Watching the Retail Detectives

Dec 27, 2010
Tom Ryan

By Tom Ryan

Well before retailers officially report their holiday sales results,
Wall Street analysts and other retail observers regularly scour stores for
telltale clues on whether sell-throughs are going as planned.

To a large degree,
markdowns levels are being gauged. Wall Street Strategies’ Brian Sozzi tells CNBC that
he analyzes whether promotions were in line with where management of the retailer
is guiding him while also eyeing any "abnormalities" in
markdown levels. For example, an excessively high markdown rate — upwards
of 70 percent — serves as an omen that a profit warning may be forthcoming.
Markdown rates of around 40 percent were seen as more likely to be part of
a planned markdown strategy. Finding less-than-professional looking markdown
signage was also a sign of excessive promotions, according to an article in
the Wall
Street Journal.

Speaking to the Journal, Richard Jaffe, at Stifel Nicolaus, said
he looks at which items don’t go on sale for an indication of what categories
are doing well. Christine Chen, at Needham & Co., looks for items on clearance
racks that have remained in stores well past their season as a sign of a fashion

Empty shelves late in the season were also generally seen as a sign of
not only healthy sales but also that inventory levels weren’t over-planned.

according to the Journal article, "can be fickle, changing
by the day and even by the hour," but is also an obvious sign of healthy
shopping. Mr. Sozzi checks parking lot levels on key days like Black Friday
for evidence of shopping vigor. Particularly busy checkout lines inside individual
stores were also seen as signs of a strong season for a store.

Finally, unkempt
sales floors, such as those found by the Journal at
Victoria’s Secret, were generally seen as a good sign. In theory, sales associates
were deemed too busy checking out customers to properly service the floor.
But much depends on the retailer. For instance, John Morris, at BMO Capital
Markets, saw sloppy tables at the Gap chain as a sign that Gap Inc’s moves
to cut staffing in a cost-cutting effort was having a detrimental impact on
service levels.

"It’s 2 p.m.," he told the Journal. "Someone should be
putting this table together."

Discussion Questions: Do you have any of your own favorite telltale signs
when walking retail stores that say its performance is running
above or below plan? What are some lesser-known indications? How do you recommend
industry-watchers "shop" a
store for retail knowledge?

Please practice The RetailWire Golden Rule when submitting your comments.

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9 Comments on "Watching the Retail Detectives"

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Dick Seesel
10 years 4 months ago

I enjoyed the article in the Wall Street Journal but — let’s admit it — this kind of anecdotal evidence based on a small sample is not very scientific. I shopped one particular mall in the Milwaukee area on Black Friday and again on Christmas Eve (with other visits in between) and noted last Friday whether department and specialty stores had pockets of inventory. I didn’t see a glut of sweaters anywhere…I saw one specialty apparel chain with too many peacoats…I saw a few stores that took a deeper position on flannel plaid shirts instead of having a more balanced inventory. But to assume that I know who the winners and losers will be is flattering myself.

So take those “expert opinions” with a grain of salt until you see what the December comps look like, along with quarter-ending margins and guidance about 1st quarter 2011.

Bill Emerson
Bill Emerson
10 years 4 months ago

All of the indicators mentioned are useful, although each can be explained away by other factors: lower inventories going in, cutbacks in staffing, hi-low pricing strategies, etc. The one that I find most useful is traffic in the malls mid-week. If there are crowds in the mall at 11 AM and 2 PM on Tuesday, Wednesday, and Thursday, it usually indicates a good season. Secondly is the bag count. How many people in the mall are actually carrying bags, how many and whose?

All that said, it’s useful to remember that gift cards are the number one gift this year. As near as I can tell, we’re having another U-shaped season. Big on Black Friday, dead in the middle, big for post-season markdowns.

Ryan Mathews
10 years 4 months ago

I agree with Richard. Too small a sample base makes everything look either more or less significant than it is. Are there ways to gain insights about retail effectiveness by walking into a store? of course BUT those “retail tells” vary from format to format and market to market.

Paula Rosenblum
10 years 4 months ago

Traffic without bags is called “sightseeing.” And as was mentioned, it’s hard to extrapolate a season-wide trend from anecdotal visits.

Still, my own tell-tale signs usually erupt around December 13…if stores start putting out “70% off entire store” or similar verbiage, I smell blood in the water.

I’ve only observed that at 3 chains this year. Everyone else seems relatively happy.

Roger Saunders
10 years 4 months ago

An effective store manager/assistant manager who hones their walking-around management practices can quickly tell you how her store is performing, even from a small sample size. They’re looking at traffic, talking to consumers, watching the “flow of bags,” checking with associates by polling register receipts on an hourly basis, understanding if the discounted items are moving at the expected level, and knowing when to take a markdown during the course of a day/week.

Operations are going to work that ‘magic’. Listening to an analyst from Wall Street who has walked a store three times in two weeks isn’t going to provide an accurate view of what’s happening out there — those reflections are all rear view mirror. Listening to the consumer ahead and during the push will provide a far more accurate perspective.

Ted Hurlbut
Ted Hurlbut
10 years 4 months ago

I find that looking at parking lots at off-peak hours is a pretty good indicator, especially when combined with inventory levels. Parking lots are usually full during afternoons and evening hours during the holiday season, but what about on Monday mornings, or late afternoons during the week? Saturday nights near closing time?

This year I observed much fuller parking lots during these times than I saw the two previous years. A good sign. Combine that with much leaner inventory levels, even in those chains who remained committed to inventory throughout the recession, and I suspect we’re going to be seeing some pretty good numbers on both the top line and the margin line.

George Whalin
George Whalin
10 years 4 months ago

Having spent more than 20 years as a retail consultant and analyst I have long used a comprehensive system for determining how a retail chain is doing or had done in a particular time of the year such as back-to-school or Christmas. Although not the only tools I use, I learn a lot by visiting several of the company’s stores on various days and times of the day. I also talk with associates, look at inventory levels and conditions in the stores. Like the analyst in The Wall Street Journal, I too look at the availability of size, color and style selection for featured items.

I have built a comprehensive database of historical information on the companies I follow along with where and when I visit specific stores. While not easy, there are ways to get a clear idea of how a particular retail chain has done and is doing.

David Livingston
10 years 4 months ago

I just go into the store and use common social engineering techniques and ask for the sales. Why make a guess if you don’t have to?

Phil Rubin
10 years 4 months ago

There are a variety of indicators that are useful but unless you can see either a true “tell-tale” store or visit a variety within a single chain, it’s often tough to accurately gauge retail health through observation. If there’s one key indicator, however, it’s the overall level of markdowns and the timing of those markdowns. Obviously the earlier and deeper the markdowns, the lower the level of profitability that’s going to materialize.

In addition to pricing levels, traffic and buyers versus grazers is also a good indicator, as is the average wait time for closing out transactions. Talking to associates and managers in stores is usually reliable though only if they are really in touch with the numbers.


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