over Black Friday, and other categories saved the day.
“Clothing is just tanking altogether, except for single-item-driven lines, like leggings or a boyfriend sweater,” he said. “Scarves and gifts are carrying us again; the gift business is really the big thing right now.”
Valerie Sarnelle, owner of Valerie Beverly Hills makeup studio, said business on Saturday was identical to last year, a welcome surprise in a downturn. “They’re saying it’s a deep recession, but we’re not seeing it in the beauty business right now.”
Fred Levine, owner of Los Angeles’ M. Frederic contemporary chain, said the weekend overall was strong, with men’s sales on par with last year, surprising given the subpar performance in the sector so far this year.
“Men’s has been totally dead, kids has sustained and women’s has been off,” Levine said. “We’re in the midst of a terribly tough time, and we’re definitely not meeting last year’s figures, but based on our numbers from October, business was incredibly strong and we’re really happy.”
At Kings Plaza Shopping Mall in Brooklyn Saturday afternoon, there was some traffic, yet far less than one would expect for the final weekend before Christmas and the day before the start of Hanukkah. Friday’s snowstorm in the Northeast left icy roads that deterred shoppers.
Also doing well, with inventory nearly depleted, was Old Navy, which offered many items on sale for $6. The lines were long, from the cashiers all the way to the back of the store, and seemed to stay that way during two visits about three hours apart.
Claire’s Stores, even with $10 gift items, and buy-one and get-one-at-50-percent-off, saw more browsers than shoppers. A few shoppers at Baby Gap, lured by as much as 50 percent off, and in some cases 65 percent off, complained that sales prices weren’t up to par with competitors in the mall. Traffic and sales were better at Guess and A|X Armani Exchange.
Sears was relatively empty, compared with Macy’s, which also saw good crowds at its Herald Square flagship and Roosevelt Field store on Long Island. Consumers lined up at the registers with their gift purchases and coupons in hand.
Sales online have been strong since Thanksgiving, but the dip in early November and the short season could mean growth will be lower than expected, said comScore Inc. Nonetheless, online apparel sales are up 15 percent, season to date.
Online sales revenue from Nov. 1 through Friday is down 1 percent to $24.03 billion, according to comScore. Since Thanksgiving, average online spending per day is up 5 percent compared with last year at $643 million. However, total sales may not surge ahead because of the shorter spending period this year. Apparel and accessories are already up 15 percent over last year.
Other strong categories were books and magazines, sports and fitness and video games. Jewelry and watches were down 17 percent, and music, movies and videos decreased 24 percent.
“Shoppers are shopping with retailers they feel comfortable with and getting free shipping or free overnight shipping, and all those things play a key role,” said Amazon.com spokeswoman Tracy Ogden.
Discounts of 30 percent on diamonds, boots and other items drew shoppers to the site, she said. While those items proved to be bestsellers early in the season, later shoppers were buying items in all categories. One shoe in particular that did well was a blue satin pump with a big bow from Magrit, which retails for $482. “It wasn’t just items under $100,” Ogden said.
Traffic has been fairly consistent through the season, though she expects a surge today [Tuesday] because it’s the last day for delivery by Christmas Eve and in many states heavy snow has kept shoppers out of the malls.
At saks.com, hot items were gifts priced at less than $150. The site posts its bestsellers every week, including gifts, regardless of inventory levels, which boosts sales of those items even more.
“Direct is performing better than full line, and has always, because we’re still relatively immature and have a lot of organic growth,” said Saks Direct president Denise Incandela. “That relationship hasn’t changed.”