In a somber season, some strategies and trends are keeping retailers afloat.
This story first appeared in the January 3, 2013 issue of WWD. Subscribe Today.
On Wednesday, store executives said they’ve seen a lift in shopping since the weekend before Christmas, which they attribute to markdowns often as high as 60 to 80 percent off sweeping across a broad spectrum of merchandise.
There are other factors as well, including:
• Online shopping, which continues to register double-digit gains partly due to sustained online shipping deals typically offering free deliveries with a minimum purchase, and mobile devices facilitating online and in-store purchasing;
• Gift card redemptions, which have only just begun;
• The arrival of early spring goods brightening up the selling floors;
• A sustained period of cold weather in much of the country, which is helping to convince consumers to finally buy coats, scarves and gloves.
Despite these glimmers, the lift isn’t significant enough to change retailers’ moods or revise the conservative holiday forecasts, which are calling for comparable-store gains on the low side at 2 to 4 percent.
The markdown mania, a few retailers acknowledged, will hurt margins, with designer apparel, sportswear, notably blouses and coats, among the most drastically reduced categories. To what extent won’t be known until retailers report fourth-quarter earnings.
What’s really disheartening to retailers is that all year long, they’ve by and large done a good job keeping
their costs and inventories at realistic levels, positioning them for strong profits had holiday selling gone better. The spending has been hampered by Washington’s inability to resolve economic issues, leading consumers to fret over the fiscal cliff and the prospect of higher taxes, on top of Hurricane Sandy and the tragedy in Newtown, Conn.
“The traffic was definitely down, even after Christmas,” said Claudio Del Vecchio, chairman and chief executive officer of Brooks Brothers, which always starts its semiannual sale the day after Christmas. “Where we had very generous deals we did well. Where we did not, we did not do well,” Del Vecchio said. “It looks to me like more of the same kind of feeling people had four years ago,” when the recession hit.
“But it’s not a disaster from a sales standpoint and we didn’t get crazy. We have been pretty consistent with last year’s promotion,” Del Vecchio said. “All together, it has been a disappointing season. Now the majority of the effort centers around managing inventories.”
“Making way for spring is what it’s all about now,” concurred Kevin McLaughlin, chief creative officer and cofounder of J. McLaughlin. He said the company stayed full-price right until Christmas, and unlike most retailers, had “a great season with a double-digit sales gain,” fueled by a strong response to resort merchandise, including French sailor tops, white jeans and bright leather handbags.
“If I have any anxiety, it’s being full price till after Christmas. My window to get rid of what’s left is not that long. Fall merchandise loses its appeal after Christmas,” McLaughlin noted.
“The last 10 days have been nice,” said Michael Gould, chairman and ceo of Bloomingdale’s. “The snap of cold weather helped, but we have a lot of business to do in January. We will keep on running our game plan.”
“It was very much of an up-and-down season, but we ended up fine,” said Kathryn Bufano, president and chief merchandising officer for Belk Inc. Belk had a midsingle-digit gain in December, Bufano noted, largely due to “tons” of promotions and markdowns, having a higher percentage of early spring goods on the selling floor this time of year compared with last year, and fewer returns.
Recapping the season to date, she said the Black Friday weekend was “unbelievable,” while December was quiet until the week before Christmas. The day after Christmas was surprisingly weak, while subsequent days were strong, Bufano noted. Belk’s best-selling categories were handbags, watches, jewelry, shoes, boots and gift cards.
Bon-Ton, based in Milwaukee, was among the stores hit hard by the Midwest snowstorm on Dec. 26. “It went right through the Midwest and followed the line of Bon-Ton stores,” said Bon-Ton’s president and ceo Brendan Hoffman. “Unfortunately, the day after Christmas is a natural shopping period, but we can overcome it.”
“I don’t think anyone would say the season has been a barn-burner,” said one ceo, who wished to remain anonymous. “It’s been OK, but poor is not the right word either. There’s been a lot of late shopping and the Internet was strong.”
Retailers today report December comparable-store revenues, which in the past two years have become less of a business barometer as more and more companies discontinue posting their monthly sales. Thomson Reuters’ final estimate for December results, issued Wednesday, called for a 1.7 percent increase in comparable-store sales among the stores reporting today. That was a revision from the 2 percent forecast released on Monday. Jharonne Martis, director of consumer research at Thomson Reuters, said the latest guidance reflected lower figures from analysts and an increase in the number of estimates received as the week progressed.
“Consumers were stressed about staying within their budgets,” Martis told WWD. “Even though traffic was strong over the last two weeks, shoppers really restrained themselves, in many cases because of concern about the fiscal cliff.”
Target Corp. is expected to post a 0.8 percent increase for the month; Macy’s Inc., a 4 percent increase; Nordstrom Inc., 3.4 percent ahead; Kohl’s Corp., up 1.2 percent, and Zumiez Inc., a 3.6 percent decrease.
Gap Inc.’s estimates moved up slightly, to a 3.5 percent increase from an earlier projection of 3.2 percent, and provided one of the few instances in which December 2012 estimates were superior to December 2011 ones. Last year, Gap’s comps fell 4 percent in December.
The TJX Cos. Inc. is estimated at 2.3 percent ahead, and Ross Stores Inc., up 2.7 percent. Limited Brands Inc. is expected to advance 4.5 percent. Even in those cases, December estimates are weaker than December 2011 increases of 8, 9 and 7 percent, respectively. Three teen chains — The Wet Seal Inc., The Buckle Inc. and Zumiez — are expected to post declines of 5, 0.3 and 3.6 percent, respectively.
“Things were kind of sour. People were not spending,” observed Craig Johnson, president of Customer Growth Partners, though he added that winter apparel sales, gift card redemptions and the self-gifting mind-set helped the season finish on a better note. According to Johnson’s estimates, the Christmas-to-New Year’s week was up 4 percent, to $74 billion, versus $71 billion last year, but the period from Nov. 1 to Dec. 24 was up a weak 2.5 percent, and the stretch from Dec. 1 to Dec. 24 inched just 0.4 percent ahead. “Clearly, there is going to be some margin pressure, but not with everybody,” Johnson said. He believes Urban Outfitters, American Eagle, Williams Sonoma, Home Depot, Lowe’s and Costco had winning seasons while Wal-Mart and Target were just OK.
The International Council of Shopping Centers, together with the Goldman Sachs Weekly Chain Stores Sales Index, reported Wednesday that sales increased 0.6 percent for the week ending Dec. 29. On a year-over-year basis, the pace of retail sales remained at 2.7 percent. “The unadjusted calendar comparison was very favorable for in-store sales this week as it captured pre-Christmas sales this year as opposed to only post-holiday spending in last year’s comparable period,” said Michael Niemira, ICSC vice president of research and chief economist. “Weather also played an important factor this week as snow and cold weather drove demand for seasonal apparel and snow removal products.” ICSC Research projects a 3 percent increase for the November-December holiday period, and a 4 to 4.5 percent increase for fiscal December.
Deborah Weinswig at Citi was downright somber, stating in a report, “We expect December same-store sales to be below plan. The lackluster pace of holiday sales continued, driven by unfavorable weather [including a storm that hit the Midwest the day after Christmas], soft mall traffic and the looming fiscal cliff….We are now concerned about [fourth-quarter 2012] gross margins. However, retailers should benefit from the favorable holiday calendar and strong e-commerce growth,” which comScore listed as 16 percent. There were 34 days of shopping between Thanksgiving and Christmas this year, versus 32 last year.
Weinswig said retailers turned to unplanned promotions, and cited “almost unprecedented deals” at Bloomingdale’s, J.C. Penney, Nordstrom, Kohl’s, Saks Fifth Avenue and Target last month. Saks’ “fashion fix” flash-sale site, for example, offered 50 percent off Badgley Mischka handbags and up to 80 percent off Moschino, Max Mara, boots and career dresses and free shipping and free returns on orders of $200 or more.
After Christmas, Planet Blue started off with 50 percent discounts on select items, but entire stores will be 50 percent off for the weekend beginning Friday. Jacinto Romero, director of operations at the five-unit Southern California retailer, said, “We started putting more items at a discount quicker this year versus last year. It was stuff that didn’t have a fast sell-through initially. Because our winter is not as long as in other areas, we can’t hold on to very heavy items as long as others.”
Although Romero said Planet Blue did experience a bump in sales when shoppers came in to buy dresses and gifts for New Year’s Eve parties, he acknowledged, “We didn’t really notice a huge increase of foot traffic. It seems like the tourists left when the [locals] came by, and the tourists came when the [locals] were gone, so they offset each other.”