Most Retailers Report Holiday Off to Sluggish Start
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The holiday shopping season is off to a sluggish start, and retailers from Wal-Mart Stores Incorporated to mall-based apparel chains may need steeper markdowns and bigger clearance events to move Christmas merchandise.
November retail sales were mostly disappointing – confirming worries that a tepid sales report from Wal-Mart this last weekend wasn’t just unique to the company, and that most consumers aren’t in a free-spending holiday mood. Some chains staged successful promotional events during the first weekend after Thanksgiving as they slashed prices aggressively on wool overcoats, digital cameras, and flat-screen TVs. But outlooks for the crucial month of December were mixed.
“There was widespread speculation about whether Wal-Mart’s poor results represented those of retailing as a whole,” said an analyst at Deutsche Bank Securities in New York, Bill Dreher. “Increasingly, it looks as though they do.”
Wal-Mart and other discounters, such as dollar stores that specialize in low-cost, no-frills merchandise may face the toughest holiday prospects, as lower-income shoppers continue to struggle amid a lackluster job market, tepid wage growth, and high gasoline and heating bills. However, results for upscale venues like Nordstrom Inc. and Neiman Marcus Group Inc. also failed to meet analysts’ expectations.
That’s a sign that even well-heeled shoppers are showing less urgency about splurging on fall fashions, said Dan Hess, president of Merchant Forecast, a New York research firm. A few key gift items – including cashmere and fur-trimmed sweaters, handbags, and diamonds – are helping prop up sales. But while the bright colors and flowery patterns that fueled a torrid spring season are in abundance this fall, they appear to be losing some of their momentum, he said.
“I think the slow start to the season has less to do with the health of the consumer and more to do with the fact that there aren’t a lot of must-have fashions and accessories in the stores,” Mr. Hess said.
November sales at stores open at least a year – or same-store sales, a key indicator of a retailer’s performance – rose 1.3% in November, according to an index of 50 retail chains compiled by Lazard, a New York investment bank. Next to August – when same-store sales rose 0.7% amid a lackluster back-to-school season – that was the weakest monthly performance of the year, and missed the bank’s expectation, which had been lowered this week to 1.7%, said Lazard analyst Todd Slater.
Analysts had lowered their expectations when Wal-Mart, the world’s largest retailer, warned Saturday that its November same-store sales would increase only 0.7% compared with its earlier expectation of an increase of 2% to 4%. Confirming that weak result yesterday, Wal-Mart said it now expects December same-store sales to increase a modest 1% to 3%.
Many department stores and specialty chains at malls also reported disappointing November sales, saying that customer traffic declined significantly after seeing healthy increases in October. Federated Department Stores, which operates Macy’s and Bloomingdale’s, said its same-store sales declined 1.4%, missing its own forecast. The Cincinnati firm, however, maintained its view for December sales and fourth-quarter profits, saying it was “encouraged” by the post-Thanksgiving weekend.
Blaming sluggish mall traffic, Gap Incorporated surprised many analysts with a 4% same-store sales drop, reporting comparable sales declines at its Old Navy and Banana Republic chains. Likewise, Limited Brands Incorporated’s Victoria’s Secret, Bath & Body Works, and Express chains reported disappointing numbers, sending the company’s same-store sales down 5%. Some apparel retailers blamed milder-than-expected weather in November, which cooled sales of winter gear like coats, boots, and wool sweaters.
Other sluggish performers included Kohl’s Corporation. The discount department-store chain’s flat same-store sales are an indication that revamped merchandise under a series of new brands like Daisy Fuentes hasn’t yet converted shoppers, said a professor at the University of Pennsylvania’s Wharton School, Stephen Hoch. Lackluster comparable sales at Kohl’s and Wal-Mart also are a sign that new stores in the fast-growing chains are beginning to steal the business of older stores, Mr. Hoch said. He noted that total November sales at Wal-Mart and Kohl’s surged 8.7% and 13.4% respectively.
However, there were signs that at least a few strong performers are ringing up healthy business, stealing customers away from giants like Wal-Mart with compelling merchandise and clever promotional strategies. Target Corporation – Wal-Mart’s smaller, trendier rival – said its same-store sales matched Wall Street’s expectation of a 3.2% increase, and said it expects its December same-store sales to jump 3% to 5%. Staples like food and pharmacy items fueled sales, and shoes were also hot sellers, Target said.
Toy sales at Target, however, were sluggish. Although video-game sales have been reported healthy at Wal-Mart and specialty chains amid the release of a few new titles, such as Microsoft’s “Halo 2,” there are aren’t many popular new toys to fuel a big season this year, analysts say.
Other strong performers in November included J.C. Penney Company. The Plano, Texas, department-store chain’s 12% same-store sales gain was partly a result of a company-specific calendar shift that moved post-Thanksgiving sales into November from December. But the company’s private brands – which make up about 40% of its merchandise and include Arizona Jeans and Stafford menswear – have managed to steal business from Wal-Mart, as well as a lot of specialty chains in malls this year, Merchant Forecast’s Mr. Hess said.
“They’ve got very strong merchants in jewelry and home furnishings,” which are among the season’s hottest categories, he added.
American Eagle Outfitters’ middle-of-the-road, mid-priced fashions continue be a hit at college and high school campuses. The Warrendale, Ohio, company’s same-store sales surged 22.7% during the month. Bebe Stores, whose pricier women’s fashions cater to the hip, club-crawling crowd, soared 23.2%.
Sears, Roebuck, & Company, which has struggled all year from its lack of ability to sell apparel, surprised Wall Street with a 2.8% same-store sales in crease. Sears, which agreed last month to be acquired by Kmart, cited an especially strong post-Thanksgiving weekend, with robust sales of appliances and tools. However, a few analysts were skeptical whether the comparable sales figure was an indication of strength.
“Sears had a lot of excess inventory to get rid of,” said an analyst at Edwards Jones, Stephanie Hoff. “They did promote heavily, and that drove the comp for them.”