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Retailers are back in a selling funk.
This story first appeared in the December 9, 2008 issue of WWD. Subscribe Today.
On Monday, store executives seemed to be hiding behind fears of a grim season in the making, with December’s deep discounting so far doing little to spur gift shopping. Several declined to comment for the record on last weekend’s business, but there was a strong consensus that while shoppers were visible in stores, they remained hesitant to select gifts and more apt to buy for themselves, like Jimmy Choo shoes or other designer goods 60 or 70 percent off.
“The stores were mobbed but I’m not going to say it was good for consumption,” said one New York retail chief executive.
“Why buy early if you think the price is going to continue to come down?” said another department store executive.
Executives are hoping the gifting spirit surfaces at least 10 days before Christmas, when discounting typically crescendos, and that some momentum spills into the week between Christmas and New Year’s, when gift cards get redeemed and clearances mount. But it’s hard to imagine the already sharp discounting further intensifying without giving away the goods.
This year’s Black Friday weekend, which saw better than expected turnout and sales volumes, seems a distant memory as the pace of sales dissipates fast. The International Council of Shopping Centers revised its holiday forecast downward. In mid-October, the prediction was for a 1.7 percent gain, but last Thursday, ICSC predicted November-December holiday sales flat to down 1 percent.
Retailers remain troubled by high inventories, rising unemployment, declining tourism and consumer lethargy, and are reacting strongly. Neiman Marcus tempted big spenders last Thursday through Saturday by awarding triple points for its InCircle rewards program for each purchase. Neiman’s Web site, which has been touting free shipping for weeks, added free gift wrap on Monday, plus a $100 gift card for each $400 purchase through Wednesday.
Bloomingdale’s 59th Street flagship was busy Saturday, with hordes of customers digging into merchandise marked as high as 60 percent off. In the men’s area on the main floor, leather bags, laptop cases and briefcases were 40 percent off, while cashmere scarves, silk ties and leather gloves were 60 percent off. In fine jewelry, a row of about 12 cases — from diamonds and gemstones to pearls — was sitting with 50 percent off signs. When asked if there was any more of a discount, the salesman said he could give another 15 percent off to a Bloomingdale’s card holder. Accounting for all discounts, a $2,200 ring came up $760.
According to a market source, while other stores were lamenting business last week, Bloomingdale’s felt good. “Customers responded to the good values,” said the source.
At Brooks Brothers, “Black Friday was OK. Since then, every day seems to get more and more difficult as we get closer to Christmas,” said Lou Amendola, chief merchandising officer. “There doesn’t seem to be the activity around shopping for gifts. For example, the sweater business and sport shirts are very, very challenging on the men’s side, but the suit business has been less challenging because people, I believe, do not tend to buy suits as a gift. It’s more for themselves. It seems that people are going out, visiting Rockefeller Center, seeing the tree. But you don’t see people with bags and bags of merchandise. I think families are having discussions about really cutting back on gift giving.”
Brooks Bros.’ team meets every day to discuss the week’s strategy, but stays less promotional than other chains. “We are not promoting our basic items. We feel it’s unnecessary,” Amendola said. “It doesn’t make sense to promote a white shirt when you have to get rid of the fashion shirts. We are really promoting merchandise that has seasonality.”
“I think retailers are anxious, but that is not specific to downtown,” said Elizabeth Berger, president of the Alliance for Downtown New York, which manages the Downtown-Lower Manhattan Business Improvement District, and this holiday season launched its most ambitious retail campaign, spending more than $300,000 on print, bus shelter and PATH train ads for a month, among other marketing efforts. “Century 21 is packed, and customers are in the stores along Wall and Broad streets,” Berger observed. “I think people are waiting to see, not buying as much, but still shopping. There are opportunities for affordable luxury.”
Target Corp., which offered rock-bottom prices on Black Friday, such as a women’s ultimate T-shirt by Cherokee for $4.50 and an Xhilaration hat, scarf and gloves gift set for $5.99, plans to keep those values coming. “We’re continuing to leverage the reach of our weekly circular to highlight hot gift ideas at a great value,” a spokesman said. “Last week, the cover of our circular featured electronics, and this week it features toys — historically two of our most popular categories during the holidays.”
In a research note, Amy Wilcox Noblin, retail analyst with Pali Capital, reported: “We see continued discounting and several retailers taking even deeper discounts and running cash-back promotions (Aéropostale, Bebe, Hot Topic) since last week.” She expressed concern that traffic is slowing despite intensified discounting. “There is no doubt we are in an environment where retailers are trading margins for volumes. The question remains how deeply….But then again, it may not matter in this environment where cash is king, and clearing inventory is the main goal.”
She pointed out that Aéropostale Inc. and J. Crew saw better traffic than competitors last week, primarily due to their promotional activity. Aéropostale sliced another 10 percent off its prices, and J. Crew’s discounts are running from 25 to 40 percent with an additional 20 percent off clearance items, resulting in good traffic at New York-area units.
“Perhaps the only positive sign for investors is that expectations, after the worst November in recent memory and the conclusion of the 3Q08 earnings season, have probably also hit rock bottom,” Eric M. Beder, senior vice president, Brean Murray, Carret & Co., said in a research report.
Ken Gushner, president of Boyds in Philadelphia, acknowledged that after a strong Thanksgiving weekend driven by the start of a private sale, traffic has fallen. “Last week was disappointing,” he said. “Business is off substantially, and we expect it to continue to be tough. We’ll just tighten the ship. Unlike a lot of specialty stores, we have the ability to withstand a major downturn in sales.”
Gushner cited the upper-moderate market as a bright spot in men’s. “We didn’t really put all our eggs into the luxury market, and it’s a good thing because that’s what’s the most vulnerable right now.” For example, in tailored clothing, the Trussini line is the winner. At around $1,000 retail, “it’s a viable alternative” for the luxury customer, he said.
Brian Bolke, co-owner of Forty Five Ten in Dallas, said he was flabbergasted by all the luxury discounting, which he believes caused a 10 percent drop in his store’s revenue. “We just went to 60 [percent off] because we had to match Barneys, which went on sale Saturday,” Bolke said. “In a normal year, it would have gone to 40.” He’s optimistic about the week before Christmas. “I feel like there will be a sentimental burst at the last millisecond,” Bolke said. At the end, a natural inclination to not be all doom and gloom will spur the holiday spirit for shopping. “You can’t not have Christmas,” Bolke said.
Nan Napier, owner of Tres Mariposas women’s contemporary shop in El Paso, Tex., said consumers are shopping cautiously, but respond to bargains and still spend on newness and novelty. “Our business is down 7 percent compared to a year ago, but that’s OK as long as margins are still healthy.”
At Capitol Boutique and The Poole Shop, designer boutiques in Charlotte, N.C., department stores’ early markdowns forced 40 percent off promotions on all fall/winter clothing right after Thanksgiving. Included was an offer to buy two sweaters at 40 percent off and get one free. “We could have continued full-price selling into mid-December, but we had no choice,” said Ruth Caldwell, senior buyer.
The steep discounts at Saks Fifth Avenue the week before Black Friday were a sore spot for high-end specialty retailers like Planet Blue and Lisa Kline, which had to slash prices to stay competitive. “It just killed us,” said Kline. “For the little guys, that kind of thing really isn’t fair. We can’t absorb that level of discounting.”
“I just want to sell merchandise; even at a big discount it’s better than not selling it at all,” said Mark Alan Harmon, owner of Closetry on Robertson Boulevard. “Like everyone else, we just need to move things out.”
“The consumer is not buying anything that’s not on sale, or without a coupon,” said Cynthia Cohen, president of Strategic Mindshare, a Miami consulting firm. “Some retailers tried Black Friday-type promos last Saturday, such as percentage-off sales before noon, but the consumer only has a fixed amount of money. She may need to spend it on lunch.”