Best Christmas in a decade still leaves some stores behind
THE GOOD news for US retailers is that the just- ended Christmas shopping season was probably the best one in a decade.
The bad news? Some chains are still struggling to benefit from the industry’s upswing.
The owner of Victoria’s Secret posted disappointing sales for December, and preliminary Macy’s results didn’t thrill investors last Thursday. J.C. Penney also got a tepid reaction to its holiday performance, despite same-store sales climbing 3.4 per cent over the last nine weeks of the year.
Consumer confidence is high, unemployment is low, and Americans are increasing spending – with some thirdparty data showing holiday purchases up about five per cent. But what Christmas 2017 may end up crystalising is that a rising tide doesn’t lift all boats.
A few major retailers, including Amazon.com Inc., Wal-Mart Stores Inc. and Home Depot Inc., are expected to reap an oversized share of the gains.
For department- store chains and apparel sellers, it may be increasingly hard to please investors – leading to more doomsday talk for the brick-andmortar sector.
“The money and the sales are gravitating toward fewer and fewer players,” said Ken Perkins, president of research firm Retail Metrics Inc.
“There are a lot of tailwinds behind these retailers, but they aren’t generating a whole lot of profit growth.”
The uncertainties have kept Wall Street analysts from fully feeling the Christmas cheer. They have estimated that retail earnings will rise a tepid 2.7 per cent in the fourth quarter, according to Retail Metrics.
The forecast climbed half a percentage point over the past month, but it’s still far from the 11 per cent profit gain expected for the entire Standard & Poor’s 500 Index.
Macy’s and J.C. Penney both saw their shares plunge last year, leaving room for upside if their holiday seasons were a pleasant surprise. But so far, their results haven’t been enough to elate investors.
Macy’s reported same- store sales growth of 1.1 per cent for November and December. It also announced the closing of 11 stores, four of which had previously been disclosed.
The shares were little changed in early trading last Thursday.
At J.C. Penney, shares also were roughly flat in the wake of its holiday sales update. That’s despite a rosy tone by Chief Executive Officer Marvin Ellison, who sees apparel and other categories rebounding.
Broadly speaking, there’s plenty for investors to be excited about. Craig Johnson, head of Customer Growth Partners, predicted last month that holiday sales would gain 5.6 per cent. That would be the best growth since 2005.
The industry posted a 6.1 per cent increase that year, when the economy was still thriving and a hot housing market was
The money and the sales are gravitating toward fewer and fewer players. There are a lot of tailwinds behind these retailers, but they aren’t generating a whole lot of profit growth. Ken Perkins, president of research firm Retail Metrics Inc.
boosting spending. “This retail recovery this season is about as good as it gets,” Johnson said. “It was a stellar season.”
Still, the holiday period was starkly different than it was in 2005. Chains in enclosed malls, which are anchored by struggling department stores, are still seeing fewer visitors.
Those disparities played out in December, according to First Data’s SpendTrend. Samestore sales at department stores through Dec 25 declined more than six per cent.
Men’s and women’s clothing chains fell one per cent.
Meanwhile, discounters, shoe stores, electronics outlets and luxury brands all gained.
Retail also missed out on a lot of discretionary spending. The industry gained 3.1 per cent in November and just 1.5 per cent last month, according to First Data. Overall purchases– including restaurants, grocery and gasoline – rose 5.3 per cent each month.
Americans are still shying away from conspicuous consumption, according to Sarah Quinlan, senior vice president at Mastercard Inc., which tracks purchasing patterns.
People are spending on their homes, because values are going up and they see it as an investment. They’re also purchasing more experiences, like travel and activities, she said.
“They don’t overbuy,” Quinlan said. People are avoiding “stuff they don’t need.”
One variable is how much the recent tax overhaul figured into shoppers’ decisions.
Though the legislation might not have made a big difference for holiday consumers, it could help fuel retail spending in 2018 if Americans find more money in their pay cheques, Johnson said.
“These are all the ingredients for a sustained retail boom over the next year, and possibly into 2019,” he said. — WPBloomberg