It’s too soon to celebrate, but retailers could be forgiven a small sigh of first-quarter relief.
After years of the top-line blahs, when almost nothing seemed to work, fashion retailers have managed to build some real momentum, rolling over a surprisingly solid holiday season into first-quarter sales that were downright good for some.
Lululemon Athletica Inc.’s comparable-sales jumped 20 percent in the first quarter even as it searched for a replacement for former chief executive officer Laurent Potdevin. Tiffany & Co. and Urban Outfitters Inc. both comped up 10 percent and American Eagle Outfitters Inc. posted a 9 percent gain.
The result for each company is colored by its own quirks, with the timing of promotional events and other changes playing their part, but the overall trend is undeniable.
A WWD tally of 20 key retailers that reported quarterly results over the past three weeks showed an average quarterly comp gain of 3.2 percent — a big turn from a year earlier when the average was a decline of 4.5 percent. (Sears Holding Corp.’s continuing nose dive hurt the average in both quarters equally, with 11.9 percent declines in each.)
On the face of it, the first-quarter uptick would appear to leave the group still stuck in a comp sales hole over two years. But much has changed — and is still changing. And the marked turn in sales counts for something.
“Job and wage growth, tax cuts and strong consumer sentiment combined with a changing fashion silhouette to create a retail friendly environment,” said Richard Hayne, Urban Outfitters’ ceo, in his call with investors. “Results came in stronger than anticipated….The total company markdown rate in [the first quarter] was the lowest of any quarter in the last 10 years. Better fashion execution, strong demand for apparel and accessories plus a disciplined inventory control reduced the need to take markdowns and drove strong comps and full-price selling.”
Retail has, in many ways, gotten leaner and meaner and it’s showing.
For most chains, the comp base is smaller, with 7,000 store closures laid out last year and nearly 3,000 more so far this year. And while retailers have closed their weakest doors, they’ve also invested in their best locations and spent heavily to improve their digital offer.
And retailers seemed to have shaped up just in time to take advantage of a stronger consumer.
The Labor Department said Friday that unemployment fell to 3.8 percent last month — a low not seen since right after the Nineties tech bubble burst in 2000.
“When the job market is so good, people just feel better about spending money,” said Antony Karabus, ceo of HRC Advisory. “If the retailers get the fashion right and become the authority, like Aerie and American Eagle and Lululemon, when the consumer opens their pocket, they’re going to go to the place that is the authority.” (Aerie, a division of American Eagle, comped up 38 percent as it took share in the market and as the leader, Victoria’s Secret, struggled with just a 1 percent comp gain after a 14 percent drop a year earlier.)
That’s not to say there aren’t still plenty of worries for apparel retailers:
* Amazon continues to gain share and sharpen its focus in fashion.
* The web still isn’t as profitable as brick-and-mortar was, given customer acquisition costs and returns.
* The go-and-spend mental boost from the economy can only last so long.
* And the world overall is growing less stable not more, with a U.S. versus the world trade war brewing, the European Union feeling shaky and the stock market wildly swinging back and forth, looking for direction.
But forecaster Craig Johnson, president of Customer Growth Partners, said the way forward is growing more clear for retailers.
“We’re having a reversion to the mean,” Johnson said. “Everybody’s been so focused on tech products. Everybody has their iPad, everybody has their smartphone. They’re basically maxed out, so you don’t have that secular demand on a category basis [for tech gadgets]. Now we’re having what I would call ‘normalized demand.’
“Apparel has been in slow growth, no growth mode for five years,” Johnson said. “This is the best season for apparel in about five years.” He said, so far, apparel sales are up 4 to 4.5 percent this year.
In years past, that kind of turn in trend would have retailers coming out of hibernation and looking for places to open new stores, to grow sales by expanding their physical reach.
But coming out of a period of what Johnson described as “chronic, almost epic over capacity,” the approach has changed and caution remains a must.
“You still have to redouble your efforts,” Johnson said. “This is not, ‘let the good times roll.’ You’ve got to be smart about it.”
Instead of opening stores, he said retailers would be looking for ways to extend e-commerce businesses if and when consumer demand starts to tiptoe past their own capacity.
And retailers still have a long way to go in a rapidly evolving landscape before they reach anything like stability.
“They haven’t scored a touchdown and spiked the ball, this is one milestone along the way,” said Pete Madden, director of AlixPartners retail practice. “Retailers are planning right now for holiday. The next milestone’s going to be here before they know it. Can they keep doing it quarter after quarter?”
That’s the million-dollar question.
|The Comparable Sales Swing|
|A spot check of 20 retailers showed nearly across-the-board comp improvement in the most-recent quarter, although some are still digging out from year-ago declines.|
|Q1 2018||Q1 2017|
|Lululemon Athletica Inc.||20%||-1%|
|Tiffany & Co.||10%||-3%|
|Urban Outfitters Inc.||10%||-3.1%|
|American Eagle Outfitters Inc.||9%||2%|
|Abercrombie & Fitch Co.||5%||-3%|
|Ralph Lauren Corp.*||4%||-12%|
|TJX Cos. Inc.||3%||1%|
|Michael Kors Holdings*||2.3%||-14.1%|
|Walmart U.S. (excluding fuel)||2.1%||1.4%|
|Victoria’s Secret (L Brands Inc.)||1%||-14%|
|J. Crew Group Inc.||1%||-8.0%|
|J.C. Penney Co. Inc.||0.2%||-3.5%|
|Chico’s FAS Inc.||-5.9%||-8.7%|
|Sears Holdings Corp.||-11.9%||-11.9%|
|SOURCE: S&P Capital IQ, Company reports|
|* Most-recent fiscal quarter represented.|