October was no treat for American retailers, especially at the high end.
This story first appeared in the November 7, 2008 issue of WWD. Subscribe Today.
If any more proof were needed that even luxury consumers are slamming their wallets shut in the economic downturn, last month’s comparable-store sales provided it as Neiman Marcus Inc., Saks Inc. and Nordstrom Inc. all reported double-digit declines.
Neiman’s fell 27.6 percent (Gov. Sarah Palin’s reported shopping sprees on the campaign trail notwithstanding), while Saks declined 16.6 percent and Nordstrom dropped 15.7 percent. Nordstrom lowered the third-quarter earnings outlook to below its previous range of 32 to 37 cents.
Burt Tansky, Neiman’s chairman and chief executive officer, told WWD, “We anticipated the fall to be very challenging, but certainly the [October] results were weaker than anticipated. We didn’t anticipate that kind of drop.”
the fall to be very challenging, but certainly the [October] results were weaker than anticipated. We didn’t anticipate that kind of drop.”
He said it was far too early to get a read on November business, which includes the heavily promotional Thanksgiving weekend, though the holiday for Neiman’s, relative to department stores, is not as much of a volume driver. Tansky added that he thought it was a positive for business that the presidential election is past, removing one uncertainty from the consumer’s psyche.
At Neiman’s, total revenues during the month declined 25.3 percent to $286 million from $383 million. For its first fiscal quarter, comparable revenues fell 14.5 percent to $968 million from $1.13 billion a year ago.
The company has reduced fiscal 2009 capital expenditures to a range of $100 million to $110 million from the previous $135 million to $145 million, the ceo noted. The reduction will affect remodelings and information technology initiatives, but no store openings at this point. Asked if there would be layoffs, Tansky said, “There is nothing to talk about.”
Neiman’s has been highly promotional and cutting inventories, and orders for spring are expected to be significantly down from last year’s level. Tansky wouldn’t specify how much, but he did say, “We are responding to the continuing economic pressures and what we perceive to be our customers’ change of shopping habits. The second half of our year [Neiman’s fiscal year begins in August] we view as continuing to be challenging. We are working with our [vendor] partners to make sure that they are well versed and understand what we are going through. It’s a very challenging time and it will continue to be so for an extended period.”
Tansky stressed that the stores will continue to offer “high-level service” and that associates will continue to work closely with customers. “They are obviously still shopping, just shopping less and shopping more focused.” He also said his customers’ shopping habits are very much tied to the stock market and that “based on our experience in previous business cycles, we believe our customers’ buying levels will increase once the economic environment stabilizes.”
Others weren’t so sanguine. “What we are finally seeing in clear relief now is that the high end is really in trouble,” said Stephen Hoch, Wharton School marketing professor and director of the Baker Retailing Initiative. “I think it’s going to be quite a while until things start looking good. I don’t think there’s anything they can do.”
Last month brought bad news to virtually all retailing as the full impact of the financial crisis took center stage, focusing the public’s eyes on dwindling stock portfolios and home values, leading them to shop only when necessary and, even then, at stores conferring value more than prestige.
“October was a disaster of epic proportions for most of the retailing community,” said Brean Murray, Carret & Co. retail analyst Eric Beder in a research note, adding the poor economy has led to a “decidedly more cautious outlook from virtually every player in the apparel sector.”
The stock market on Thursday reflected the poor comp-store sales performance. The Standard & Poor’s Retail Index dropped 5.4 percent to 267.84, its second consecutive drop of more than 5 percent. The Dow Jones Industrial Average was set back 4.9 percent to 8,695.79.
“The October retail environment was simply awful with a high degree of uncertainty around the financial markets. Consumers put off any discretionary spending, resulting in exceedingly weak October sales results,” said International Council of Shopping Centers’ chief economist and director of research Michael Niemira, who added he anticipates industry sales to grow by only 1 percent for November and December.
While not hit nearly as hard, midtier department stores also had a tough run, with J.C. Penney Co. Inc. and, in an inauspicious return to the ranks of comp filers, Macy’s Inc. reporting declines of 13 and 6.3 percent, respectively. Penney’s narrowed its third-quarter earnings guidance to between 53 and 55 cents a share, from 50 to 60 cents a share, and added that for November, it expects comps to decrease in the low double digits. The company said comps were weighed down by “softness” on the home and fine jewelry divisions.
Stage Stores Inc. reported an 8.4 percent comp decline and lowered third-quarter EPS guidance to 19 to 20 cents. Gottschalks Inc. fell 13.4 percent.
“We are in for a period of malaise for about six months to a year. Eventually things are going to start looking up,” said Wharton’s Hoch with a hint of sarcasm, “because the retailer is going to be able to compare themselves to this year’s dismal performance.”
He observed that the wealthy, who are the most affected by the volatility of the stock market, are curtailing their spending, but consumers are generally skipping over department stores and flocking to discounters. “Wal-Mart and other club stores are the only ones coming through this OK.”
That was certainly the case in October. Wal-Mart Stores Inc. was one of the few companies beating expectations, registering a 2.4 percent increase in comps, as its core namesake posted a 2.2 percent rise. Analysts expected a 1.6 percent gain, according to Thomson Reuters data.
“Customer comparable traffic is higher and our seasonal merchandising events are delivering improved sales,” said Wal-Mart’s U.S. division president and ceo Eduardo Castro-Wright. “Highly competitive pricing, especially on basics throughout the store, is driving these results.”
The discounter said on Thursday it would unveil a series of initiatives that include weekly savings for each of the next seven weeks, and “thousands of rollbacks.” The push also includes increased support for community organizations hit hard by the tough economy.
For the mass merchants, BJ’s Wholesale Club Inc. was the big winner, putting up a 6.6 percent increase for the month, excluding fuel, versus a 4.8 percent rise in 2007.
Other discounters and off-pricers largely saw their comps fall slightly during the month. Same-store sales for Target Corp. were off 4.8 percent, while Costco Wholesale Corp.’s slipped 1 percent. Comps for The TJX Cos. Inc. slid 6 percent, of which 5 percent was due to the drop in foreign currency against the dollar, the company said.
Of the retailers tracked by WWD, Stein Mart Inc., as in September, was the biggest loser of the mass merchants, with a 12.5 percent decline, while Ross Stores Inc. posted a 2 percent falloff. Even though comps were “slightly lower than expected,” the company said it was positively impacted by “favorable shortage results and other expense savings.” As a result, Ross upped its third-quarter guidance to be between 43 and 44 cents a share.
A handful of specialty retailers also increased their guidance, due partially to an influx of spending after unseasonably cold weather, and effective cost-cutting initiatives. Still, the sector was hit hard.
“This is the 14th consecutive month in which the specialty retail sector has posted negative same-store sales,” said Susquehanna Financial Group retail analyst Tom Filandro. “Overall, these are pretty bad numbers.”
Taking perhaps the biggest pummeling was Gap Inc. Gap North America and International put up comp declines of 14 and 5 percent, respectively, modest in comparison to Banana Republic and Old Navy, which registered decreases of 17 and 20 percent, respectively.
Gap chief financial officer Sabrina Simmons said the company would continue to “use inventory and cost management to offset” the challenging holiday season, but Susquehanna’s Filandro noted the Gap was facing larger issues.
“Uninspiring merchandise is the way you can sum it up,” he said. “There’s no need to shop for basics right now.”
Filandro said retailers lose today if they aren’t competing on price, but he noted they must also have unique products. The Gap is suffering on both fronts, he said.
“Old Navy should be sitting pretty,” he noted, pointing to the retailer’s low-priced apparel, but its collection is “not emotional.”
Mall-based teen retailer Zumiez Inc. lowered its third- and fourth-quarter guidances after reporting a 13.1 percent fall in comps, but Filandro sees the retailer’s problem as one of pricing, not merchandising. Zumiez’s hoodie business has been struggling, he said, not because of the product, but because the retailer has not been competitive with rivals, such as American Eagle Outfitters Inc., that have been rolling out aggressive “buy one, get one half off” promotions.
“Brand has become the third or fourth priority in the consumer’s purchase decision. Price, without question, has risen before brand,” he said, adding the holiday gift card business for specialty retailers will be “the worst seen in 10 years.”
“Kids will ask for cash because they don’t want to be wedded to any particular brand,” he said.
Buckle Inc., which the analyst believes offers the right mix of price and unique fashion, had a 19.1 percent jump for the month, while American Apparel Inc. reported a 22 percent spike in comps.
Abercrombie & Fitch Co. and American Eagle Outfitters weren’t as lucky, posting declines of 8 and 12 percent, respectively, while the more value-oriented Aéropostale Inc. reported 1 percent growth in comps.
Hot Topic Inc. raised its guidance to between 16 and 17 cents a share, from between 12 and 15 cents, after reporting a 8.3 percent rise in comps, much to the surprise of analysts.
“Hot Topic’s ability to reconnect with the customer, through stronger merchandise and a better grasp on an evolving music landscape, will determine long-term success,” said Boenning & Scattergood retail analyst Holly Guthrie, who added that based on the retailer’s turnaround efforts, she thinks the company will make a recovery in late 2008.
Pulled down by a huge 29.4 percent comp decline in sister store Arden B., Wet Seal Inc. had a 6.2 percent fall in comps, while women’s apparel retailer Chico’s FAS Inc. reported a 13.4 percent drop.
Missy retailer Caché Inc. posted an 11 point decline, and Cato Corp. saw a 4 percent bump in comps versus an 8 percent decline for the same month in 2007.
Urban Outfitters Inc., which normally doesn’t report monthly same-store figures, was one of the winners last month, posting a 10 percent increase, as the company’s namesake reported a 17 percent jump. Sister stores Anthropologie and Free People had increases of 2 and 4 percent, respectively, while direct sales grew 41 percent. Still, group ceo Glen Senk said the company was approaching the holiday and spring seasons “conservatively.”
On Wall Street, the S&P Retail Index’s 5.4 percent plummet was the ninth steepest drop since the measure of retail stocks was recalibrated in mid-2002 and all nine of the top declines have occurred since the banking world went into crisis mode and credit markets froze in September.
The Dow’s 443.48-point fallback came on top of Wednesday’s 486.01-point drop and served as a reminder that, while credit markets have calmed some, stock markets are still volatile.
Broadline retail stocks posting declines included The Bon-Ton Stores Inc., down 14.9 percent to $2; Gottschalks Inc., 9.4 percent to 87 cents; Sears Holdings Corp., 6.1 percent to $51.57; Dillard’s Inc., 5.6 percent to $4.71; Nordstrom, 4.9 percent to $15.23, and Macy’s, 3.8 percent to $10.44.
Among the off-pricers, TJX fell 7.6 percent to $24.01 as Ross Stores dropped 1.8 percent to $29.45.
Specialty stores were also held accountable for poor sales results and profit warnings. Those posting stock declines for the day included AnnTaylor Stores Corp., which fell 25.7 percent to $8.93 after revealing plans to streamline its operations further; Mothers Work Inc., down 10.5 percent to $8.25; Limited Brands Inc., 9.6 percent to $10.41; Urban Outfitters, 9.3 percent to $18.25; J. Crew Group Inc., 8.1 percent to $16.34; Aéropostale, 6.2 percent to $20.80; Gap, 3 percent to $12.46, and Pacific Sunwear of California Inc., 1.3 percent to $3.14.
Weakness at the stores is rippling to their suppliers, who are also getting punished by investors.
Warnaco Group Inc.’s shares fell 30.6 percent to $17.80 after the firm reduced earnings expectations for the year. Other vendors posting lesser declines included Phillips-Van Heusen Corp., down 13.9 percent to $19.94; Coach Inc., 10.9 percent to $17.35; Jones Apparel Group Inc., 8.8 percent to $8.86; VF Corp., 5.8 percent to $51.47; G-III Apparel Group Ltd., 5.6 percent to $12.36, and Liz Claiborne Inc., 5 percent to $6.70.
And the market’s pain might not be over for the week. The Labor Department is set to release information on October payrolls and the unemployment rate before the market opens today. Economists expect job losses to continue for the 10th straight month.