Big Apple Diary
14-01-2009
Who ever wrote the words "When the going gets tough the tough get going" must have been a retailer or manufacturer with innate vision. The last six months of 2008 was difficult but this is just a prelude to the challenge ahead for Spring 2009. The US retail community is faced with a jobless total of 4.6 million Americans, which is the most since 1982. The unemployment rate of 7.2% in December was the highest in 16 yrs. Stores themselves contributed to this figure when they dramatically scaled back holiday staff hiring's. More than 2.6 mill jobs were lost in '08 which exceeds all years other than 1945.
What makes our industry even worse was that US retailers cut 66,000 jobs in Dec. This will just get worse as they retrench and cut loses by closing unproductive doors. This figure well exceeded industry averages.
So there were few surprises last week when US retailers reported December sales results as they dealt with the worst holiday season in four decades. The Customer profile was all about purchasing less & where could they find the deepest discount! So if sales are off, you can only imagine the loss of profit!
The scorecard;
No one has been spared, not even the "darlings" of the industry who felt the effects of a deteriorating economy;
Coach…the American luxury label of handbags & accessories announced they had missed their earnings expectations. When other retailers countered the turbulent holiday economy with deep discounts, Coach made the decision not to discount so not to diminish brand integrity. This resulted in a 2% drop in sales for its second quarter. With North American comp store sales at a -13.0% decline
Wal-Mart… who turned in a superb Nov performance at +4.0% disappointed Wall St in December by achieving only a +1.7% increase, well below original expectations of 2.8%, but they did continue to gain market share. Primary sales drivers were; grocery, health & wellness products and electronics remained solid performers. There was definite weakness i n apparel and jewelry.
What December figures tell us is that poor performance in the mass merchant sector brought to the forefront the fact that consumers at all income tiers are pulling back on discretionary spending.
Steepest declines in same store (comparable) sales were lead by;
Sears Holdings (Kmart/Sears) …dropped -7.3% with a 12.8% drop at Sears domestic & Kmart at -1.1%
Limited posted a -10% drop & Gap Inc dropped -14% in same store sales both worse than Wall St. expectations.
Macys ended Dec at – 4%, with a combined Nov/Dec result of -7.5%. They announced they would be closing 11 underperforming stores
JC Penney dropped -8.3%
Kohl's Corp reported same store sales shrunk by -11.4%
Target results were down at -4.1% but better than Wall St projections. This was achieved via reduced prices in an effort to gain market share.
And then there are the Teen retailers;
Buckle a retailer based in Nebraska, turned in one of the success stories of the year posting a +13.5% increase for December. Their success lies in offering a unique, on trend assortment in key categories appealing to young women and men in apparel, denim, accessories and footwear. In fact, they have established themselves as a destination mall store & website for denim.
Aeropostale also reported record sales results for December with a same stores increase of + 12%. Their principal customer is the 14 to 17 year old young women and men who responded to their fashion basic assortments and compelling price points.
Abercrombie & Fitch, who had consistently been the darling of the teen retailers, reported a -24% drop which had been anticipated as they also consciously did not discount their brand.
Wet Seal ended at -12.5% with its Arden B chain dragging down sales
Luxury & Specialty stores fared far worse than most turning in disappointing performances due to the pull back in spending of the affluent & aspirational customer;
Neiman Marcus ended at a disappointing -27.5 %
Saks was not much better at -19.8 %
Nordstom's same store sales decreased -8.0 %
J Crew reported comparable sales down – 6.1% but was encouraged by the increase of internet sales in December which increased by + 24.3% from ‘07
Even the Wholesale Clubs had a tough December; with Costco at -2.0% and BJ's whose sales trend lost steam from Nov ended at +1.6%.
Overall results only verify that no one is immune to the current turbulent economic environment. This is a global issue.
The question everyone is asking continues to be ….what's the solution???
Keep in mind there is no "quick fix". Retailers have basically "set themselves up" in offering deep discounts as the solution to stimulate customer interest. This has resulted in the death of full price business. Stores have now trained customers to wait in expectation of the deepest discounts. In fact, this expectation continues to be fueled as newest Spring'09 receipts are already being promoted!
I certainly do not have all the answers but can offer ideas to consider:
- It's time to retrench, be prudent & analyze "what's working"
- The customer is responding to value and necessities so figure out how this winning combination resonates with your core customer
- Embrace the customer who is experiencing a career change which to many will be a life change. Keep in mind in many instances a career change = a wardrobe change. Be the first to make an emotional connection with this new found customer.
- Keep inventory levels in line & focused
- This is the time to innovate not hibernate
- Maybe the answer is not to be narrow & deep in assortments. It's time to be broad & shallow. Do not invest just in volume items, they cripple flexibility. Offer selection within an item or category. Let the customer decide.
- Put testing strategies into place to "chase" a trend
- Leverage multi channel businesses
Certainly do not want to get preachy but strongly feel that the current retail environment though difficult, can provide an opportunity to strengthen long term business.
Remember….be conservative…be smarter and most of all be innovative!!!
Until next week,
Cheryl
