Promotions are likely to intensify this week as retailers try to grab a bigger share of consumers’ wallets, as well as increase what has been weak traffic at stores.
According to weekly data measured by Prodco, North American retail traffic fell 16.4 percent for the week ended Saturday. The shift to online shopping and last week’s weather conditions for Super Saturday likely impacted those results. But the good news is that there’s probably more shopping that still needs to be done before consumers can say they’ve completed their gift lists. According to an NPD/CivicScience survey, only 27 percent of U.S. adult consumers had completed their holiday shopping as of Sunday.
Baird’s retail analyst Mark R. Altschwager said the “16.4 percent decline [in the Prodco survey] is the worse we’ve seen all year, and likely to fuel more intense discounting as retailers scramble to capture their share of traffic in the final week before Christmas.” He explained that trends are likely to improve because of less disruptive weather conditions and because e-commerce shipping deadlines have passed.
Altschwager said the last-minute surge will be needed for retailers to meet or beat their holiday plans. With e-commerce the likely winner this year, the analyst said traditional retailers that have capabilities such as buy-online-pick-up-in-store and buy-online-return-in-store could see opportunity to capture share-of-wallet from last-minute shoppers. And while leaner inventories remain a margin tailwind for the sector, it will be “partially mitigated by deeper promotions to get customers in the door.”
The analyst believes the promotional environment will be most aggressive for specialty apparel, accessories and outlets — primarily for handbags — where retailers have been consistently running promotions that are 40 to 50 percent or higher.
Telsey Advisory Group, in its promotional grab-bag report on department stores for the week of Dec. 12, noted that retailers had adjusted promotions “by category to proactively clear through slower moving goods while staying firm on price in other areas to enhance margin performance.”
At moderate department stores, such as Bon-Ton, J.C. Penney and Kohl’s, the promotional cadence remained high, but was similar to last year. The report noted that as the last full weekend before Christmas approached — Super Saturday weekend — some promotions were more aggressive, with sales up to 75 percent off.
The promotional cadence picked up in the better department stores — such as Macy’s, Dillard’s, Bloomingdale’s and Nordstrom — in select categories such as coats, sweaters and fine jewelry. “Macy’s remained the most promotional out of the group and extended and shuffled promotions as it deemed fit to drive traffic and conversion,” the report said.
J.P. Morgan’s retail analyst Matthew R. Boss hosted an industry lunch with Jan Rogers Kniffen, chief executive officer of J. Rogers Kniffen WWE and former May Co. executive who said his check points, which Boss said matched his satellite data reports, indicated softer foot traffic turnout this past weekend and month-to-date versus initial retailer expectations due to impact from weather conditions and a consumer shopping closer to need.
One key takeaway was the projection for a promotional pick-up. The analyst noted that his proprietary promotion tracker has been pointing to a ramp up in activity across mall-based specialty retailers with “eight of 10 coverage companies more promotional year-over-year in December.”
Michael P. Niemira, chief economist of The Retail Economist LLC, said the bitter cold last week hurt consumers’ ability to shop, “which means more is riding on the current week as holiday shopping wraps up.” His weekly sales data report — called The Retail Economist-Goldman Sachs Weekly Chain Store Sales Index, compiled from data from both firms — saw an increase of 3.1 percent for the week ended Saturday, representing a 1 percent gain on a year-over-year basis. But his index also includes comparable-store sales performance from retail chains that include drug, electronic, grocery and home furnishing retailers.
So far holiday sales are doing little to boost investor interest in the specialty apparel retail segment. Eric Beder, analyst at Wunderlich Securities, said that as 2016 comes to a close, the S&P Select Retailing Index is up 6.5 percent year to date, which compares with a 10.7 percent gain in the S&P 500 and a 9.6 percent gain in the S&P 500 Retailing Index. “We look for 2017 to be another period of less for the specialty retailing/apparel group: less stores, less inventory, less traffic and, maybe, less taxes and less discounting, with investors looking for a payoff from productivity and the stronger players taking market share from the weak,” Beder said.