Retailers resorted to heavy promotions in August to win over listless, thrifty consumers, but, according to analysts, few came out on top, and those that did cannibalized margins to secure market share gains.
And the year-over-year comparisons will only get tougher from here on out, analysts and economists noted.
Apparel retailers reporting monthly comparable-store sales Thursday are likely to post a modest 1 to 3 percent gain over last year, putting added pressure on September and October for their back-to-school revenues. In turn, that’s likely to add to the stress on their third-quarter numbers and keep them in a highly cost-sensitive posture, experts said.
The month ended on a strong note, said International Council of Shopping Centers chief economist and director of research Michael Niemira, “but bouts of warmer-than-normal weather continued to curb fall merchandise demand.”
While “overall demand is modest,” consumers came out for end-of-the-month tax-free holidays in many states, boosting sales 2.8 percent on a year-over-year basis, after a lull during the third week of August. On a week-over-week basis, this translated to a 0.1 percent increase for the period ending Aug. 28, ICSC said.
Part of the problem is the “two-headed monster of housing and unemployment” that is a “major drag on consumer spending,” according to Retail Metrics president Ken Perkins, who noted that some teen retailers discounted aggressively — up to 50 percent off — in an attempt to fight back.
Even though housing and unemployment are not likely to improve much in the next two months, the sweltering weather, which either kept consumers out of stores or had them ringing up “wear-now” apparel, will change.
In the meantime, apparel chains targeting the b-t-s shopper will continue to dangle promotions and markdowns in front of the customer.
“Armed with inventory as their weapon, a number of retailers in the space are prepared to sacrifice merchandise margins to justify market share gains,” J.P. Morgan analyst Brian Tunick said. “It is clear from this point in the cycle, positive comps and expense leverage are the biggest sources of EPS [earnings per share] growth that our sector can look for.”
Vigorous promotions have already catalyzed market share “shifts,” Tunick said, explaining that Abercrombie & Fitch Co., which had previously abstained from lowering its prices, is now pilfering share from perennial price-slasher Aéropostale Inc.
Gap’s value-oriented Old Navy chain and The Children’s Place Retail Stores Inc. are taking share from rival Gymboree Corp., he added.
Price wars plagued department stores as well, said Mike Berry, director of industry research for MasterCard Advisors SpendingPulse.
According to SpendingPulse, which estimates total U.S. retail sales made by cash, check or credit card, the sector’s pricing fell 0.8 percent, which is its first decline in a year.
Sales for the sector slumped 6.1 percent, while specialty retailers earned a 4.1 percent jump. U.S. apparel sales overall grew 2.6 percent, driven by an 8.4 percent increase in children’s retail. This was offset by respective declines of 2.7 percent and 1.9 percent in women’s and men’s apparel.
Luxury in the U.S., excluding jewelry, was squeezed 1 percent, which Berry attributed to stock market volatility.
“Luxury may be feeling some of the same pain we see in women’s apparel,” he said. “Some of the back-to-school spend may have siphoned some of the spend there.”
This is part of a “consumer pullback across the board,” which, according to Berry, should materialize into a 1.2 percent comp increase in August.
“August is really going to be the last month of 2010 where we have easy year-over-year comparisons,” he said, noting that it will be “difficult” to produce similar comp results in the next two months.
“Overall, we think this year’s back-to-school season will be much more positive for retailers versus last year, but still difficult,” admitted Jennifer Black of Jennifer Black & Associates. “Today’s consumer is very price-conscious and retailers finally understand that fact.”