Actual Performance May Vary
By George Anderson
How are retailers doing this holiday season?
The answer to that question depends on whom you ask.
The National Retail Federation said retailers got off to a strong start over the Black Friday weekend and the group is expecting sales for the season to come in around six points higher than last year.
The International Council of Shopping Centers has been less bullish, projecting when-all-is-said-and-done that sales for the holiday will be up three to three-and-a-half percent.
Britt Beemer, chairman of America’s Research Group, told the St. Louis Post-Dispatch, “I think it’s a so-so Christmas. If I were retailers, I’d be a little worried.”
Whether sales are up a lot or simply a little, one thing that most seem to agree on is that sales this holiday season have been largely driven by promotions. The net result, some say, may be that while sales numbers will look good, profits will be disappointing.
Mr. Beemer said there are still a lot of opportunities left for retailers to drive sales even with less than a week left before Christmas. His company’s research shows that 14 percent of holiday shoppers have not even started yet.
Moderator’s Comment: What is your sense of what is actually happening this holiday season? What lessons are there to be learned from all the competing
projections in the press? –
George Anderson – Moderator
I agree with Doug; it’s best to wait, but I’m going to wait until about the end of January to make my prediction. With a lifetime in the business of trying to guess what consumers will do during the holiday shopping season, I decided two years ago that making such a prediction was crazy. I, along with most others, have nearly always been wrong. I deeply respect the NRF and the work they do but their predictions are usually far too optimistic. And the ICSC clearly has a bias toward stores based in shopping centers.
A few weeks ago, one consultant predicted this would be the first holiday shopping season with negative numbers. While he got lots of media coverage, I wonder if his prediction will actually make any difference to anyone?
While these predictions make for great media stories, holiday shopping is today, at best, a fragmented business. Some consumers begin shopping as early as August; others do much of their shopping around Thanksgiving; others do their shopping online; and still others wait until the last week before Christmas. Add in the tremendous amount of buying that takes place in the week after Christmas plus the tremendous number of gift cards that are redeemed in the month after and it’s easy to see the importance each of these pieces have to the final total of the holiday shopping season.
I predict that some retailers will enjoy spectacular sales increases, others will have a mediocre holiday season and others will have a poor season. Those retailers that will enjoy the biggest growth will be those that understand the only difference between this time of the year and other times of the year is more customers in their stores. Retailers that will see spectacular sales growth are offering the right merchandise at the right price at the right time. They are also offering a pleasantly memorable shopping experience for every single customer. When we look back in a few weeks, we will see great numbers from those retailers who come the closest to executing these simple concepts as flawlessly as possible.
For those who don’t know, my comments refer to retailers in England rather than the US. That said, there are both similarities and differences. This year, for a variety of reasons, I have been looking firsthand at far more retailers in more locations than I have for a long time. I’ve been in and out of malls, department stores, quirky independents and big boxes (or at least their parking lots – didn’t have the energy to actually go inside and trudge around). Bottom line is that there is no general conclusion to be drawn.
In London last weekend, Oxford St was made a traffic-free zone for the first time in many years and the crowds absolutely flocked in. I don’t know if anyone has analysed who those people were though – many Oxford St shoppers tend to be tourists as most of the stores (apart from Selfridges) sell tat. Most people who live in the UK, I think, prefer to do their serious shopping elsewhere.
In Brighton last week, the busiest store I saw was Primark which does EXTREMELY cheap clothes and accessories for all the family. Of course it was also filthy, with big chunks of dust and dirt on the stairs and lots of the discarded clothes were just thrown on the floor but I suppose if you shop in that kind of place, that’s the level of care you would expect from others. Primark has a reputation for selling disposable clothes for the fashion conscious and for families with fast-growing kids who won’t/don’t wear things for long and therefore don’t mind throwing them away and buying more. It is cheap enough for that so the exceedingly poor quality you get for your money isn’t all that important.
As for promotions, sales and discounts – yes, yes and yes again. Nary a store without some. As in the US some of the most popular items have sold out and parents especially are trying to satisfy their kids’ demands by going onto eBay and paying premium rates but that’s what they get for trying to play chicken and wait for the last minute. Again, Christmas Eve shoppers may get cheap stuff but they hardly count as bargains if they are poor quality or not what you really want.
We don’t go in for gift cards as much as you do and we are spending a lot online although there is always the worry about whether things will arrive on time. But, overall, from what I can see with my own two eyes, the predictions about people getting out and spending are definitely true. Streets and malls are busy, supermarkets are heaving and car parking is generally not easy. Travelling by public transport means juggling your own bags with everyone else’s so that’s no fun either. Me? I’ve done most of my actual shopping online. Going out and about is just one of the sacrifices I make for RetailWire.
This is clearly going to be a good holiday season. Anyone who is ignoring the early results is confusing the accuracy of past predictors. Black Friday results were good, and all of the other indicators predict a good holiday sell-through. It is difficult to determine whether it will be 3% above last year, or 6% above last year, but it will certainly be above last year. I would consider 3% the minimum levels of growth, with a possible upside moving to the 5% end. We should see all of the big box stores and major food and drug coming-in ahead of last year. Expect Wal-Mart to be leading the pack, since they stumbled last year.
My thumbnail survey (which is far from scientific) indicates that sales of lower cost and deeply discounted items were ahead at Black Friday, but full price and higher end goods were slow until this week. Look for sales to be ahead of the last few years, but with significant hits to margins. Sales will be good because consumers are feeling optimistic in spite of fuel costs, the war, and natural disasters. Maybe we are just tired of being down?
The discrepancy between the two forecasts may be a result of the strength of off-the-mall players such as Best Buy. As to the degree of promotional activity driving sales….I’m not sure it’s significantly different than previous years.
One trend we as industry pundits may be blind to is the increasing awareness and effective communication of promotional activity. Black Friday and its discounts, Cyber Monday and its range of offering….all received press in and off themselves. We have made Black Friday into an EVENT. This focuses attention on the traffic drivers used by various players for that EVENT. We are in the information age, right? This makes information more readily available – like promotions.
That aside, the gross margin forecast will be a function of the planning done for those promotions, not simply the fact of them. If WM planned to take deeper discounts going into December, and to highlight key items and categories, then they probably bought the merchandise with that in mind. If the promotional activity is the result of accumulating and stagnant inventory, then the gross margin result this Christmas will be poor.
None of my clients indicate huge accumulations of inventory at most major players. Yes, there are pockets, and yes, WM did strangle the pipeline in late October/early November. But overall, supported by several market shopping trips, inventories appear relatively well in line. My guess is that most players will have gross margin dollar increases in line with the sales increase, if not higher. Last year, my sense was that the amount, extent and depth of the discounting was not planned for. If I am right, we may even see an increase in gross margin percentage for some players.
It will clearly be an uneven sales season. Out and about this week saw Best Buy, Circuit City and Wal-Mart parking lots full. Not a problem getting a space at the mall. I would be surprised by anything over 3% and I expect margins to decrease for two reasons. First, by mid-week, promotions will heat up as there is a lot of inventory on the sales floor. Second, there is great growth in gift cards. The problem with gift cards is they are redeemed for merchandise on promotion or close-out. Internet sales will be up, but this is more transfer from one channel to another. Retailing is never easy, but I expect a few more bankruptcies by the end of the first quarter.
I am continuing my pledge on not predicting this year’s holiday results until early January. I will say that I was at a Simon mall on Friday night and was almost shocked at how slow it was. My wife asked that we go over there and I reluctantly went thinking I would be fighting traffic and mall crowds. I never experienced either.
I think the toughest part is going to be making up for a weak November. Many of our clients and retailers we know are having a decent December but still not sure they’ll make up for the soft November. I guess this week will tell. I’ll definitely let you know when I make my annual prediction in early January.
Excluding auto sales and gasoline, I believe that retail sales November through January will be up around 3% versus last year. That increase will not pay for the increased overhead (shrink, advertising, utilities, compensation and benefits, rents).
Furthermore, the Darwinian march towards lower gross margins has continued, so overall profits will be worse. The internet reduces margins, even if the retailer isn’t online, simply because some of the competition is online. Retailing’s product mix is headed towards lower-margin categories, such as food and electronics. Traditionally, better margins are achieved in clothing, but the Asian imports are largely producing deflation, especially for shoes. And clothing styles aren’t innovative enough to produce big sales increases, except for less than a handful of chains, such as Aeropostale and Abercrombie & Fitch.