It appears the post-holiday hangover is in full effect, as week-over-week chain store sales dropped by the most on record last week according to ICSC. Though we won’t read too much into early 2012 results as both January and February are typically the lightest-volume months of the year, we believe this signals a troubling trend.
Reported holiday sales have for the most part been better than expected (see here for the scorecard with results from 55 chains), but that spending was driven by a consumer that is again taking on more debt and saving less, while personal incomes have barely kept up with inflation.
Consumer borrowing surged in November posting the largest monthly gain in a decade, with credit card debt increasing by the most since March 2008. In addition, the savings rate dipped to 3.5% in November, which was the lowest since 2007. While confidence has improved with recent economic readings and stock prices, expect consumers to retrench in the first quarter following the holiday splurge.
While most headlines note the strength of top-line results, dig a little deeper and you will find underlying weakness. We have seen more profit warnings than any time since the recession from the likes of Target, JC Penney and Kohl’s on the low-end. Even apparel chains that saw robust gains over last year such as American Eagle Outfitters (sales +15%, comps +12%) and American Apparel (sales +15%, comps +12%) are expected to report a significantly smaller profit than projected just a few weeks ago.
Due to the extremely competitive environment, free shipping offers, and deep discounting and promotional activity focused around Black Friday weekend and the week leading up to Christmas, these sales gains came at the expense of margins.
Perhaps most worrying of all is the significant sequential slowdown in sales and lowered guidance from Tiffany yesterday. Luxury chains have enjoyed an extraordinary rebound following the recession and seemed immune to cautious consumers, economic uncertainty and the European debt woes. Michael J. Kowalski, chairman & CEO, said “sales weakened markedly in the United States and Europe during the holiday season, reflecting restrained spending by consumers for fine jewelry,”
There were some chains that truly enjoyed a fruitful holiday: some strong performers included Macy’s, Zumiez, TJX & Ross Stores, Ulta Salon, lululemon athletica, Francesca’s, DSW & Genesco and Ascena Retail Group. These names offered the best product and were best able to balance the price/value relationship, allowing them to gain market share and expand margins.
Wednesday’s Top Retail & Consumer Reads:
- An Interview With New Costco President & CEO Craig Jelinek (Motley Fool)
- Dollar Stores Have Room For Continued Growth in the U.S. (Bloomberg)
- Mobile Shopping Doubles Over December 2011 Holiday (IBM Smarter Commerce)
- More Health Clinics Popping Up Inside Retailers & Grocers (NY Times)
- DSW Lifts 2011 Earnings Outlook, To Accelerate Store Openings (Nasdaq)
- Retail seasonal hiring near pre-recession levels (CNBC)
- Advanced Use of Mobile for Retail Remains on the Horizon (eMarketer)
- What’s Behind Target’s Recent Split With Advertising Agency? (AdAge)
- Many Retailers’ online ordering, shipping and returns processes fall short (Kurt Salmon)
- Action-sports brand Volcom aspires to raise the fashion bar for juniors swim (ApparelNews)
- Evidence mounts consumers are shopping competitors inside stores (Internet Retailer)
- U.S. Retailers Need to Up Their Game on Multichannel Efforts (Gartner)
- Though holiday sales gains were impressive, ‘Groupon Effect’ clipped American Apparel profit (NY Post)
- Comprehensive Analysis of 25 U.S. High Yield Retail Sector Issuers (Fitch Ratings)
- The Container Store CEO talks Conscious Capitalism (Retail’s Big Blog)
- U.S. Mobile Email Audience Grows by 28% in the Past Year (comScore)
- India Lets Foreign Retailers Open Wholly Owned Stores After Rule Reversal (Bloomberg)
