Retail bigwigs gathered for the ICR Conference in Orlando, Fla., on Monday tried to build on the narrative that came out of the holiday season — that of a sector bouncing back from a rough patch.
But it is a tale that some companies are telling much better than others, as changes continue to whip through the industry and Amazon grabs more than $4 out of every $10 spent online. And for every company that’s starting to shake itself out of an uneasy slumber, there seems to be at least one mall-based player struggling mightily.
Heading into the conference, Kohl’s Corp. revealed a 6.9 percent comparable sales increase for November and December combined, while Lululemon Athletica Inc. touted a fourth-quarter comp gain in the high-single digits, on a constant dollar basis.
And explaining away declines were Chico FAS Inc., which expects fourth-quarter comps to fall by 5 percent to 7 percent, and Ascena Retail Group Inc., which saw comps down 3 percent for the holiday period.
Investors were mostly remained positive on the sector. Among the gainers were Kohl’s, up 4.7 percent to $56.90; Chico’s, 4 percent to $9.12, and Lands’ End Inc., 1.6 percent to $18.70.
Tension remains between stores and e-commerce, with companies wanting to grab digital growth but increasingly looking to physical locations as a source of strength.
The ICR conference found Lands’ End Inc. and Lululemon both emphasizing not just digital, but also brick-and-mortar to help them compete in the age of Amazon.
Lands’ End chief executive officer Jerome Griffith outlined a strategy to open between 40 and 50 stores over the next five years, growing sales to between $1.8 billion and $2 billion. That’s a significant move given that Lands’ End has 11 owned stores, with a new a store concept set to be unveiled later this year. The brand also has 180 shops in Sears stores, but Griffith said those would probably go away at some point.
The ceo said a priority for the company is to expand its customer base, a component of the business that he said has been going down since 2010 as the company was mismanaged. He added that in 2018, Lands’ End is “coming off losing money a year ago” and is “starting to get profitable again.”
Lululemon, while laser-focused on digital, is also looking to take advantage of its square footage. Celeste Burgoyne, the brand’s executive vice president of retail for the Americas, said one of the most important things for the company in terms of physical retail is being “agile.”
“The way we’re looking at it, is three years ago, we had one [type] of store footprint,” Burgoyne said. “It was a 3,000-square-foot box and it looked the same everywhere — we opened new stores that looked exactly the same as the store before. Today, I’m really excited to be standing here with three new store types.”
Those stores are Lululemon’s “colocated” units, which is essentially an expanded floor plan of 5,000 to 6,000 square feet that includes a full men’s department, 12 of which have opened over the past year. Then there is the “local,” a set of smaller stores taking up about 1,000 to 2,000 square feet that make up the bulk of the brand’s 325 store footprint.
And more recently there is the “seasonal” store, which started this past holiday period with nearly two dozen temporary stores in targeted markets. “These stores trended almost 50 percent in new guest acquisition and really allow us to show up for our guests in holiday in a really special way,” Burgoyne added. With some help from these temporary stores, Lululemon expects fourth-quarter net revenues to rise to between $905 million and $915 million, compared with previous guidance of $870 million to $885 million.
Others are picking and choosing where and how to bet on retail.
Guess Inc. is one company looking to put its recent and ongoing troubles in North America behind it by continuing to shrink its physical retail presence considerably.
The brand closed 45 stores last year and Sandeep Reddy, chief financial officer, said the company is looking to get down to 300 stores from its current fleet of 510, or even fewer if lease negotiations don’t break the company’s way.
“In the Americas we’re really focused on profitability.…We’ll definitely continue to close stores if we don’t get to economics that make sense,” Reddy said.
But the picture is different across the Atlantic, where Guess is seeing positive sales momentum and a corresponding growth of its retail footprint. The company operates 661 mostly owned and operated stores in Europe and the Middle East, with another 50 coming this year, and another 482 stores across Asia, where Reddy said he sees the potential for “hundreds of stores in China alone.”
Ascena, which operates 4,800 doors, is also looking for growth abroad.
David Jaffe, ceo, told analysts and attendees that Ascena has hired McKinsey & Co. to help with exploring overseas opportunities, including the possibility of licensing some of its retail brands.
The company has eight different brands, including premium labels Ann Taylor and Loft. He noted that Lou & Grey, the activewear-inspired casual sister line to Ann Taylor and Loft, is for the most part housed within Loft, although there are now 11 freestanding stores.
Jaffe also noted Cacique, the intimates line at plus-size nameplate Lane Bryant, has been “performing extremely well” and is about “40 percent of the Lane Bryant business.” He said there is an opportunity to expand the line, and named possibilities such as including the collection within other Ascena brands, broadening the size range and going wholesale. The ceo said the company is “working on a business plan for this.”
But Ascena has struggled to win over investors — the company has annual revenue of $6.6 billion, but a market capitalization of just $394 million.
Jaffe painted a picture of a business with potential, noting that 30 percent of the store base sits in A malls, 50 percent in B Malls and only 20 percent in C malls. And he emphasized that 95 percent of the group’s stores are cash flow positive and that the firm is on track to remove $300 million of structural costs by July 2019.