Ring­ing tills shows there’s still life in brick-and-mor­tar re­tail

Irish Independent - Business Week - - Interview - Sara Halzack

IN re­cent years, the US re­tail earn­ings sea­son has typ­i­cally had a some­what fu­ne­real tenor. Old-school chains have re­peat­edly put up spotty (if not shoddy) re­sults and of­fered un­con­vinc­ing ex­cuses for poor per­for­mance, rais­ing ques­tions about their vi­a­bil­ity in the era of Ama­zon.

But this time around, things are look­ing … gasp … kind of good. Could it be that re­tail­ers are fig­ur­ing it out? The clear­est signs of strength have come from the big-box cat­e­gory, where Wal­mart posted its best com­pa­ra­ble sales growth in more than a decade and Amer­ica’s Tar­get Cor­po­ra­tion roared with its big­gest in­crease on this met­ric in more than 13 years. Those two, though, didn’t have a mo­nop­oly on the re­tail cheer.

Up­mar­ket re­tailer Nord­strom saw solid re­sults at both its depart­ment stores and off-price con­cept, and Ur­ban Out­fit­ters saw eye-pop­ping dou­ble-digit in­creases in com­pa­ra­ble sales growth at its name­sake chain as well as An­thro­polo­gie and Free Peo­ple. And here’s the good news for in­vestors: I don’t think the up­beat con­sumer en­vi­ron­ment alone is enough to ex­plain the broad strength of these num­bers. They also of­fer com­pelling ev­i­dence that well-run com­pa­nies are start­ing to get a han­dle on re­tail­ing in a dig­i­tal world. Here are a few de­tails that helped bring me to that con­clu­sion:

Tar­get ex­ec­u­tives em­pha­sised an im­por­tant de­tail on their con­fer­ence call with in­vestors: They say the re­tailer gained mar­ket share in the quar­ter in all of their core cat­e­gories, in­clud­ing home and ap­parel. Wal­mart, too, said it gained share in the gro­cery seg­ment – which is im­por­tant as this di­vi­sion ac­counts for more than half its US sales. The take­away here is that these chains weren’t just ben­e­fit­ing from bet­ter con­sumer sen­ti­ment – they were out­ma­noeu­vring their com­peti­tors and tak­ing busi­ness from them.

Ur­ban Out­fit­ters saw a ro­bust 20pc in­crease in gross profit this quar­ter over a year ear­lier. A big fac­tor was lower mark­downs across all its ma­jor brands. At its epony­mous chain, the com­pany said it recorded its low­est-ever mark­down rate for a sec­ond quar­ter.

At the same time, the com­pany said its in­ven­tory turns in the brand were its fastest ever, mean­ing it was fre­quently get­ting fresh styles in front of shop­pers.

There were echoes of sim­i­lar themes from other chains, too. Kohl’s said its gross mar­gin was boosted by bet­ter in­ven­tory man­age­ment and fewer mark­downs. Macy’s saw a 5pc in­crease in av­er­age unit re­tail in the first half of the year as it did more reg­u­larprice sell­ing. These are pow­er­ful in­di­ca­tions that the old guard has come a long way in adapt­ing to the new pace set by fast-fash­ion chains and fickle shop­pers. They will keep reap­ing the re­wards of those changes in quar­ters to come.

Even amid all the good news in the re­tail sec­tor in the sec­ond quar­ter, there were some face plants. L Brands, the cor­po­rate par­ent of Vic­to­ria’s Se­cret and Bath & Body Works, turned in a poor per­for­mance at its Pink brand that made it harder to see a path for a turn­around.

Gap’s stock was pun­ished as weak per­for­mance per­sisted at its name­sake chain.

In other words, not ev­ery­body ben­e­fited from this en­vi­ron­ment. So the ones who did were ob­vi­ously of­fer­ing con­sumers some­thing com­pelling — a great price, a fun ex­pe­ri­ence, en­tic­ing mer­chan­dise, or some com­bi­na­tion thereof.

We’ve seen this win­ner­sand-losers dy­namic for a while now in re­tail, but it is es­pe­cially pro­nounced this quar­ter. The chains in the win­ner cat­e­gory are there be­cause they’re do­ing some­thing right.

Re­tail, of course, will con­tinue to go through spasms as it en­dures on­cein-a-gen­er­a­tion change. But this quar­ter made me more con­fi­dent that brick-and­mor­tar shop­ping can still be a vi­brant busi­ness, and that old re­tail dogs can learn new tricks. (Bloomberg Opin­ion)

Macy’s saw a 5pc in­crease in av­er­age unit re­tail in the first half

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