Black Friday couldn’t take the blues out of November.

This story first appeared in the December 4, 2009 issue of WWD. Subscribe Today.

Retailers reporting same-store sales for the month Thursday generally had increases for the Thanksgiving weekend, but they were insufficient to prevent the month from ending up as an unseasonably flavorless turkey.

Stores tracked by WWD recorded a composite comparable-store sales decline of 3.4 percent in November on top of an 8 percent drop in last year’s month. Hampered by unseasonably warm weather, which took a bite out of sales of outerwear and other warm-weather gear, and persistently thrifty consumers, stores were content to engage in self-congratulation for keeping tight reins on expenses and inventories. While clearly let down, merchants remained generally optimistic about building on last year’s sharply lower profits. But Scott Tuhy, vice president and senior analyst at Moody’s Investors Service, had reservations. “While we expect modest improvement in earnings in the fourth quarter, helped by cost savings and improved inventories, we remain concerned that promotional activity will increase in the next few critical weeks as retailers may increase discounts to entice bargain-hungry shoppers to the mall,” he said.

Ken Perkins, president of research firm Retail Metrics Inc., said, “The bottom line is that comp-store sales were very disappointing ahead of the critical December holiday shopping season.” According to his firm’s tabulations, retailers registered a “very soft 0.7 percent increase,” 150 basis points below Retail Metrics’ estimates, despite “facing the easiest monthly comparison this decade.” Many consumers were still in shock in November 2008 as they absorbed the impact of the credit meltdown and the threat it posed to their jobs and the economy at large.

“It’s obvious that this month doesn’t look so great,” agreed Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at University of Pennsylvania’s Wharton School of Business. “The fundamentals in the economy haven’t trickled down to the consumer yet.

“Consumers are playing chicken with retailers,” she said. “People are used to those deals from last year. It’s hard to get that out of your mind…but deals can’t be as good with such low inventory.”

But according to Michael Dart, senior partner at Kurt Salmon Associates and head of its private equity and strategy practice, “over the next few weeks, the consumer will start spending.” In the meantime, in order to “avoid deep discounting,” retailers will have to “create really great value” and not give in to the sense of “panic” that comes with consumers playing the waiting game. Still, despite lower inventories helping to level the playing field for retailers, there’s still an “unknown element” in which the consumer simply has less elasticity for discretionary spending, he said.

This could cause retailers to begin promoting earlier and deeper than planned, he said, noting that he believes holiday will be flat or slightly up versus last year.

Michael Niemira, chief economist and director of research at the International Council of Shopping Centers, predicted that sales would increase by 2 or 3 percent from 2008 as consumers wait to shop closer to Christmas.

Niemira, who said holiday sales should be up 1 percent for the combined November-December period, explained that warmer-than-normal weather pulled down sales last month.

“With 21 days left in the holiday shopping season and the ICSC-Goldman Sachs consumer holiday tracking surveys indicating that consumers are behind on their holiday spending completion rate relative to last year, the holiday spending catch-up will occur in December,” he predicted.

Those consumers who did spend in November hunted for deals once again, as evidenced by the comp-store sales figures. The nation’s two largest off-price chains finished in a tie for the biggest increase of the month, with both The TJX Cos. Inc. and Ross Stores Inc. checking in with 8 percent jumps.

Michael Balmuth, vice chairman, president and chief executive officer of Ross, said, “November sales outperformed our expectations as business strengthened in the second half of the month. Shoes, dresses and home continued to be the strongest merchandise categories while the Southwest and Northwest were the top-performing regions.”

Target Corp. and Stein Mart Inc. had declines of 1.5 percent and 7.2 percent, respectively.

At the other end of the market, Nordstrom Inc. continued to outperform its competitors as its 2.2 percent increase contrasted with declines of 26.1 percent at Saks Inc., reflecting “weakness across nearly all merchandise categories,” and 12.7 percent at Neiman Marcus Inc.

The best showing among department stores, and the only increase in the sector other than Nordstrom’s, came from Kohl’s Corp., up 3.3 percent for the month. “While consumers continue to be conservative in their spending, we achieved a 10 percent increase in transactions per store for the month,” chairman, president and ceo Kevin Mansell said.

Kohl’s midtier rival, J.C. Penney Co. Inc., registered a 5.9 percent contraction, while Macy’s Inc. blamed its shift of a Friends & Family promotion into December for its 6.1 percent drop.

Also feeling the sting of the ongoing flight to value was upscale teen specialty store Abercrombie & Fitch Co., which recorded a 17 percent decline, better than the 11 percent slide estimated by Wall Street.

“The abysmal Aber-crombie results, against the easiest comparison in the last 11-plus years, vividly demonstrate that there is no turn on the horizon, and the company continues to struggle to find a solution to a weak economy and a consumer who refuses to pay up, even for perceived improved fashions,” said Brean Murray, Carret & Co. retail analyst Eric Beder. “We believe any investor hopes of a short-term turn should have been dashed with November’s results.”

Beder was also tough on A&F competitor American Eagle Outfitters Inc., which posted a 2 percent decrease, adding: “We are still not convinced management has crafted anything resembling an enduring turnaround strategy.”

But MKM Partners analyst Linda Tsai was more positive, as she explained that American Eagle’s product is “more on-trend than last year,” and that the company is “reacting quicker.”

Despite a strong report late Wednesday on third-quarter earnings, Aéropostale Inc.’s 7 percent growth in November comps was below what many analysts had expected, as was the 1.4 percent increase logged by The Buckle Inc.

“There’s not a lot of newness in men’s at The Buckle right now,” Tsai said, noting the company’s previous success with brands like Affliction and Ed Hardy is “gradually bottoming,” mainly because it has “permeated” the market by now.

At Gap Inc., corporate results were flat for the month as Old Navy’s 6 percent advance offset 4 percent declines at the Gap and Banana Republic nameplates. Benefiting from a strong Black Friday showing, Limited Brands Inc. earned a 3 percent increase in comps, because of respective gains of 3 and 4 percent at Victoria’s Secret and Bath & Body Works.

“Surprisingly, merchandise margins were up, driven significantly by improvements at all divisions,” said Lazard Capital Markets retail analyst Todd Slater, who said the company has reached a “miraculous inflection point.”

Joining A&F among specialty stores with double-digit declines for the month were Hot Topic Inc. (down 11.7 percent), Destination Maternity Corp. (11.6 percent) and American Apparel Inc. (11 percent).

The disappointing retail numbers, combined with anxiety about today’s report on unemployment from the Labor Department, contributed to a down day on Wall Street, helping to push the Dow Jones Industrial Average down 86.53 points, or 0.8 percent, to 10,366.15, with most of the decline coming late in the day.

The S&P Retail Index was not available Thursday due to technical difficulties, according to the Chicago Board Options Exchange, but many reporting retailers took a beating, among them Aéropostale, down 11.5 percent to $28.95; A&F, 9.3 percent to $36.21; American Apparel, 5.7 percent to $2.83, and Saks, 5 percent to $5.90. Among the relatively small number of advancers was Zumiez Inc., shares of which rose 3.4 percent to $11.63 after it reported an 8.5 percent decline in comps late Wednesday.

The results increased the sense among analysts and economists that any recovery in retail spending will, like a pickup in employment, be long and arduous.

“In the end, Americans like to shop,” said Bryan Eshelman, a managing director in the retail practice at AlixPartners. “I think that in most downturn cycles that comes back quickly, but this will take more time depending on how the recovery shapes up. I don’t think recovery will be rapid.”

Because the U.S. economy typically grows about 1 to 2 percent every year, Eshelman said it would probably take 15 to 25 years for consumer spending to return to where it was before the downturn.

“Unless we have 4 to 5 percent growth in the next few years, all bets are off,” he said.

However, on a more positive note, Wharton’s Armendinger sees the difficult economy as an “opportunity” in which retailers can get back to the basics by emphasizing their products, customer service, marketing initiatives and value message.

“These are the fundamentals of retailing that we should all be looking back on,” she said.



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