Chain stores get ‘big lump of coal’
In an unexpected step backward, the nation’s leading retailers suffered a sales slump in November -- a poor start to the holiday season and an ominous sign for the fragile economic recovery.
After two months of positive sales reports that spurred hopes that an industry turnaround was at hand, major chain stores posted a 0.3% decline from a year earlier, the International Council of Shopping Centers said Thursday.
Department store giant Macy’s Inc., teen retailer Abercrombie & Fitch Co. and luxury seller Saks Inc. all reported declines. Most of the 32 chains tallied by the shopping center council, a trade group that has tracked monthly sales data for four decades, missed Wall Street expectations.
“Santa delivers a big lump of coal in November,” said Ken Perkins, president of research company Retail Metrics Inc. “It is a big disappointment. It is certainly further evidence that any recovery we have is going to be business- and capital spending-led; it’s not coming on the backs of the consumer.”
With Christmas just three weeks away, retailers are scrambling to step up their efforts. The holiday season is a cutthroat time for the industry because about 30% to 40% of a retailer’s annual profits are earned during November and December, Perkins said.
But low inventory this year means many stores don’t have much room to slash prices further. And that could spell deeper trouble because many frugal consumers are shopping only for deals this holiday season.
“If it’s not on sale, I probably wouldn’t even go for it. Not this year,” said Abel Polanco, 29, a technical support analyst from Whittier. “Point being, I don’t want to pay for anything at full retail price.”
Last month’s setback was surprising because industry watchers had figured it would be easy to beat the results of November 2008, when sales plummeted 7.7%.
The shopping center council had originally predicted that sales would rise 5% to 8% in November; this week it trimmed that estimate but still called for a 3% to 4% gain. (Thomson Reuters calculated last month’s figure as rising a slight 0.5%, which still missed expectations.)
The results were even more disappointing given retailers’ early discounts, increased ad spending and sweeping offers on the day after Thanksgiving that included freebies and deep markdowns.
Although retailers got a boost on Cyber Monday -- online sales rose 13.7% from the same day last year, according to analyst Coremetrics -- sales on Black Friday were lackluster. Industry watchers consider business at physical stores to be more important because online sales constitute only about 5% to 8% of overall retail sales.
Millions of shoppers turned out in force at the malls on Black Friday, but they spent less on average and pushed sales up just 0.5% to $10.66 billion, according to research firm ShopperTrak RCT Corp.
That slight gain wasn’t enough to offset the weakness that had set in earlier in the month, partly because of warm weather across the country that gave people little reason to shop for winter clothing.
“Who’s going to go out in their right mind and buy boots, hats, coats, sweaters?” Perkins said. “It really puts a damper on apparel expenditure.”
Department stores and youth-oriented apparel retailers were the worst-performing sectors last month, according to Thomson Reuters.
After posting a modest 0.7% gain in October, Saks saw sales fall a massive 26.1% in November compared with a year earlier. Macy’s reported a 6.1% drop and J.C. Penney Co. said sales fell 5.9%.
In the teen sector, sales fell 17% at Abercrombie, 11.7% at Hot Topic Inc. and 2% at American Eagle Outfitters Inc.
Results are based on sales at stores open at least a year, which are known as same-store sales and are considered an important measure of a retailer’s health because they exclude the effect of new locations.
Not surprisingly, retailers that sell discounted or value-priced merchandise continued to do better than their full-price competitors.
Off-price retailers Ross Stores Inc. and TJX Cos., parent to the T.J. Maxx and Marshalls chains, each posted an 8% increase. Teen retailer Aeropostale Inc., which sells less-pricey merchandise than rivals Abercrombie and American Eagle, saw sales rise 7%. Costco Wholesale Corp. reported a 6% increase.
Sales at San Francisco-based Gap Inc. were unchanged from a year earlier, although the company’s lower-priced Old Navy brand reported a 6% increase.
“We’re pleased that we continued to meet our objective of improving our sales trend and we did it with merchandise margins significantly above last year,” Chief Financial Officer Sabrina Simmons said.
Retail behemoth Wal-Mart Stores Inc., the world’s largest retailer, no longer releases monthly sales data.
Analysts said government retail sales numbers, scheduled to be released next week, would provide a broader view of consumer spending because they include results from electronics chains and grocery stores. Those statistics also cover non-holiday categories such as gasoline and auto sales.
As Christmas approaches, retailers will have to retrench quickly and figure out how to entice shoppers to spend, said Liz Dunn, a retail analyst at Thomas Weisel Partners.
“It’s a little bit of a game of chicken between the retailer and the consumer in terms of who breaks first,” she said. “It’s going to be a nailbiter, and it’s going to come down to the last week before Christmas.”
Many shoppers said that until the economic picture improves, they will continue to spend frugally.
Kelly Francis, 58, said she was cutting her Christmas budget in half this year, to $500, and was making more presents. The Encino resident was at the Westfield Topanga shopping center this week to look for affordable gifts for her nieces and nephews.
“I usually try to spoil them, but this year they’re not going to get spoiled as much,” she said. “And they’re just going to have to deal with it.”