Volatile, unpredictable and maybe not as bad as some recent reports have suggested.
That was the overall take on the state of retailing that emerged Sunday at the National Retail Federation’s convention and expo at Manhattan’s Javits Center, which runs through Wednesday. It’s an industry supporting 42 million jobs in the U.S., pouring $2.6 trillion into the gross domestic product, and pulled every which way by rapid shifts in consumer spending patterns, technology advances, the roller-coaster stock market, unstable national economies, particularly China, and world politics.
“I am optimistic about the U.S. consumer market. It’s in really good shape,” Ira Kalish, chief global economist, Deloitte Research, told WWD, following his presentation on “Retail’s Power Players — Who to Watch in 2016” at the convention. “It’s being driven by actual gains in income and employment.”
Still, headwinds for retailers, such as deflation and the sinking Chinese economy, spell another challenging year ahead for global retailers, Kalish said.
However, he said, “Oil prices will be dropping further down, leading to an increase in consumer spending,” though that means a decline in capital spending by energy companies. Oil prices fell below $30 a barrel on Friday for the first time in 12 years, as demand lagged production, hurting oil-exporting countries such as Canada, Russia and Venezuela.
In China, “the service sector, including retail spending, is doing quite well, but there are questions about the reliability of statistics,” Kalish said. In Brazil, “the outlook is not terribly good,” due to inflation, high interest rates, a need to cut fiscal spending and political scandals. “Brazil is in recession and not likely to see recovery until 2017. It’s an ugly situation.”
Kalish said India is “the fastest-growing major emerging market” and has seen “an easing of monetary policies and a boost in business confidence,” but corruption and some uncertainty about the reliability of statistics there blur perceptions. In Europe, Spain is doing well, Ireland is on fire, and Italy is starting to rebound, Kalish said.
He added that the U.S. economy is doing reasonably well, despite the declines on Wall Street. “The stock market is not always a good predictor. Consumer spending is increasing. There’s reduced debt and robust job growth.”
Kalish listed 10 retail brands best positioned for growth, based on their brand equity, execution and differentiation. Topping the list was Hermès, followed by Tractor Supply Co., Hennes & Mauritz, Inditex, Amazon, Nike, Next, The TJX Cos., Vipshop and Ross Stores.
On Friday, the NRF reported that U.S. holiday sales [November and December combined] rose 3 percent, which was under the NRF’s forecast earlier in the year for a 3.7 percent gain. Nonstore holiday sales alone, which include e-commerce, kiosks and direct-to-consumer, grew 9 percent to $105 billion.
The NRF characterized the 3 percent gain as “solid growth considering the unforeseen weather events across the country and extreme deflationary retail environment.”
The NRF also reported that December retail sales [excluding automobiles, gas stations and restaurants] decreased 0.2 percent seasonally adjusted from November and increased 3.1 percent unadjusted on a year-over-year basis.
“Make no mistake about it, this was a tough holiday season for the industry,” said NRF president and chief executive officer Matthew Shay. “Weather, inventory challenges, advances in consumer technology and the deep discounts that started earlier in the season and that have carried into January presented stiff headwinds as retailers competed with one another and their own bottom line. Despite these factors, the industry rallied, consumers responded and sales still grew at a healthy rate, which is a huge testament to the resilience, knowledge and expertise of our retail leadership.”
The U.S. Commerce Department said total December retail sales decreased 0.2 percent, seasonally adjusted month-to-month, and increased 2.2 percent unadjusted year-over-year.
Amazon Inc., TJX, Ross Stores, Apple Inc., J.C. Penney Co. Inc., and chains specializing in home improvement and home decor were said to be among the winners, while Macy’s Inc., Nordstrom Inc. and Neiman Marcus Inc. were among the less successful retailers this past holiday season.
“It’s pretty diverse right now. You can’t say this segment did better than others,” Kip Tindell, chairman and ceo of The Container Store, and chairman of the NRF, told WWD. “It’s surprising how much more volatility there is out there now compared to what there was five or 10 years ago.”
It is believed that consumers are shifting more of their spending to home improvements, travel, hotels, restaurants and other experiences and spending less on fashion and accessories.
Stephen P. Joyce, president and ceo of Choice Hotels, supported the contention, telling WWD that the hotel industry was up roughly 5 percent for the holiday season. In his presentation to the NRF, in a conversation with Alexis Glick, ceo of GenYouth Foundation, Joyce said, “Business has been on an incredible run since the financial crisis. The supply and demand is pretty good. We are expecting a strong year, but the end of December and early January were a little volatile. We are seeing some ups and downs. People are being a little more cautious.” He said, they’re impacted by the volatility in the oil prices, China, and the Middle East. “As that sort of settles, we will have a very good year. Business itself is strong. The question is who is going to get the business?” Choice Hotels operates 6,300 hotels around the world under the umbrella of 11 brands including Comfort Inn and Ascend Hotel Collection.
Shortly after NRF issued its holiday report, Jefferies LLC reported that building materials, hardware and garden supplies grew 4.2 percent in December, bringing the quarter to date to 3.4 percent. Jefferies characterized Home Depot as “outperforming the industry.”
Athletic and ath-leisure were strong, and according to eBay, “In the Northwest, good old running is taking off, with people lacing up their new sneakers and hitting the pavement. Sales of running shoes, treadmills and Fitbits were some of the most popular items purchased in the region.” EBay also said that in the Southwest, sales of Apple Watches, yoga balls and yoga mats were “off the charts.”
Meanwhile, in the Midwest, sales for armbands, water bottles and treadmills were strong, while in the Southeast, strength training is popular leading to strong sales on resistance bands and foam rollers. In the Northeast, shoppers are buying running tights, running shoes and Jawbone Ups.
By the end of the first week in January, holiday spending was effectively over, according to Michele M. Dupre, group vice president of Verizon Enterprise Solutions, who cited data gathered off the Verizon network, during an interview on the Javits expo floor. “In January, it was back to normal but retailers underestimated wallet share post-Christmas,” Dupre noted that retail volume, based on Verizon’s data, was lower than the weekend right after New Year’s Eve. The delayed reaction by consumers was partly due to retailer’s escalating promotions after New Year’s, she said. Going forward, she advised that retailers “need to be agile, must get better control of inventories and hone in on digital strategies. How good are their mobile apps? How good are their analytics? And are they engaging with consumers with ease and personalization?
“The message for retailers is don’t give up on your engagement strategies once Christmas arrives,” Dupre said. “This season’s ‘sneek peek’ promotions in advance of Black Friday appeared to effectively entice consumers and the key is to evaluate these throughout the season to determine a winning formula for capturing wallet share. One cautionary tale, however, is because the season began so early [right after Halloween for certain retailers] many promotions started blending together, leaving consumers wondering if they were getting the best deal.”