Retailers got what they were looking for this holiday season in soaring online sales and sufficient store traffic — but they paid dearly for it.
Expenses associated with advertising, markdowns, shipping and increased service will bolster the top line but bring down the bottom line, industry experts told WWD.
“It was a good, strong Christmas but many retailers took extra markdowns to achieve their goals,” said veteran retail consultant Walter Loeb. “A company like Target took very heavy markdowns. It will affect the bottom line. Retailers were seeing terrific top lines but some of it’s not going to the bottom. Everywhere I looked, I saw toys and other merchandise discounted.”
“Retailers promoted their brains out and spent enormous amounts of money on deliveries,” stated Mark Cohen, director of retail studies and adjunct professor at Columbia Business School. “The race to command the customer online has reached a fever pitch. That’s going to cost them,” whether it’s Walmart, Target or Macy’s, said Cohen.
“In terms of discounting, we have seen in fashion an unprecedented level of discounting, certainly something I’ve not seen before, and that’s been across the board,” Nicholas Beighton, chief executive office and director of Asos.com, an online-only retail shop, said during his Dec. 17 conference call.
Surprisingly, the plummeting stock market, tariffs, the government shutdown and divisive politics have yet to significantly impact consumer spending. The Dow Jones Industrial Average dropped 653 points, or almost 3 percent, on Monday, closing at 21,792.20, after losing 1,655 points, or 6.8 percent, last week, which was the Dow’s worst week of trading since October 2008. The precipitous decline was blamed on the federal government shutdown and President Trump’s attacks on Jerome Powell, the chairman of the Federal Reserve Board.
With all the uncertainties about the economy and government, the feeling is that retailing is fragile and that sales momentum seen this year is unlikely to carry much into 2019.
But for now, at least, most retailers are in a good mood about holiday sales, citing many positive sell-throughs. They believe the season will be around five points ahead of last year’s, meeting forecasts made by industry experts and organizations last fall. Lower gas prices, people earning more money, newer brick-and-mortar concepts such as Warby Parker and Untuckit, free shipping, and buy online, pickup in stores (BOPIS), along with the heavy discounting, have motivated consumers to spend. Most noticeable this season were the extended “friends and family” promotions by many retailers, and Cyber Monday and Black Friday promotions becoming weeklong events.
“Malls have actually been quite busy,” said William Taubman, chief operating officer of Taubman Centers. “November was pretty strong.” Taubman’s Short Hills, N.J., mall had “a particularly good year. We put in so much new merchandising including the first Indigo store in America,” said Taubman. Indigo, based in Toronto, specializes in books and also sells toys, home and electronics and a few other categories. “We opened it at the end of November. It’s 33,000 square feet and it’s been mobbed. It’s really a destination,” Taubman said.
“The same trends that existed all year have continued,” he added. “Luxury is particularly strong. America is the region of the world where luxury has seen an acceleration. Last Saturday, at Gucci in Short Hills, there was a constant line of about 25 people waiting to get in.”
“We believe last weekend was the biggest ever,” said Craig Johnson, president of Customer Growth Partners. “It was nothing short of stellar. Saturday drew $26.3 billion in sales, a touch above our forecast for $26 billion. And Sunday was huge, coming in at $23.9 billion, which means the weekend was over $50 billion in sales…Usually, Sunday volumes during the holiday season are sharply lower. Traditional malls and power centers were mobbed.”
Johnson said he recently raised his forecast for holiday sales to be 5.4 to 5.5 percent above last year’s level, and thinks there’s a good chance that the revenue gains for the season could be slightly higher.
“Apparel is having its best year in seven years. It’s at least 5.5 percent up,” said Johnson. “Off-price in apparel is on fire. Big box discounters, too. They’ve all raised their game in apparel and doing well generally.” Food and beverage also performed well during the holiday season, home repair stores appear to be a “mixed bag,” while sporting goods, books and home improvement were slow categories, Johnson said.
In specialty apparel, he cited Athleta, Lululemon, American Eagle Outfitters, Aerie and Hollister as strong players currently, while retailers specializing in misses apparel, such as Talbots, Chico’s, Dress Barn, Ann Taylor and J. Jill were not as strong.
Taubman generally agrees with the forecasting, but significant gains won’t be seen by everybody.
“The averages are right but the inequality of the results are extraordinary,” he said. “It’s not evenly spread like mayonnaise. The better centers are doing extraordinary and the mediocre centers are not sharing in that success.”
The consensus is that the busiest stores were off-pricers like T.J. Maxx and dollar stores such as Dollar General, while the best-selling categories have been home furnishings, women’s, activewear, toys, boots and luxury, particularly Hermès, Gucci, Louis Vuitton, Balenciaga and Rolex, retail sources told WWD. Among the most popular items of the season were Lego sets, wide-screen discounted TVs, air fryers, Canada Goose coats, Kylie Jenner’s cosmetics and Uggs.
In addition to Athleta, Lululemon, Aerie and American Eagle, cited by Johnson and others, Restoration Hardware, Kohl’s, Ulta, and Old Navy were also said to be major draws. Macy’s also reportedly did well, at least on the revenue side, and the Ascena Retail Group showed some improvement, mostly with Loft and Justice, according to sources.
But the winners — and even the losers — had to go all out to attract spenders. Target, for example, enabled procrastinators by accepting orders for pick-up and drive-up service until 6 p.m. on Christmas Eve, which could be picked up by 10 p.m. the same night.
The retailer has been using Shipt, the Internet-based delivery system it purchased in December 2017, throughout the season for same-day delivery and said consumers could have purchases delivered to their doorsteps in as little as one hour up until Christmas Eve. Target has expanded Shipt from delivering groceries to also delivering several other merchandise categories.
The options are becoming “game-changers as more guests take advantage of the extra ease. We’ve seen a 50 percent increase in order pick-up sales year-over-year,” the retailer said. “This holiday season, we’ll fulfill three times the volume compared to last year.”
For Von Maur, the Davenport, Iowa-based department store chain, the season “was absolutely fantastic,” said Jim von Maur, president. “It was back to the good ole days for us after several years of mediocre growth. The consumer is a little more confident. The price of gas is low. Wages are going up, and the tax cut all put some additional funds in people’s pockets.”
Regarding markdowns, “We run a pretty clean business. We don’t do a lot of promoting,” he said.
Von Maur said he felt cosmetics now promoting during the holidays was counterproductive. But the company saw some great business in men’s, with Vineyard Vines strong. Uggs was “through the roof. That early snow was a huge contributor during the first week of November. We got a foot of snow….Active wasn’t as good, with some shipping issues with Under Armour; boots were good, women’s apparel has been very good, Chanel limited-edition Red No. 5 fragrance, Nordic Beach, North Face, Peter Millar and Tommy Bahama brands were strong.
“Our comps are closer to 10 percent. People are shopping again. The Internet business is really big. That’s good and bad. It’s a costlier way to do business. We run it profitably but it’s expensive,” von Maur said.
Mary Ellen Coyne, ceo of J. McLaughlin, said business during December was “incredibly consistent and strong for us. It was a much more even month due to web shipping early on and stores coming on strong really in the end. Last weekend was fantastic. December was also a full price month for us.
“As always, sweaters and outerwear drove December,” Coyne added. Novelty looks, such as cashmere in bright colors and prints and novelty products such as candles, reading eyeglasses, cocktail kits, printed vests with an equestrian motif, and pajamas, also gave a lift to the season. “These are interesting, novel ideas to make the store look a little more three-dimensional,” she said.
One senior-level retail executive suggested this season’s shopping surge could have been in part a reaction to the divisive political climate, declining stock market and unease around the world. “When times are tough, everyone is looking for some reason to find joy and happiness,” the retailer said.
Stock market declines tend to impede the selling at luxury retailers, such as Neiman Marcus and Saks Fifth Avenue, and discourage affluent consumers from shopping. Nevertheless, Brooks Brothers ended the season with a single-digit comp increase as men’s sportswear, outerwear and casual bottoms paced the business. Specifically, cashmere and washable merino wool sweaters and outerwear with technical features were the strongest performers. Sport coats to wear with casual bottoms outperformed suits.
Promotions were on plan, with a few items such as merino sweaters offered at a discount to drive business. “To be competitive, you have to have something on sale,” said Lou Amendola, chief merchandising officer of Brooks Brothers.
On how the business progressed through the season, Amendola said, “Traditionally, you get a slump after Thanksgiving and a surge the week before Christmas. But this year, it just leveled off and stayed steady. Maybe it had to do with the horrible weather we had, but the consumers knew what they wanted and shopped early this year.”
Amendola said all Brooks Brothers’ brick-and-mortar, online and outlet channels experienced similar single-digit gains. “E-commerce was strong,” he said, “but we saw a lot more people coming into stores to shop. It’s more balanced now.”
Bob Mitchell, co-ceo of the specialty retailer Mitchells, said the season ended on an “up note,” with a small, single-digit increase. “It was like a roller coaster,” he said, “with a lull in the middle.”
He said men’s sportswear and shoes and women’s ready-to-wear, accessories and shoes were the top sellers. Big-ticket jewelry was “more challenging,” he said, due a lower demand for statement pieces and macro uncertainty in the economy.
“It could not have come at a worse time,” Mitchell said of the stock market decline and government volatility. Still, “we didn’t see it reflected in the apparel sales,” with luxury brands such as Loro Piana, Brunello Cucinelli and Kiton leading the way.
“The market going south and crazy government has people a little cautious,” agreed Ken Giddon, president of Rothmans. “But it didn’t really move the needle; we still had a good season.
“The stocking stuffer of the year is the sock,” Giddon mentioned. “We sold an absurd amount of socks, which was funny to watch, but it also shows a degree of uncertainty. Last year, it was sport shirts and sweaters. Now it’s socks.” Sportswear, outerwear and sport coats outperformed suits.
Rothmans stuck to its non-promotional policy. “Our customers were saying the department stores were 40 percent off on everything, but we tried to keep to the specialty store mentality of keeping things special,” said Giddon.
In the beauty aisles, shoppers were on the prowl for stocking stuffers, unique gifts and exclusives, though they were also actively snapping up items for themselves while they were at it.
At Cos Bar, sales for the holiday season were up about 20 percent, according to ceo David Olsen.
“A lot of the grab-and-go-stuff is doing very well, and brands like Augustinus Bader are flying through the roof,” Olsen said. Other hits for the holiday included fragrance, which he described as “very, very strong,” with Creed, Maison Francis Kurkdjian and Tom Ford’s F–king Fabulous as standouts. The Jenny Patinkin Rose on Rose Face Roller also sold well, as did giftable items from Slip, like scrunchies and a sleep set with a mask and pillow case.
The Sephora in the Short Hills mall was buzzing with shoppers nabbing limited-editions such as the Kat Von D Lolita Eyeshadow Palette. There was also a crowd trying out Charlotte Tilbury’s Magic Cream that retails for $100. Several customers said they were buying to treat themselves.
Not surprisingly, visits to Ulta Beauty found the Kylie Cosmetics display almost picked clean on the Saturday before Christmas.
The nation’s mass market retailers hoped efforts to spruce up their stores would pay off, especially for the 7 percent of shoppers holding off purchasing until Christmas Eve. Target, Walmart, Walgreens, Rite Aid and CVS all invested in the beauty category this year, including better fixturing, upgraded brands and more service.
Maly Bernstein, vice president of personal care at CVS, said efforts to inject more indie brands and exclusives into the merchandise mix have paid off. “We curated an impressive assortment of fun, limited-edition holiday products from some of the most in-demand brands like Essie, L.A. Girl, Wunder2, Zoella and Kendall + Kylie,” she said.
Further moving the needle at CVS, said Bernstein, were stocking stuffers, a new K-beauty exclusive called Joah, Crème Shop and Peripera. “We also saw customers hitting our beauty aisles for some ‘me time’ in the midst of the season’s chaos and a lot of them, inspired by our partnership with celebrity makeup artist Daniel Martin, came in looking to experiment with the latest trends and refresh their own beauty looks for holiday parties and events,” she said.
With the mass market fragrance business suffering, chains looked for other categories as giftable choices. Target, which kept stores open until 10 p.m., promoted products for self-care such as bath bombs from Da Bomb (which have a surprise inside that is revealed as the bomb is used) and a Yes To Charcoal Love Masking Skincare Kit.
Walmart turned skin care and even shaving into giftable opportunities. Examples included a Schick Quattro shaving set complete with a razor, shaving cream and Softlips lip balm priced at $9.88 as well as a Cantu collection of shea butter also tagged at $9.88. Walgreens also had skin-care collections from brands such as Aveeno and Olay with a sign encouraging shoppers to “just put a bow on it.”
Gifts with a point of view along with accessories did well for Los Angeles specialty retailer Kitson.
“Christmas is always great for accessories because you’re not offending anyone with a size on a T-shirt or sweater because sometimes when you’re buying for a mother-in-law, daughter-in-law, secretary, you’ve got to buy something without a size on it, especially in L.A. where they’re so body-conscious,” said Kitson founder and owner Fraser Ross. “People don’t understand that I’m being serious. God forbid you give somebody a medium.”
The retailer, known for its assortment of pop culture-related books, apparel, accessories and gifts, did well with Elizabeth Cole jewelry, Minnie Rose cashmere sweaters that read “Crazy Rich Angeleno” and T-shirts from the brand Patrick reading “Favorite Son” and “Favorite Son-in-Law” (in a riff off sisters Erin and Sara Foster’s popular “Favorite Daughter” T-shirt). Ross also noted anything related to President Trump or Supreme Court Judge Ruth Bader Ginsburg — from cards and books to socks — also did well.
“I feel like the confidence level’s very high,” Ross said. “We do that fun stuff that’s not in other places in the mall. It’s about that item that people want to buy that reflects a personality. You can buy anything plain, but you’re not going to go buy that for someone unless they ask for a plain T-shirt. We have stuff that’s just a little bit different.”
The retailer — which operates three stores on Robertson Boulevard and a pop-up at Fashion Island in Newport Beach that will remain open through Jan. 9 — experienced an increase this year for both Super Saturday and the overall holiday selling season.
“It’s been a great holiday because we had Hanukkah at the beginning of the month,” Ross said. “We were way up from last year and it was a great Super Saturday. It’s because Christmas is on a Tuesday so it gives you two more days to shop. It’s about the positioning of the Saturday before Christmas. Next year it’ll be a little bit more spread out.”
Ross said he expects the momentum to continue through New Year’s as has been the case historically, given the influx of visitors to Los Angeles for the holidays.
“It’ll be just as strong until the 6th of January,” he said. “People are in town. They have gift cards, cash, and they’re out of the cold. For that, we gear up and we have a lot of stuff that’s Beverly Hills- and California-related.”
Momentum in sportswear continued for Craig Realty Group, a developer of outlet centers, and its flagship property on the West Coast, the Citadel Outlets in Commerce, Calif. Craig Realty president and ceo Steven Craig said the center is up “solidly” from last year.
“That’s despite some of the craziness in the stock market that certainly didn’t help anybody the last two to three weeks,” Craig said. “Let’s be candid: The online purchasing [options] get better. Despite all of that, the brick-and-mortar side of it appears to have done well. We’ve got almost every merchant at our major malls reporting positive.”
Most Citadel merchants are up in the double-digits for December, with plenty in the 20th percentile across different categories. Perfumania was up 20 percent year-over-year in December at the Citadel. The Loft was up 23 percent. Others finishing up the month strong include DKNY, Calvin Klein and Michael Kors, Craig noted.
The month was buoyed by good weather, a key factor, especially for open-air centers like the Citadel, as well as the interest in sportswear.
“People like Adidas and Nike, they’re blowing it up and theirs is only a logistical question,” he said. “It’s not a question of whether the market is there.”
One thing retailers seem to be dealing less with than in recent past holiday seasons is delivery delays.
“The headline for the season is that despite incredible increases in shipment volume over last year, the carriers are performing pretty well,” said Rob Taylor, president of Convey, an Austin, Tex.-based software company that helps retailers such as Neiman Marcus, Eddie Bauer and Jet.com manage deliveries running behind schedule for one reason or another, such as weather issues or package damages. The company communicates to both the retailer and the consumer about the delay and the status of the package delivery, and ways to help to deal with the situation.
“From our customers’ standpoint, we are seeing substantial reductions in delivery issues,” said Taylor. “They’re down 20 percent from last year,” said Taylor. One reason for the improvement: Carriers such as UPS have made investments in new technology, as well as having anticipated the larger volume based on past trends.
KEY HOLIDAY TRENDS
• Extended “friends and family” promotions; Cyber Monday and Black Friday promotions become multiple-day discounting events.
• Women’s apparel shows signs of life after years of lackluster sales.
• E-commerce continues to show significant gains, though at great cost to retailers.
• Consumers embrace BOPIS, helping sustain store traffic.
• Off-pricers and dollar stores grab bigger market shares.