De­spite prof­itable hol­i­days, re­tail­ers face chal­lenges in 2018


NEW YORK — Re­tail­ers are rid­ing high af­ter ebul­lient U.S. con­sumers shopped at the health­i­est pace in more than a decade over the hol­i­day sea­son. But mer­chants can’t af­ford to rest easy.

None of the pres­sure on them has eased, and the fight for cus­tomers’ at­ten­tion will only in­ten­sify. Re­tail­ers try­ing to hold their own against an ex­pand­ing Ama­zon will have to keep spruc­ing up their stores and in­vest­ing in the quick de­liv­ery that shop­pers want. Those kinds of moves may bite into their prof­its, but they’ll save money from tax changes.

Store clo­sures, al­ready at a post-re­ces­sion high, could keep com­ing. And in a sign of just how crit­i­cal it is that stores get de­liv­ery right, Wal­mart’s Sam’s Club says it’s con­vert­ing some of the lo­ca­tions it’s clos­ing into e-com­merce ful­fill­ment cen­ters. Com­pa­nies try­ing to lever­age their stores may think about fol­low­ing.

Sev­eral re­tail­ers in­clud­ing Tar­get, Kohl’s, and J.C. Pen­ney re­ported solid hol­i­day sales gains. Re­tail sales rose 0.4 per­cent in De­cem­ber, the Com­merce De­part­ment said Fri­day, af­ter a 0.9 per­cent surge in Novem­ber. Those fig­ures in­clude on­line sales.

Spend­ing for the two months com­bined was the best since 2005, ac­cord­ing to IHS Markit, an eco­nomic con­sult­ing firm. Sales at home and gar­den stores and at restau­rants and bars did well.

And the Na­tional Re­tail Fed­er­a­tion trade group said that by its mea­sure, which ex­clude sales from au­tos, gas and restau­rants and in­cludes non­store sales like those from cat­a­logs, hol­i­day spend­ing rose a bet­ter-than-ex­pected 5.5 per­cent. That sailed past the group’s orig­i­nal pro­jec­tions and marked the big­gest in­crease since the 5.2 per­cent gain in 2010. On­line shop­ping, which is in­cluded in the re­sults, in­creased 11.5 per­cent.

“It was cer­tainly a vi­brant sea­son,” said Jack Klein­henz, chief econ­o­mist at the NRF. “This will charge the bat­ter­ies of con­sump­tion for 2018.”

Klein­henz be­lieves the tax changes will help to bump up spend­ing this year. Stores will be fight­ing hard for that spend­ing, as Ama­zon scoops up much of the growth. Re­tail­ers have been re-ex­am­in­ing ways to use their stores.

Tar­get has said that 70 per­cent of its on­line sales in Novem­ber and De­cem­ber were ful­filled by stores that were used ei­ther to ship on­line or­ders or as pickup points for cus­tomers who or­dered on­line. The com­pany is now ship­ping on­line or­ders from 1,400 of its 1,800 stores to of­fer faster de­liv­ery.

Tom McGee, pres­i­dent and CEO of the In­ter­na­tional Coun­cil of Shop­ping Cen­ters, says of those hol­i­day shop­pers polled who or­dered goods on­line and picked them up at the store, 90 per­cent bought more once they were at the stores.

And re­tail­ers other than Ama­zon are try­ing to ex­pand their op­tions to of­fer same-day de­liv­ery. Macy’s and Best Buy are us­ing star­tups like De­liv. Tar­get re­cently ac­quired Shipt, which will mean same-day de­liv­ery ser­vices from about half of its stores early this year. And Wal­mart bought a startup called Par­cel as it aims to of­fer same-day de­liv­ery to New York­ers.

And Wal­mart, which has been buy­ing smaller on­line com­pa­nies and try­ing to strengthen its hand against Ama­zon, is con­vert­ing about 10 of the 63 Sam’s Clubs it is clos­ing into e-com­merce cen­ters.

“As re­tail con­tin­ues to evolve, we be­lieve these phys­i­cal as­sets will be sub­ject to stricter scru­tiny as to their role in each com­pany’s over­all strate­gic plan, with ‘prun­ing’ and re-al­lo­ca­tion such as Wal­mart is do­ing with Sam’s the rule rather than the ex­cep­tion,” said Charles O’Shea, Moody’s lead re­tail an­a­lyst.

It’s not some­thing ev­ery re­tailer can do. Ken Perkins, pres­i­dent of re­search firm Re­tail Met­rics, be­lieves that only big-box re­tail­ers could con­vert stores into ful­fill­ment cen­ters be­cause of the sheer size needed.

A lot of prun­ing has al­ready taken place in a tu­mul­tuous year for re­tail­ers. Fifty re­tail­ers filed for bank­ruptcy last year, ac­cord­ing to S&P Global Mar­ket In­tel­li­gence. Many of them were very small com­pa­nies but they in­cluded well-known brands like Pay­less ShoeSource and Toys R Us.

The num­ber of an­nounced store clo­sures came to nearly 7,000, ac­cord­ing to Fung Global Re­tail & Tech­nol­ogy, which ex­ceeded the 2008 peak of 6,200. Perkins ex­pects the num­ber of store clo­sures should be sim­i­lar this year com­pared to last year. The most dra­matic store prun­ing will likely come from longstrug­gling chains like Sears Hold­ings Corp., which owns Kmart and Sears stores. The com­pany keeps se­cur­ing more fund­ing while clos­ing more stores to keep afloat.

An­a­lysts are keep­ing an eye on re­tail­ers sad­dled with heavy debt loads be­cause of lever­aged buy­outs. Among those on Moody’s watch list are Nine West Hold­ings, J. Crew and Bon-Ton Stores Inc. The Wall Street Jour­nal, cit­ing peo­ple fa­mil­iar with the mat­ter, re­ported Fri­day that Bon-Ton is con­tin­u­ing dis­cus­sions with its debt hold­ers as it gets ready for a likely bank­ruptcy as soon as Fe­bru­ary.

AP photo

Sev­eral re­tail­ers in­clud­ing Tar­get, Kohl’s, and J.C. Pen­ney re­ported solid hol­i­day sales gains. Re­tail sales rose 0.4 per­cent in De­cem­ber, the Com­merce De­part­ment said Fri­day, af­ter a 0.9 per­cent surge in Novem­ber. Those fig­ures in­clude on­line sales.

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