The ICSC reported that chain store sales rose 0.9% from the prior week and increased 4.5% over the prior-year period during the week ending Dec 24th, and continues to expect an overall November-December gain of 3.5% in shopping center-related sales.

“As expected, holiday shopping went down to the wire as consumers took advantage of the full shopping week ahead of Christmas Day, which fell on a Sunday this year,” said Michael Niemira, ICSC’s vice president of research and chief economist. ”Overall this holiday season appears to have been a positive one for retailers, though there were some pockets of weakness. Looking ahead, the ICSC-Goldman Sachs consumer tracking survey suggests that consumer gift-card expenditures were higher than in recent years, which suggests gift-card redemption in the coming weeks could be stronger than in recent years too.”

Over the entire holiday season, consumers estimated that about two‐thirds of their purchases were in a store (62.4%), about one‐third (34.3%) was purchased online and 3.3% was purchased through a catalog.

E-commerce sales were the consistent bright spot throughout the season, with comScore reporting this morning that online holiday spending through Dec 26th jumped 15% to $35.3 billion compared to the same period in 2010. Led by $1.25 billion spent on Cyber Monday, ten shopping days surpassed $1 billion in sales.

The Johnson Redbook Index also showed strength last week, rising 4.3% over the prior year as last-minute shoppers flocked to the stores on the day before Christmas. However, as we have been talking about since early November, warmer weather continues to be a drag on winter-related merchandise.

“With unseasonably warm temperatures across much of the country, sales of winter apparel were slow. Some retailers have selectively marked down outerwear and other winter items, often in addition to preplanned promotional discounts, and profit margins are expected to be under pressure due to this highly promotional environment.”

The good news is that most chains were extremely cautious heading into the holiday season, as the inventory-to-sales ratio in October for non-automotive retailers was the lowest ever recorded. Unfortunately, many retailers will still feel the pinch due to extremely competitive pricing pressure, the cost of offering free shipping and higher input costs.

As we witnessed yesterday in the news out of Sears that same-store sales slumped 5.2% and they will be closing 120 stores to raise cash and recent results reported from Best Buy, it was not a merry Christmas for all retailers.

We will get a better read on holiday results when over 30 major chains report results during the first week of January.


Wednesday’s Reading List:

• What Costco CEO James Sinegal Can Teach You About Management (American Express)
• Online Retailers Hone In on a New Demographic: The Drunken Consumer (NY Times)
• After a lost decade of fashion missteps, can The Gap come back in 2012? (Barron’s)
• Drugstores snatch up market share as they become increasingly popular holiday destination (Boston Herald)
• Shopping-by-tablet was popular this holiday, but retailers weren’t ready (VentureBeat)
• ‘Mismanaged’ Sears Continues to Lose Customers to Rivals (Bloomberg)
• Holiday season gives birth to new types of shoppers (Boston Globe)
• U.S. M-Commerce Sales To Reach $11.6 Billion In 2012 (Retail TouchPoints)
• In defining moment for Canadian retail, Target readies 135 stores north of the border for 2013 (Globe and Mail)
• Lost Money: $41 Billion In Gift Cards Haven’t Been Redeemed Since 2005 (NPR)
• Higher prices account for most of holiday sales gain (USA Today)
• Holiday E-Retail Satisfaction Index: Customers Less Price Sensitive in 2011, Gap and Overstock Struggle (ForeSee)

The ICSC reported that chain store sales rose by the most in nearly 11 years, increasing 3.4% from the prior week, and rose 4.6% over the prior-year period during the week ending Dec 17th, the most since the week ending July 9th. The outsized increase was likely a catch up following the pronounced two‐week lull in early December when sales rose only a modestly‐positive 0.3%.

The ICSC‐Goldman Sachs’ consumer tracking surveys found that the average gift completion rate was 70% through Sunday, compared to 74% in the same week in 2010. And a new survey from Visa revealed 77% of consumers still need to buy holiday gifts this week, with last-minute shoppers set to spend an average of $278 in the final days leading up to Christmas and Hanukkah.

One area that continues to concern us is sales and inventory overhang of cold weather apparel. Weather Trends International said national temperatures over the past week ending Saturday were a whopping 7.8°F warmer than last year and 3.7°F warmer than its long-term average. There has been no respite from the unseasonably warm weather and many chains have been forced to take unusually steep and early markdowns.

For example, Modell’s Sporting Goods: “We bought almost triple the inventory because last year we had sold out on a lot of key items by early December,” CEO Mitchell Modell told The NY Post.
“In our 122-year history, we have never taken prices this deep this early,” Modell added, noting that prices on Columbia Sportswear jackets already were slashed by as much as 50%.

The warm weather has helped drive more shoppers to the stores though, with ICSC saying mall traffic rose last week to a seasonal high to levels not seen since the first week of 2011, while factory outlet foot-fall was the second highest this year. And Redbook Research actually saw a pickup in seasonal business as sales were “lubricated by price reduction; retailers have selectively marked down outerwear and other winter items, in additional to preplanned promotional discounts.”

The one bright spot throughout the season has been the strength of online sales, which saw its heaviest volume week in history last week according to comScore. With four individual days over $1 billion just last week, E-commerce continues to track up 15% and season-to-date sales are nearing $32 billion. Expect a steep drop-off in online business, as comScore only projects an additional $5-$6 billion in spending through the end of the year as “the preponderance of Americans’ late season holiday shopping will shift to brick-and-mortar retail,”

Retailers are pulling out all the stops to compete over every last consumer dollar, with Macy’s announcing 14 of its stores will stay open for 83 straight hours and Toys ‘R’ Us saying it will keep all its stores open for 112 consecutive hours through Christmas Eve. While the day before Christmas is usually known as ‘Super Saturday’, this year chains decided to shuffle the calendar and we saw multiple doors in the mall discounting entire stores 40-50% this past Saturday.

Several analysts have slightly raised estimates for the holiday outlook, but as we have talked about throughout the season those higher sales are coming at the expense of margins, and the early and often discounting has reeked of desperation on the part of many chains. While we will get a good read of overall holiday performance from about 50 major retailers in early January, unfortunately we will have to wait until March and April to gauge the effect of discounting on profitability.


Tuesdays Reading List:

• Retail Associates & Shoppers Agree That Latest Mobile Technology Leads to Better Customer Experience (Motorola Solutions)
• Body-scanning apps helps shoppers find better-fitting clothes (Chicago Tribune)
• Q&A with Toys ‘R’ Us CEO on holiday season and international growth (USA Today)
• Lessons in managing the retail merchandise mix (HBR Blogs)
• Six Trends That Will Cause Bricks and Mortar Retailers to Lose Sleep in 2012 (Retail Doc)
• JC Penney CEO says “trust me” on ambitious transformation plan, without divulging many details (NY Post)
• A New Suburban Blight: Free-standing suburban retail spaces stay empty (WSJ)
• Confessions of an Amazon elf (Globe and Mail)
• Battle Grounds Among Toy Retailers: Breaking Down The Consumer Demographics (Forbes)
• How scent marketing sweeten the smell of Commerce (Reuters)
• Macy’s CMO Peter Sachse shares the secret sauce for creating loyal customers (Retails BIG Blog)

Redbook Research saw same-store sales growth of 3.2% for the week ending Dec 3rd, a steep drop from the 5.4% gain the prior week. Noting that this is typical of post-Thanksgiving and momentum will slowly build up as we approach Christmas, Redbook Analyst Caitlin Levis said “This shopping pattern has intensified as customers have learned to shop at the last minute to exploit merchant markdowns.”

The ICSC reported that chain store sales declined by a steep 2.7% from the prior week, but still managed to post the 2nd-strongest year-on-year growth (3.8%) in four months.

Michael Niemira, ICSC’s vice president of research and chief economist, said, “Despite the weekly dip, the year-over-year pace continues to be healthy as the overall holiday-gift completion rate jumped in the latest week compared with the same period of 2010.”

According to the ICSC‐Goldman Sachs’ consumer tracking surveys, the average percentage of holiday shopping consumers have completed (excluding those who haven’t started shopping) jumped significantly over last year reaching 56.9%, compared to just 50.1% in the same week in 2010.

This tracks similar to other surveys we’ve seen which suggest many shoppers have already completed their holiday shopping and Black Friday weekend might have pulled sales into November from December, meaning retailers will now be counting on a late December push more than ever to meet plan.

E-commerce spending, however, doesn’t seem to have seen much of a lull as comScore says total online holiday spending to date has increased 15% to nearly $20 billion.

Unfortunately, this won’t be a panacea for most retailers: Amazon has a built-in sales tax-free advantage, a huge loyal following with its ‘Amazon Prime’ program, and is willing to focus on top-line growth and market share gains at the expense of margins. The internet behemoth’s latest jab at traditional retailers is a promotion offering $5 off a purchase of any product if they use its Price Check app in-store.

On top of higher input costs this quarter, big-box rivals will also feel the pain from merchandise margin erosion due to being forced to offer free shipping to stay competitive. Last week, comScore said 63% of online orders shipped free, compared to 51% in the same week last year and just 44% in 2009.

We remain very concerned about the effects of unseasonably warm temperatures across much of the country on not only just sales of sweaters and outerwear, but especially inventories. Weather Trends International said national temperatures over the past week ending Saturday were 3.4°F warmer than last year and 2.1°F warmer than its long-term average, which has been the trend since mid-November.

There is some good news though, as the company said cooler temperatures will finally prevail by the end of this week and should drive business in seasonal soft-line categories.

One other positive for consumers has been the steady decline of gas prices: The EIA reported that the average price at the pump declined for the third straight week to $3.29 per gallon. While still up 11.2% from a year ago, prices are down 17.0% from their peak reached in early May and now sit at the lowest level since the week ended Feb 21st, and the year-on-year gain was the smallest in 12 months.

However, with crude oil price up nearly 30% since the end of September, we expect gas prices to start heading higher into the new year, which could effectively offset any positive effect from the payroll tax cut currently being worked out in Congress.


Wednesday’s Top Retail & Consumer Reads:

• Enclosed malls holding their own against lifestyle centers, outlet malls (Dayton Daily News)
• Forging the future: The forces that are shaping US retail (McKinsey & Co)
• Consumers No Scrooge as Seasonal Decor Sales Expected to Shine (Bloomberg)
• Revenue-Strapped Cities Extending a Warmer Welcome to Big-Box Retailers (SCT)
• Holiday Spending: Just How Important Is Free Shipping to Online Shoppers? (Time)
• Restaurant Industry Serves Up Mobile Offers (Online Media Daily)
• New Apps & Mobile Devices Drive Shopping Decisions off the Couch and Back into Stores (WSL/Strategic Retail)
• How Dollar Stores are Growing in a Weak Economy (Colliers International)
• Who’s buying what this holiday season? Poll on tech buying in the family (Ipsos)
• Positive Signs for Apple Retail Store Self Check-Out (CNBC)
• As Recession Lingers, Shoppers Hit Used-Merchandise Stores in Record Numbers (Reuters)
• Affluent Consumer Spending and New Definitions of Luxury (AdAge)
• Retail Real Estate Pros Optimistic as ICSC NY Show Begins (Retail Traffic)

Total net sales for the 23 chains we track increased 3.8% from a year ago to $36.12 billion in November, while same-store sales rose 3.0% on top of a 5.6% gain last year – this was the 27th straight monthly gain after 12 consecutive months of declines, but the smallest increase since March.

Only 16 of 23 chains reported comp gains for the month compared to 21 last November, and this suggests that while shoppers splurged for one weekend that doesn’t mean the overall season is going to out-perform. Retailers have conditioned consumers to hold out for door-buster deals.

Richard Yamarone, a senior economist at Bloomberg LP in New York, commenting on this morning’s consumer confidence reading which continues to sit at levels typically reached during past recessions, said ”In this environment, the only spending that seems to take place is during deep discounts, heavy couponing, or widespread sales.”

By all accounts Black Friday weekend was a bonanza for both brick-and-mortar and e-commerce on early store openings, deep discounts and heavy promotional activity. However, it appears consumers saved all their shopping for the Thursday to Monday period and we are likely to see a similar spending lull until the week before Christmas when about a third of all Holiday shopping is typically done.

Warmer weather led to weakness across the board in winter apparel business (it was the 2nd-warmest Thanksgiving Day weekend in more than 19 years according to Weather Trends International) and those chains who delayed opening stores past midnight paid the price.

Standouts included pretty much the same names we have seen out-perform all year: Costco (+9% / +7% ex gas & f/x), The Buckle (+6.9%), Zumiez (+8.4%) and Limited Brands (+7%); Off-price stores TJX (+4%) and Ross Stores (+5%) who continue to offer the best value proposition and take market share; high-end chains Nordstrom (+5.6%) and Saks (+9.3%) which are able to push full-price selling and have yet to see a much of a slowdown in affluents’ spending; and Macy’s (+4.8 comp and nearly 50% surge in online spending) who absolutely destroyed rivals in November and continues to be the best name in the department store space.

Laggards in November included all the usual suspects:

The Gap (-5%), who’s chairman and CEO Glenn Murphy offered this lame excuse as though this was just a one-month hiccup: “This is just the start of the holiday selling season and we expect December to remain fiercely competitive and highly promotional,”

JC Penney (-2.0%) who blamed late Black Friday openings, although they also said sales “remained soft in-store throughout the holiday weekend” and Kohl’s (-6.2%), who absolutely had their lunch eaten by Macy’s and offered similar commentary: “A majority of our planned incremental marketing investment is in December and we expect to be able to benefit as customers look for value as they complete their holiday shopping;”

And finally Target (+1.8%), which is obviously losing its everyday low-price leader war with Walmart and parroted basically the same line: “Our view of December remains the same – we expect a competitive and promotional environment as consumers continue to focus on value.”

Pretty much all the stores in every mall we visited over the weekend into this week were heavily promotional and we expect continued margin compression to be a major theme for Q4, yet there were no earnings warnings in today’s reports. On the other hand, not one chain raised guidance and it seems they are all counting on December to save the Holiday season.

One note worth mentioning is that most chains didn’t reflect Cyber Monday online sales in their figures as their fiscal months ended on Saturday or Sunday, so the biggest online selling weekend ever should provide a boost to December results. However, overall we haven’t seen any convincing evidence to suggest that this Holiday season is going to be anything better than just okay.

click on company below or read full report in pdf for detailed monthly performance data

The ICSC reported that chain store sales rose for just the 6th time in the last 15 weeks and the strongest gain since early September, increasing 1.0% from the prior week, while growing 2.7% over the prior-year period during the week ending Nov 5th.

“A blast of cooler weather helped propel seasonal sales on a weekly basis, but, the year-over-year sales momentum slowed a tad,” said Michael Niemira, ICSC’s vice president of research and chief economist. “Consumers are gearing up for the holiday promotions and lots will be riding on the traditional start to the holiday season on the day after Thanksgiving. However, prior to Black Friday, there will be plenty of promotions, which may entice consumers in the coming weeks as well,” added Niemira.

Redbook Research said that same-store sales increased 3.1% for the first week of November, but the smallest gain since the end of June and following a 5.2% gain the prior week. Relative to October, sales rose 1.4%.

“The latest week included last minute Halloween related merchandise shopping, which gave a lift to customer traffic and spurred sales across a broad range of cold weather apparel categories and basic consumables early in the week” said Catlin Levis, Redbook analyst. “Meanwhile, holiday merchandise is beginning to be displayed in stores as retailers continue to roll out holiday season advertising and promotions” she added.

November is significantly back-end loaded with most business contributed in the last two days following Thanksgiving. Black Friday and Black Saturday are the 1st and 6th busiest Holiday shopping days by sales and traffic according to ShopperTrak.

McDonald’s reported an increase of 7.7% in systemwide sales for October, while same-store sales were up 5.5% on top of a 6.5% gain in the year-ago period. The company has now posted an incredible 102 consecutive months of comparable sales growth.

Comps by segment were: US +5.2% driven by the Monopoly game promotion and the popularity of featured products; Europe +4.8% driven by performance in France, Russia and the U.K.; and APMEA +6.1% (Asia Pacific, Middle East, & Africa) driven by convenience, unique daypart value platforms, and a balance of core and local offerings.

“McDonald’s Plan to Win continues to deliver strong global comparable sales increases,” said McDonald’s Chief Executive Officer Jim Skinner. “The ongoing strength of our results reflects the power of our customer-focused plan, supported by actions that enhance the relevance of the Brand.”

Retail Earnings Season officially kicks off tomorrow with reports due out from 99 Cents Only, Advance Auto Parts, Macy’s and Polo Ralph Lauren, with more than 40 American chains due to release earnings in the next week and a half.

Following last week’s tepid same-store sales reports, we are anxious to see what retailers say about expectations for Holiday spending, especially in the face of horrendous consumer confidence numbers.

Tuesday’s Top Retail & Consumer Reads:

• Shoppers show more interest in buying groceries online (STLtoday)
• After 30 years, Black Friday loses its retail luster as early promotions, online deals dilute day’s importance (Detroit News)
• Stores gear up for “dogfight” in TV aisles as retailers plan to do whatever it takes to get shoppers through the door (Reuters)
• How To Own The Digital Shopping Aisle (Forbes)
• A surprising beneficiary of consumers’ anger over high bank fees: Wal-Mart’s Money Centers (NY Times)
• The Limited Wakes Up to Plus-Size Potential (AdAge)
• Q&A: Saks CEO Steve Sadove Talks Luxury Retail, Recession and Recovery (San Antonio Express-News)
• Retail Container Traffic To Decline In November As Holiday Cargo Shipping Winds Down (NRF)
• Fast Retailing, Asia’s largest clothing chain, may buy a bigger rival in the U.S. or Europe (Businessweek)
• America’s Eight Worst-Performing Retail Chains (24/7 Wall St)
• Retailer Digital Marketing Spending to Increase Across All Channels in 2012 as Social & Mobile Gain Traction (The e-tailing group)
• Big U.S. brands tap into online discount sector (FT)

Total net sales for the 23 retailers we track increased 5.1% from a year ago to $30.744 billion in October, while same-store sales rose 3.9% on top of a 1.7% gain last year – this was the 26th straight monthly gain after 12 consecutive months of declines, but the smallest increase since March.

October is typically a light volume month, as shoppers take a breather between back-to-school and Holiday shopping and retailers focus on clearance sales to make room on the shelves for Holiday merchandise.

However, in what could be an ominous sign heading into the most important selling period of the year for most retailers, 70% percent of stores were more promotional this October (according to UBS Investment Research) and nearly 40% of shoppers planned on starting their Christmas shopping before Halloween (according to the NRF), but consumers still cut back discretionary spending and focused on basics last month.

18 of the 23 chains reported comp gains for the month compared to just 12 last October, but even some of the best performing retailers managed to disappoint as the majority missed analyst estimates and the composite gain was short of the 4.5% increase projected.

Standouts included Costco (+9% / +7% ex gas & f/x), which is expected to be the big winner this Holiday season, The Buckle (+8.7%), Dillard’s (+8%) and Limited Brands.

Luxury retailers have consistently outperformed since the end of the recession, driven by robust spending from high-income consumers who have been relatively immune to the recent economic weakness. However, sales growth slowed at both Nordstrom (+5.4%) and Saks (+1.8%) last month and both reported comps below expectations.

Off-price stores TJX (+3%) and Ross Stores (+5%) continue to offer the best value proposition for shoppers and we expect them to both be strong performers throughout the Holiday season.

Laggards in October included the usual suspect The Gap (-6%), who announced recently they would close roughly a quarter of their U.S. stores to focus on overseas growth, J.C. Penney (-2.6%) which continues to lose market share to Macy’s (+2.2%) and Kohl’s (+3.9%), Wet Seal (-9.7%) and Bon-Ton (-10.2%).

Economic reports have come in better than expected of late, consumer spending accelerated in September and most analysts predict Holiday retail sales will rise the most in years. However, the savings rate fell to the lowest level since December 2007 last month, consumer confidence measures are at or near recession-era lows and real disposable income has fallen for three consecutive months. Add in the still dismal job and housing markets, and it’s easy to see why Main Street remains still has such a negative outlook.

With that being said, we aren’t reading too much into October’s weakness: retailers have done a much better job controlling inventories than in years past and it’s a good sign chains are not resorting to deep discounts early in the season like we saw back in 2008. However, we believe most analysts and retail executives are too optimistic with their Holiday outlook, and those who speak of “pent-up” demand are starting to sound like a broken record.

click on company name below for detailed monthly performance data

The ICSC reported that chain store sales rose for just the 5th time in the last 14 weeks and the strongest gain since early September, increasing 0.7% from the prior week, while growing 3.0% over the prior-year period during the week ending Oct 29th.

Overall customer traffic improved for the week with strong discounter strength, though storms in the Northeast and power outages tended to hurt regional demand across most stores.

“Halloween lifted sales, especially at discounters and drug stores, and the weekly gain was the strongest since the week ending September 10, 2011,” explained Michael Niemira, ICSC’s vice president of research and chief economist. “Overall customer traffic improved for the week, however storms and power outages in the Northeast hurt regional demand across most stores”.

The Johnson Redbook Index saw same-store sales increase 5.2% for the final week of October, the largest gain since the 2nd week of July and following a 4.1% gain the prior week. Month-to-date, sales increased 4.7% over last year but were down 0.6% relative to September.

Cooler weather and Halloween shopping helped propel sales last week, and overall October finished slightly ahead of plan.

“Sales of women’s wear, children’s wear and bedding improved over the prior three weeks. This up-trend helped to build momentum going into November.” said Catlin Levis, Redbook analyst. “Meanwhile, the northeast snowstorm on Saturday caused widespread damage and power failure, forcing many stores to close and leaving many residents without power.” she added.

October usually tends to be a relatively light-volume month as retailers focus on clearance inventory ahead of the full roll-out of Holiday merchandise, and shoppers take a breather between back-to-school and Christmas shopping. However, it seems every year chains roll out Santa earlier in the season and consumers have embraced Christmas creep – the NRF said 38.9% of consumers have already begun or were planning to begin holiday shopping before October 31.

About 25 retailers will report October sales on Thursday, and Thomson Reuters expects a composite same-store sales increase of 4.7% compared to just a 1.6% gain last October. Check back Thursday morning as we will have full coverage of monthly sales.

Tuesday’s Top Retail & Consumer Reads:

• The Future of Shopping: Talking Shelves! No Check-Out Lines! Virtual Reality! (The Atlantic)
• Macy’s iconic flagship store, which is already the world’s largest, is about to get even bigger (WSJ)
• National Retail Real Estate Investment Report Fall 2011 (ChainLinks Retail Advisors)
• How Brands Can Maintain Loyalty Among Fickle Digital Consumers (Mashable)
• J.C. Penney bets on luxury offerings for holiday season (Yahoo! Finance)
• Retailers Use Social Media To Fine-Tune Operations (CNBC)
• While women control the majority of household spending, men are more likely to do social shopping (Multichannel Merchant)
• Comeback Kids: Haggar, Keds & Other Heritage Brands Stage Revival (AdAge)
• How the economic slowdown has changed consumer spending in America (The Economist)
• Opportunity Calling: The Future of Mobile Communications (Oracle)
• Restaurant Performance Index Rose Above 100 in September, as Sales and Traffic Levels Improved (National Restaurant Association)
• Aggressive moves in recent years have placed Toys ‘R’ Us on a path of resurgence (Washington Post)
• Retailers shift strategy as middle class turns away from name brands (Palm Beach Post)
• Consumers ’Scared to Death’ But Still Spending (Bloomberg)
• Wal-Mart imagines ever-changing social networks of in-store shoppers (Internet Retailer)

Same-store sales, also called comparable store sales (or like-store sales, identical store sales) have long been one of the most relevant measures of healthy growth at retail companies, as it provides an “apples-to-apples” comparison of top-line growth at existing stores (usually open at least 12 months, excluding new & remodeled stores). This enables analysts to differentiate between sales growth that comes from new stores, especially at-fast growing chains that derive much of their growth from increased store counts, from that of improved operations at existing stores.

Retailers are not required to report monthly sales, but it has been a novel aspect of the industry since the 1970′s. Same-store sales are no “silver bullet” for retail industry performance and there has always been noise in monthly comparisons caused by factors including calendar shifts and changes in weather. However, the monthly reports have long provided a unique perspective on company and industry trends, relative and comparative performance, and retail executive commentary and outlooks.

Ten years ago over 100 retailers reported performance on a monthly basis, and as recently as July 2004 there were still 77 chains reporting across a variety of sectors with aggregate monthly revenues of $52.5 billion, representing 65% of GAFO (General Merchandise, Apparel & Accessories, Furniture and Other – Office Supplies, Stationary & Gifts) sales.

Last month, only 27 chains with aggregate July revenues of $30.6 billion reported results, comprising just 31% of GAFO sales for the month. With Hot Topic announcing July would be their last monthly report and BJ’s Wholesale likely to stop reporting when their buyout by private equity is complete, the ranks will be down to just 25.

(click below for expanded graphic)

While some of the contraction can be attributed to bankruptcies (Gottschalks, Bombay Co, Sharper Image) and some due to acquisitions (Goody’s by Stage Stores), the majority of companies made conscious decisions to stop reporting monthly sales. Unfortunately, there is no longer any representation from footwear companies, dollar stores, woman’s apparel companies or home goods retailers, and many important bellwethers such as Home Depot, Lowe’s, Best Buy and Barnes & Noble ceased reporting long ago.

There is basically one main argument put forth as the reason why retailers discontinue reporting sales on a monthly basis: companies want to align how management thinks about the business to the interest of long-term shareholders, removing short-term trading and volatility of share prices.

Here is commentary from Wal-Mart’s announcement they would be switching to a quarterly reporting schedule after April 2009:

“Wal-Mart was built on a foundation that manages for long-term success,” said Tom Schoewe, executive vice president and chief financial officer for Wal-Mart Stores, Inc. “This decision aligns investors with the long-term view we take to build shareholder value. We feel this also will reduce the intra-period volatility related to events such as calendar shifts. Reporting sales quarterly also places us in line with most other large retailers.”

Wal-Mart wasn’t the first chain to stop reporting monthly sales, but as the largest retailer in the world they were certainly the most significant, with domestic sales alone accounting for nearly 10% of all U.S. retail (excluding auto & restaurant) sales. It’s also perhaps no coincidence that they, like most companies when they stopped reporting, were going through a period of particularly poor performance.

Our own view is that we now live in an on-demand, nearly real-time business intelligence world where retailers have all the relevant data at their fingertips. In a recent Reuters article suggesting yearly and quarterly financial reports seem stuck on an industrial-era pace that some say was obsolete decades ago, former SEC chairman Harvey Pitt put it this way:

“Almost any company with rational management tracks its performance daily and makes critical business decisions on the basis of data and trends that should be distilled and published for public consumption,”

Paul Miller, a University of Colorado accounting professor asks:

“If I’m an investor, why can’t I go on the Web and see what the Wal-Mart sales are today?” Miller asked. Instead, investors have to wait to find out what happened months ago. “It’s a constant state of incomplete information and the consequence of that incompleteness is discounted stock prices, which means a higher cost of capital,” he added.

There are many excuses offered by companies, but here are a few:

• Cost & effort – As stated above, we’re talking about information that nearly every company uses on a daily basis to make business decisions, so the cost and effort of putting the data (which is always unaudited) into a press release once a month should be minimal. Even companies that years ago stopped reporting monthly sales, including Best Buy, Toys “R” Us and Barnes & Noble make sure to report monthly performance during the Holiday season. And Wal-Mart still manages to leak internal memos and discuss monthly results when they feel like it could benefit them.
• Stock price volatility & short-term trading – several companies have mentioned that they are eliminating outdated practices that encourage short-term decision-making and can confuse investors. However, as we have seen from companies that stopped reporting such as Aeropostale, the lack of timely information can lead to even larger plunges in stock prices later as investors aren’t armed with accurate information in between quarterly reports. If retail executives are making short-term decisions to juice same-store sales, that’s a separate issue entirely and changing reporting schedules isn’t going to solve a company’s woes.

Analysts are mixed on whether reporting on a monthly basis is beneficial to companies and shareholders, with two decidedly different views:

“The more information the better,” said Michael Baron, an analyst for Baron Capital Inc. in New York. “More information helps us determine the true value of the company.”

“As we have stated for some time, refraining from monthly comp reporting is a good way to align how management thinks about the business to the interest of long-term shareholders,” Wall Street Strategies analyst Brian Sozzi wrote in a research note late last year.

We are actually quite surprised there hasn’t been more of a backlash from shareholders. In fact, there has only been one significant example of a chain discontinuing monthly reporting only to be convinced by investors the decision was a mistake.

After a particularly tumultuous 2007 Holiday season, Macy’s announced it would no longer report monthly sales after January 2008:

“The numbers are increasingly confusing because of the calendar shifts,” Jim Sluzewski, a spokesman for Macy’s, told The New York Times. He added that the monthly numbers encourage “a short-term orientation, which is not the way to run a business.”

The company was forced to backtrack and once again began monthly reporting in October 2008:

“We want to provide investors as much information and transparency as possible,” said Terry J. Lundgren, Macy’s, Inc. chairman, president and chief executive office. “While we continue to believe that sales on a monthly basis are an incomplete and sometimes misleading measure of a retailer’s performance, we will again provide this information so investors have a sense of the direction of our business on a more frequent basis through this uncertain time.”

We are keenly that the retail environment remains extremely tough these days, and especially with the recent volatility on Wall Street companies are loath to give traders ammunition to affect sharp moves in their stock prices. We also appreciate the fact the same-store sales as a metric has many shortcomings, but there’s also a reason it dominates headlines and remains in the toolbox of analysts and investors after nearly 40 years.

It’s interesting to note that Mr. Sozzi of Wall Street Strategies somewhat changed his tune recently, telling TheStreet that “I use to think there was a benefit for retailers to move away from reporting monthly results since it often causes volatility in the stock, but your taking information away from investors who are used to having these numbers,”

Maybe companies should take a lesson from Costco, perhaps the most well-run and shareholder-friendly retailer in America who by the way continues to release detailed performance data and commentary every month.

The first thing executives at most chains mention is their obligation to drive shareholder returns. When Jim Sinegal, CEO of Costco lists the 4 core values of the company, investors are conspicuously absent: 1) Obey the law, 2) Take care of your customers, 3) Take care of your people, 4) Respect your suppliers.

In other words, successful retailers focus on what they can control: keeping consumers coming back with products they want at prices they can afford while offering them great service, all the while providing shareholders the information and transparency about what you’re doing and why you’re doing it. Everything else will take care of itself.

“Driving stock up from one day to the next is not what we are about. We are about building a good company and performing for the long term. I know everyone says that, that sounds trite when I repeat it that way, but that is and has always been our attitude about our business. If we do the right things, the stock price will take care of itself, and our shareholders will be rewarded. – Jim Sinegal

The International Council of Shopping Centers (ICSC) reported that chain store sales fell 1.5% compared to the prior week, the third consecutive decline and the steepest drop in 3 months, while growing 3.5% over the prior-year period during the week ending Aug 13th.

“Last week’s large scale stock market drops and wild volatility added to consumers concerns about the slowing and failing economy and as a result pulled back on their overall spending once again,” said Michael Niemira, ICSC’s vice president of research and chief economist. “The one positive is that gasoline prices dropped across the country last week, which might begin to restore some consumer confidence for the rest of the month—even though gasoline prices at the pump remain up about 31 percent from the same point in 2010,” Niemira added.

The Johnson Redbook Index rose 4.7% year-over year and Redbook noted that business is generally balanced between summer clearance and back-to-school/fall buying. Redbook analyst Catlin Levis said “As the school year nears, sales appear to be slightly above target year-to-ate, although the impact will be easier to assess next month as consumers are increasingly buying closer to need.”

Meanwhile, ShopperTrak saw a 3.6% gain over last year and 2.5% rise week-over-week. Bill Martin of ShopperTrak said “This week will be one of the biggest shopping weeks for Back-to-School. Back-to-School retail sales will then taper off as most students start their school year toward the end of August and during the beginning of September.”

E-Commerce Sales increased by doubled digits for the seventh straight quarter in Q2, according to the Dept. of Commerce. Online sales rose 17.6% during the 3 months ended June 30th to $47.5 billion and have risen 17.7% for the first six months of 2011 to $93.6 billion compared to last year.

Amazon continues to dominate online commerce – sale rose 51.0% in the 2nd quarter, its strongest quarterly growth in more than a decade – but traditional brick-and-mortar retailers are beefing up their e-commerce operations, opening distribution centers, revamping websites and integrating their stores more seamlessly into their online operations.

If second quarter results are any indication, it looks like their efforts are starting to pay off as they play catch-up: Kohl’s said e-commerce sales jumped 36%, Macy’s reported a 40.2% increase in online sales, Saks posted a 50% surge in their direct-to-consumer business and Nordstrom said on their quarterly conference call that 1/3 of all new customers come through their website.

Retail Earnings continue to be strong, with the majority of chains beating estimates and forecasting strong full-year guidance. One notable theme has been the separation of winners and losers, in contrast to the “rising tides lift all boats” we saw since the end of the recession. The best example would be the significant out-performance of Home Depot vs. Lowe’s.

Also, the results from Saks and Wal-Mart show the widening gap in the U.S. between affluent and low-income consumers.

Below are the quarterly results from those retailers who have reported earnings so far this week. We will try to update the scorecard as results come in, but with over 40 chains reporting this week alone, we might not catch up until the weekend. Click on the company name on the right toolbar for more a more detailed breakdown of performance.

Tuesday Retail & Consumer Reads:

• Apparel sales in the U.S. rose just under 1% in the first six months of 2011: mens up 4.6%, women’s lags down 0.8% (NPD)
• How Five Guys’ Became America’s Fastest Growing Restaurant Chain (BusinessWeek)
• Consumers Choose Wal-Mart as First Place to Shop for Back-to-School by 2 to 1 Margin (MediaPost)
• National Retail Real Estate Report: Retailer Demand Up, But Economy & RE Market at Crossroads (ChainLinks)
• Nordstrom dips its toes in New York market with new full-price concept Treasure&Bond (NY Times)
• Consumer Research: How Attractive Clothes Shoppers Affect Our Buying Habits (Time)
• U.S. Online Advertising Spending Will Increase 20.2% This Year To $31.3 Billion, Led By Retail & CPG (eMarketer)
• Economic ups and downs bring merchandising challenges for retailers trying to plan for the holiday season (Pittsburgh Post-Gazette)
• Results from Saks and Wal-Mart Show Widening Gap in U.S. Between Affluent and Low-Income Consumers (Reuters)
• Are Affluent Shoppers Back For Good? spending levels beginning to resemble the free-wheeling boom years (STLtoday)
• Following Similar Deal With 7-Eleven, T-Mobile to Sell Prepaid Phones & Service at Family Dollar Stores (cnet)
• Old Navy Makes Big Push into Multi-Billion Dollar Business of Sports Apparel and Merchandising (MarketWatch)
• Luxury retailer Barneys enlisting Lady Gaga to reinterpret Santa’s workshop as part of its holiday campaign (MarketingDaily)

”In addition to consumers feeling more concerned about the overall economy and financial markets, the abnormally hot weather as a spending catalyst did not benefit retailers, given the low and heavily discounted summer clearance inventory. The good news is that back-to-school spending got a lift from the 11 states holding their state sales tax holidays late in the week which lessened the overall negativity.” said Michael Niemira, ICSC’s vice president of research and chief economist.

Unfortunately, just about every consumer confidence index is flashing major warning signs for those hoping for a 2nd half resurgence in consumer spending:

• August Consumer Reports Index: Sentiment Plunges to Lowest Level Since December 2009
• U.S. Economic Confidence Plunges in Past Two Weeks to Level Not Seen Since March 2009 (Gallup)
• Discover US Spending Monitor Consumer Confidence Falls for 2nd Straight Month in July, Now at Lowest Since March 2009
• Thomson Reuters/University of Michigan Consumer Sentiment Index plunged in July to lowest level in more than 2 years

While it has been evident for some time the low and middle-income shopper has felt they never really recovered from the recession, wealthy consumers have been spending again like it was 1999.

High end chains such as Neiman Marcus, Saks and Tiffany have seen sales surge off recession lows. Two recent articles have highlighted the trend: Luxury Goods Continue to Shine (WSJ) & Even Marked Up, Luxury Goods Fly Off Shelves as the Rich are Buying Again (NY Times).

That strength has somewhat masked recent weakness at dollar and discount stores, but that could soon change. Last week’s Bloomberg Consumer Comfort Index release noted that Americans making more than $100k a year were the most pessimistic since November 2009 due to falling stock prices, and that was before the most recent carnage in equities.

In addition, Unity Marketing’s Luxury Consumption Index took its steepest quarterly plunge since the depths of the recession in the 2nd quarter.

“Unity Marketing’s LCI is a leading indicator of the economic activity among the most well-to-do.  If those at the top income levels feel stressed and unwilling to spend, imagine what it says about people living in middle-income households.  We stand on the precipice of a double-dip recession, if the affluent consumer’s confidence doesn’t turn up in the next quarter,” says Pam Danziger, president of Unity Marketing.

Finally, an article in USA Today notes that tumbling stock prices could especially depress spending by wealthier consumers, as 80% of stocks belong to the richest 10% of Americans, and the richest 20% represent about 40% of consumer spending.

We will get a better idea of spending during July when the Commerce Department reports retail sales figures on Friday, and retail earnings season will kick off tomorrow with reports from chains including Macy’s and Polo Ralph Lauren.

Whereas last quarter the focus was on commodity price pressures and margins, this time around everyone will be focused on possible cuts in earnings guidance and executive commentary on how the recent turmoil will affect 2nd-half expectations.


Tuesday Reading List:

• Study highlights the emergence of social and mobile as shopping tools (Internet Retailer)
• eBay will launch branded outlet stores in September offering a differentiated shopping experience (eCommerce Bytes)
• The Link Between Back-to-School and Holiday Sales – Does it Still Exist? (BDO Consumer)
• Retailers have passed through apparel price increases more successfully than most people anticipated several months ago (Bloomberg)
• For Retailers Cash Is King in Downgrade Pinch (Portfolio.com)
• Specialty retailer Rue21 makes big push with ‘fast fashion,’ low cost (Pittsburgh Tribune Review)
• Having Conquered the Athletic Apparel Market, Under Armour Turns Its Attention to Shoes (NY Times)
• Retailers must change the way they think about and build their brands, or face extinction (Business Insider)
• U.S. Retail E-commerce Spending Up 14% vs. Year Ago In 2nd Quarter to $37.5 Billion (comScore)
• Survey Shows North American Consumers Value Self-Checkouts Above All Other Grocery Store Technologies (Empathica)
• Charming Shoppes President Bill Bass on social media, cross-channel strategies and tips for driving in-store traffic (Shop.org)