Retail sales last week plunged as a lull took hold of the market following an active Cyber Week, according to the Retail Economist-Goldman Sachs Weekly Chain Store Sales Index.
The drop occurred after a period of higher online sales and essentially flat sales at physical stores on Thanksgiving and Black Friday. And even as some analysts are noting disciplined markdown activity since the beginning of the holiday shopping season, those promotions will sharply cut into profits, according to one analytics firm. Meanwhile, 2015 is shaping up to be a winner for retailers in urban markets.
For the week ended Dec. 5, the Retail Economist-Goldman Sachs Weekly Chain Store Sales Index fell 6.3 percent compared to the prior week. However, year-over-year, sales showed a 1.7 percent gain.
Michael P. Niemira, chief economist of The Retail Economist LLC, said it is “not surprising to see weakness following the Thanksgiving-week sales, but it was more accentuated this past week with a record week-over-week drop. However, with consumer fundamentals healthy, it is likely to see December holiday sales strengthen as Christmas Day approaches.”
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But time is running out. There are 17 days left until Christmas and two full weekends.
David Zoba, vice chairman at JLL and a senior real estate strategy advisor at Gap Inc., said for retailers, the “current mood is subdued.” And for mall-based operators of fashion apparel, “which is the backbone of women’s ready-to-wear,” the mood is even more glum.
“[Fashion] apparel is a challenging market right now, and it has been for some time,” Zoba said. “Promotions are up, and sales might be up, but margins will be impacted.” Zoba said consumers are “well-trained to get a discount.” And he added that “in the race to [the] bottom, [fast-fashion brand] Primark may win.”
Zoba said the promotional environment, while not as deep as last year, will impact the bottom line. Indeed, data analytics firm DynamicAction recently released its Retail Holiday Index, which showed that promotions during Black Friday and Cyber Monday drove retail profits down 28 percent.
“Over Black Friday and Cyber Monday, retailers took a hit — not just in foot traffic, but also in profit margins,” the firm said adding, however, that “there’s a sign of hope for the holidays, though: the number of products shoppers are buying per online order is slightly up — 3 percent — compared to Black Friday and Cyber Monday 2014.”
Zoba also noted the importance of online sales. “But since 90 percent of retail sales occur in bricks-and-mortar stores, retailers can’t neglect their stores,” he said. “The winning retailers this holiday season will be executing well online and in stores.” It’s also important to be in the right market.
And regarding market trends, JLL’s just-released third-quarter Investment Outlook Report noted substantial growth in urban retail, which would include all sectors from specialty apparel and beauty shops to home goods and restaurants. “Premium mall purchases lifted sales volumes during the first quarter of 2015, but steady gains in urban retail investment have boosted overall sales in the latter half of 2015,” the researchers said in the report. “The urbanization of consumers, particularly Millennials and empty-nesters, is driving both private investors and retailers clamoring for urban space located in or around mixed-use developments. As a result, urban investment has taken up an increased proportion of transactions (nearly 22 percent of year-to-date) with investment volumes totaling near $10 billion.”
Margaret Caldwell, managing director of retail capital markets at JLL, said the “heat we’ve experienced in urban markets has been going on for a while. We expect to easily surpass 2014 levels and break sales records this year.”
Caldwell said much of the sales volume “can be attributed to deals in markets like New York and Miami, which continue to be key cities for both domestic and international consumers and buyers. Both are experiencing average per-square-foot pricing exceeding $2,000, while urban locales as a whole are enjoying an average 200 basis-point premium over secondary markets.”