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Retailers are trying to blame weak November comps on the wind and rain, but analysts are starting to see a worrisome underlying trend.
This story first appeared in the November 30, 2012 issue of WWD. Subscribe Today.
Many chains, even those without a strong presence in the Northeast, pointed to the impact of Hurricane Sandy on their results and explained they were caught flat-footed by the storm’s enduring effects. But experts, many of whom were also surprised by the tepid results, noted retailers just weeks ago were downplaying the storm’s impact; analysts instead focused on decelerating consumer spending just ahead of the holiday selling season.
“We’re in for a lackluster Christmas,” said Craig Johnson, president of Customer Growth Partners. “These are very dour results. A lot of people are blaming Sandy, but natural or unnatural events don’t destroy demand. It displaces it.”
The International Council of Shopping Centers said November sales ticked up just 1.7 percent, much less than the 4.5 percent to 5.5 percent increase it projected at the beginning of the month. The weak sales helped push retail stocks down on an up day for the market Thursday. The S&P 500 Retailing Industry Group fell 0.5 percent to 672.44. Kohl’s Corp., which logged a 5.6 percent comp drop for November, saw its stock fall 12 percent to $45.02. Macy’s Inc.’s stock fell 4.3 percent to $38.62 in the wake of a 0.7 percent comp decline. Nordstrom Inc.’s shares slipped 1.5 percent to $54.37 after its 1.1 percent same-store sales decline.
Nordstrom has 238 stores, 17 of which are in New York, New Jersey and Connecticut — the area the hardest hit by the storm — while Kohl’s operates 1,127 doors, 106 of which are based in the same Tristate area.
Johnson noted that dismal numbers from Nordstrom and Kohl’s might account for spending shifts to other chains, but that the month’s overall sales result was unimpressive.
“Due to the storm, yes, there’s a marginal share shift from discreet purchases like apparel to the Home Depots of this world,” Johnson said. “You are going to have to start rebuilding, but that’s at the margin.”
In spite of Sandy, Johnson’s forecast for holiday has remained unchanged at a 2.8 percent growth rate over last year. That rate lags holiday 2011, which was up 5.8 percent. This holiday is in line with 2007 levels of 2.5 percent growth.
“I don’t think the impact of Sandy can be ignored,” said Matthew Rahn, a principal at A.T. Kearney’s retail practice. “The question is, did that impact holiday spending or did that delay it?”
Rahn favored the latter, adding that holiday will be “quite positive.” Although he wouldn’t put a number on that growth, he did cite positive indicators, such as gross domestic product growth and the potential end to the fiscal cliff issue.
Barbara Kahn, director of the Jay H. Baker Retailing Center at the Wharton School of the University of Pennsylvania, added that she’s seeing a rebound in the housing and job markets, as well as a resurgence in consumer confidence.
“There’s a reason for optimism,” she said. “Consumer confidence is an indicator of cautious optimism.”
But sentiment doesn’t necessarily translate at the register or the online shopping cart.
“I find that people need to work — that’s usually the best driver of people spending,” said Deborah Weinswig, a retail analyst at Citi.
A self-proclaimed optimist, Weinswig wasn’t so upbeat this month.
“I think this month really caught people by surprise,” she said, noting that after speaking with Macy’s management about its comp decline, she came to the conclusion that “something is off.”
“It’s really weird,” she said, of the retail environment. “If we go back over the last eight months, there have been six [comp] misses.”
Nordstrom registered its first negative comps since September 2009 and Macy’s recorded its first negative number since November 2009.
Although Sandy played a role in November comps, Weinswig saw the storm more as a footnote to a larger story.
Holiday, and shopping in general, is becoming more “technology-driven,” she said, explaining that consumers might go into stores, but they are making their purchases online once they’ve found the best deals.
She pointed to the fact that Shoppertrak said foot traffic during Black Friday jumped 8.2 percent, but that retail sales only increased 2.7 percent.
“That’s a huge disparity,” Weinswig said. “I’ve never seen that before.”
Although more sales are going digital, it’s a shift, not an indication that shoppers are buying more.
“People are price comparing more and there’s no [brand] loyalty. In stores, people are cherry picking,” she noted, offering that for holiday, this trend is problematic, as inventory is already piling up.
Outerwear, sweaters and cold-weather accessories are about to go on major clearance, she said, adding, “I don’t think retailers anticipated this.”
But stores are already promotional, noted Customer Growth Partners’ Johnson, and that isn’t about to change.
“They will be more promotional, especially if they ordered up on inventory. They will start to push the panic button,” he said. “The problem is, the customer sees the same old stuff sitting around. Why would the customer want to buy some schemata that’s been sitting on the shelf?”