Dec. 30 (Bloomberg) -- In a holiday season when retailers crawled back from last year’s record decline, three U.S. clothing chains stood out as winners.
Aeropostale Inc.,Nordstrom Inc. and Kohl’s Corp. promoted lower prices on specific merchandise and managed inventory to outpace industry sales in November. They will probably say next week those gains continued in December, according to Liz Dunn, an analyst at Thomas Weisel Partners LLC in New York.
“They all did execute pretty well in response to the slowing consumer,” said david Abella, a portfolio manager with Rochdale Investment Management LLC in New York who holds shares of Aeropostale and Nordstrom. “If retail sales pick up broadly, they should get outsized gains at the expense of competitors.”
Teen retailer Aeropostale boosted sales by offering $10 hooded sweatshirts for two hours on Black Friday, the biggest shopping day of the year. By contrast, Abercrombie & Fitch Co.’s main holiday promotion was a $25 gift card on $100 in purchases, more than customers were willing to spend, said Thomas Weisel’s Dunn. Nordstrom made fewer cuts to inventory to capture more revenue than Saks Inc., the luxury retailer that reported a 26 percent drop in November same-store sales.
Consumer confidence improved for a second month in December, from a record low in February after unemployment and cratering home values led to a freeze in spending. Retailers’ sales may increase as much as 3.5 percent next year, the International Council of Shopping Centers forecast yesterday.
Balancing Act
Aeropostale’s sales for the day of the sweatshirt promotion and the following Saturday rose 10 percent from a year earlier at comparable stores and gross margins, a measure of profitability, also increased, the New York-based company said.
“Our success this year has come from focusing on the right gift items and balancing fashion and value,” President Mindy Meads, 57, who will become co-chief executive officer next month, said in a telephone interview.
Abercrombie & Fitch’s gift-card offer, which started Nov. 24, is the promotion on which Abercrombie has focused the most, said Eric Cerny, a spokesman for the New Albany, Ohio-based company. He declined to comment on its results.
Aeropostale, Nordstrom and Kohl’s sell basic clothes like sweaters, coats, boots and pajamas that have topped consumers’ gift lists in the economic slowdown, according to retail analysts. Shoppers planned to purchase those items because they are practical, according to a survey conducted last month by the ICSC, a New York-based trade group.
“They are rewriting the playbook a bit,” Dunn at Thomas Weisel said. “The emphasis on value is certainly something new and something we have not seen in the last 10 years.”
No Leftovers
Wal-Mart Stores Inc., the world’s biggest retailer, was among retailers to come out early with discounts. The Bentonville, Arkansas-based company said on Sept. 30 it cut prices on more than 100 toys to $10 or less to “kick off holiday shopping.” The company doesn’t report monthly same- store sales and has forecast sales may rise as much as 1 percent for the 13 weeks ending Jan. 29.
While retailers focused on promotions, they also reduced inventory to avoid the markdowns of as much as 80 percent they had to make on leftover merchandise last year. Saks may have cut too deeply and missed out on sales, said Craig Johnson, president of New Canaan, Connecticut-based consulting firm Customer Growth Partners LLC.
“Nordstrom is doing better because they cut inventory back just a little bit,” Johnson said. “They are not taking a meat cleaver to it.”
Trimming Inventory
Nordstrom’s inventory fell 6.7 percent as of Oct. 31, compared with a 21 percent drop at Saks. Nordstrom may also report an increase in fourth-quarter gross margin, Barbara Wyckoff, an analyst at Jesup & Lamont in New York, said in a Dec. 18 note. She recommends buying Nordstrom shares.
“We’ve been encouraged by our sales results,” said Colin Johnson, a spokesman at Seattle-based Nordstrom.
Saks is comfortable with its inventory levels, said Julia Bentley, a spokeswoman. The cuts helped the company post a profit in the third quarter, compared with a year-earlier loss.
The 30-member Standard & Poor’s 500 Retailing Index has gained 50 percent this year as improving consumer sentiment helped chains. Nordstrom’s stock almost tripled, outpacing Saks’s 58 percent rise this year. Aeropostale more than doubled, compared with Abercrombie & Fitch’s 54 percent gain. Kohl’s, based in Menomonee Falls, Wisconsin, increased 53 percent.
Kohl’s Strategy
Kohl’s has taken market share from department-store chains including J.C. Penney Co. by offering a range of apparel, housewares, electronics and jewelry at better prices, said Abella, the investor at Rochdale Investment Management.
J.C. Penney was encouraged by stronger shopper traffic trends at the malls over the holidays, particularly in response to its promotions, said Darcie Brossart, a company spokeswoman.
December same-same sales at Kohl's may rise 2 percent, compared with a 4 percent drop by Plano, Texas-based J.C. Penney, according to estimates from Thomas Weisel’s Dunn. In November, Kohl’s sales advanced 3.3 percent, topping analysts’ estimates, while J.C. Penney reported a 5.9 percent decline.
“Smart companies build market share during tough times,” said Johnson, the Customer Growth consultant. “The winners this season are those who are investing in their business.”
COMMENTARY: Although I hate to shop, Aeropostale Inc.,Nordstrom Inc. and Kohl’s Corp are three of my favorite retailer's, although Nordstrom's piano music player is a bit too much for me. I much prefer jazz.
Kohl's took the advantage of the recession, buying up many of the now defunct Mervyn's store properties at bargain basement prices. A risky proposition, but they apparently have the right marketing and inventory management strategies in place.
Aeropostale, Inc., is a big hit with today's Millennial's and it is hard to find one of these youngun's that doesn't shop there.
Nordstrom's has always prided itself by offering great customer service and quality merchandise. If you are looking for discounted prices, forget Nordstrom's, but their formula for success cannot be beat.
Courtesy of an article dated December 30, 2009 appearing in Bloombergs
Comments