After a disappointing June for most stores, retailing won’t get any brighter heading into back-to-school.
Stores start displaying back-to-school merchandise in windows and ads the weekend after July 4, though the lion’s share of the merchandising and price deals occur in August and the first half of September. According to industry pundits, promotional activity will be as intense as ever — although retailers this year insist they’re not stepping up promotions.
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In addition, early reads on the b-t-s merchandise suggest a lack of exciting fashion. “It’s a matter of playing it safe,” observed Keith Jelinek, director in the AlixPartners Global Retail Practice. “It’s back to basics. There will be strength in denim, tops and T-shirts, but it’s just basics.”
“July same-store sales will increase in the low-single digit range for the broadlines retailers, reflecting a weakening macro environment and slowdown in high-income consumer spending, a challenging same-store sales comparison of 6.6 percent, soft mall traffic trends and a lack of compelling new fashions,” said Deborah Weinswig, analyst at Citi Research, in a report. “However, inflation, declining gas prices sequentially, and strong e-commerce growth will likely be tailwinds.”
Retailers did catch some wind at their backs at the start of the year, which had momentum, and Father’s Day selling at Macy’s Inc., Bon-Ton Inc. and many other chains was strong, though not robust enough to turn the tide. For June, Thomson Reuters tabulated a mean retail sales increase of 0.1 percent versus its estimate for an average increase of 0.5 percent. Two-thirds of the stores posting results Thursday missed estimates. Retail executives complained of the uncertain economy and cited the severe thunderstorms in several states and resulting power outages, July 4 falling on a Wednesday versus a Monday last year, decreased tourism and being up against challenging comps in 2011. There was also no shortage of concerns about shoppers, with consumer confidence dropping and the personal savings rate on the rise.
However, it wasn’t all bleak last month. Nordstrom Inc., Saks Inc., TJX Cos., Ross Stores Inc. and Limited Brands Inc. were standout performers, bucking the overall weak trend. But Gap Inc., Kohl’s Corp., Bon-Ton Stores Inc., Target Corp., Wet Seal Inc. and surprisingly, Macy’s Inc., which has been on a roll for several seasons, fell off plans.
U.S. retail stocks on Thursday overcame the tepid June results, with the S&P Retail Index increasing 1 percent, or 6.13 points, to 618.85 as the Dow Jones Industrial Average fell 0.4 percent, or 47.15 points, to 12,896.67. The gainers included Limited Brands Inc., 4.5 percent to $46.12; Michael Kors Holdings Ltd., 4.2 percent to $44.44; Lululemon Athletica, 3.9 percent to $60.16, and TJX Cos., 3.7 percent to $44.09.
Macy’s stock rose 2.7 percent to $34.27, despite June sales that were “below expectations,” acknowledged Terry J. Lundgren, chairman, president and chief executive officer. Macy’s missed analysts’ estimates for a 1.9 percent increase with a 1.2 percent gain. “In part, this was a function of a macroeconomic environment that is stagnant at best, and lower spending by tourists in cities such as New York,” Lundgren said. Also, renovations at the Herald Square flagship interfered with business to a degree greater than expected, though the opening of the first phase of “the largest women’s shoe department in the world” in August should provide a lift.
Kohl’s stock price rose 6.3 percent to $47.03, despite the chain’s 4.2 percent June comp-store sales decline.
“There was a little bit of a slowdown in June in general, maybe more so in the U.S. than Canada,” said Bonnie Brooks, president of Hudson’s Bay Co., discussing the general retail landscape last month. Still, at The Bay and Lord & Taylor divisions, “We came through with a brilliant Father’s Day,” Brooks noted.
She suggested it’s possible for retailers to transcend the uncertain macroeconomic environment for back-to-school “by being clever and executing a marketing campaign that moves people. Certainly the market share is not getting larger so it is really important to be the best in the field, and stay in the zone that you own. Our children’s wear has been on an increase for the last two years. It’s definitely a growth business.”
At Target, “Following better-than-expected performance in May, our June comparable-store sales were near the low end of our expected range,” said Gregg Steinhafel, chairman, president and ceo. “We believe these results, combined with our outlook for July, keep us on-track to deliver second quarter sales and adjusted EPS in line with the guidance we provided at the time of our first-quarter earnings release.”
Brendan Hoffman, president and ceo of York, Pa.-based Bon-Ton Stores, described June as “uneven” as the company’s comps fell 0.8 percent. “During the Father’s Day promotional period, customers responded favorably when we strengthened our marketing with emphasis on value, which also improved the ease of our customers’ shopping experience. We were disappointed, however, with sales at the end of the month, which we believe were negatively affected by the timing of the July 4th holiday and the severe storms in some of our markets.”
Arnold Aronson, managing director of retail strategies at Kurt Salmon, cautioned about reading too much into the June numbers. “June is not a direction setter for the most important parts of the year, back-to-school and fall-holiday. June is primarily a clearance month except for Father’s Day but that’s not enough to affect the total.”
On the brighter side, Aronson said the “European situation is more predictable and under control with more of a commitment to preserving the euro by strong nations, namely Germany and France. Still, ongoing reports about unemployment and the weak housing market are deterring consumers, he added.
Among the best performers, Ross Stores and TJX Cos. each had 7 percent comparable-store increases for the month. Nordstrom experienced an 8.1 percent surge for the month, followed by Saks with a 6 percent increase. Saks cited strength in women’s shoes, men’s private brand, tailored clothing and footwear and cosmetics and fragrances. Limited Brands was another strong performer with a comparable-store sales increase of 7 percent. Victoria’s Secret’s comps rose 11 percent on the strength of lingerie and the Pink sub-brand. Bath & Body Works and La Senza each rose 2 percent. The company forecast low to mid-single-digit comp gains for July. Apparel retailers overall outperformed expectations with a 4.2 percent mean advance versus a 2.5 percent upward estimate.
On the other hand, teen retailers fared poorly, declining 2.4 percent on average against expectations for a 0.9 percent pullback, and Gap was flat.
“It was a tough road last month, and it’s a slippery slope going into back to school,” Jelinek, from AlixPartners, added. “The way consumer confidence is going, unemployment not taking a turn for the positive and personal savings starting to go back up, this kind of tells us the consumer is going to pull back. We are going to see a lot of promotional activity out there in the next couple of months.”