Here’s why some US retailers did not have awful holidays

Here’s why some US retailers did not have awful holidays

It is already clear that the fourth quarter will be rough for many retailers, but there are some notable counter-currents running beneath the broader negative narrative

Shares of several companies tumbled January 5, 2017 after disappointing holiday sales reports from Macy’s, Kohl’s and L Brands. The news wasn’t all bad. Gap said late Thursday that comparable sales rose in November and December and were up a better-than-expected 4 % for December alone. That helped retail stocks recover some lost ground on January 6, 2017.

The results came just a few days after Heard on the Street paid its sixth and final visit to bricks-and-mortar locations for four retailers—Macy’s, J.C. Penney, Ralph Lauren and Gap. We have been tracking prices on a basket of five items at each store to see whether low inventory has helped retailers avoid discounting. Those that have offered business updates so far shed some light on the best way to interpret our pricing data and the potential read-across for the industry. They also highlight why discounting, in and of itself, isn’t necessarily a bad sign.

US Retail

Gap’s successful December was driven primarily by 12 % growth at Old Navy, which wasn’t part of our pricing experiment. But the Gap brand also posted 1 % growth. We had been focusing on the frequent 40% and 50% storewide discounts at Gap, but these were likely planned promotions. The Gap brand was more promotional than the previous year during the period from Dec. 8 to 12, according to data collected by Instinet. But its promotions later in the month weren’t measurably more aggressive than in 2015.

Moreover, the discounting seems to have at least partly achieved its intended goal. After our final visit Tuesday, Gap had sold out of two of the five items we were tracking—more than any of the other retailers. Notably, those were the scarf and the hooded parka, suggesting that Gap did a decent job unloading giftable items and cold-weather gear.

Macy’s said weakness in handbags and watches was responsible for its sales miss. Pricing for the Michael Kors handbag we were tracking varied wildly throughout the six-week period, swinging from 50%-off to full price and then falling again. The bag has been selling for at least 25%-off for the past three weeks. Our Fossil smartwatch data was less conclusive. It was marked down for three of our six visits, but it has been at full price since Christmas.

Penney said on January 6, 2017, that its same-store sales fell a worse-than-expected 0.8 % in November and December. While its constant discounts were likely planned promotions, lower prices post-Christmas on the sweater and the slippers may have indicated some excess supply.

What does this all mean for Ralph Lauren? It isn’t a good sign that the leather pants and the parka were marked down this week at Ralph Lauren. And the reappearance of the scarf, which appeared to be sold out the previous week, suggests Ralph Lauren didn’t do so well with giftable items.

But its 30 %-off everything sale, which ran for two weeks, probably shouldn’t be a warning sign for investors. And shares of Ralph Lauren are already down 17 % over the past month, suggesting a lot of bad news may already be priced in.

There could be more retail surprises in store for investors expecting the worst.


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