Comp Store Sales - Weather, Sequestration and the Economy

May 16 2013 by Joe Callahan

Ingredients such as inclement weather, worries over the effects of sequestration, and the continued slow pace of the U.S. economic recovery combined to form a recipe for tepid comparable store sales over the last 3 quarters. But these weren’t the only factors that led to these underwhelming results.

How did department stores, specialty/vertically integrated retailers and mass merchants fare during this timeframe? Let’s take a closer look.

Department Stores

Department stores have always been the multi-taskers of retailing, offering a wide array of products – from money-graphhousewares and jewelry to apparel and beauty – within a spacious environment. Hit hard by the recession, department stores have rebounded nicely over the last year as they continue to adapt and expand merchandise assortments, while making the stores themselves more of a destination.

For the quarter ending in October 2012, on average, comp store sales for department stores were down 2.2%. However, you may have heard about a company called JC Penney that ran into some “challenges” last year. Those challenges resulted in a negative 26.1% comp store sales figure for the quarter. If you take jcp’s number out of the equation, the average swings to a positive 5.1 %.

For the quarter ending January 2013, excluding jcp, the average comp sales increase for department stores was 6.6%, buoyed by double-digit quarterly comp increases from:

  • Kohl’s - 13.3%
  • Macy’s - 11.7%
  • Nordstrom - 11.4%
  • Stage Stores - 10.8%

Obviously all eyes will continue to be focused on jcp and the effect returning CEO Mike Ullman will have on the struggling department store. Will he be able to bring this once great U.S. institution back from the brink, or is it too little, too late?

Specialty/Vertically Integrated Retailers

Encompassing teen retailers, fast fashion companies, athletics and men’s formal wear, this category is highly competitive, particularly in the teen category. 

For the quarters ending October 2012 and January 2013, the category average comp increases were 5.1% and 1.9% respectively. Here are some of the winners from the quarter ending January 2013:

  • American Eagle – Up 4%
  • Anthropologie – Up 7%
  • Chico’s – Up 7%
  • Urban Outfitters – Up 11%
  • White House/Black Market – Up 6.3%

Fast Fashion Fatigue? Not so fast.

Several companies in this category are considered “fast fashion.” In recent months, H&M, a worldwide fast fashion behemoth, spoke about the tremendous upside in the U.S. market. But there is one company that is quietly growing like crazy and is becoming a major threat to the rest of the industry: Forever 21.

Forever 21 does not report comp store sales, but their growth and presence in the market is hard to miss. Discussing their growth, analysts at Bank of America stated, “Forever 21 is becoming too big for the specialty retailers to ignore. At this size, rapid growth could have ripple effects on the other retailers as Forever 21 takes more share.” Forever 21 is faster and cheaper than its competitors and has expanded its customer base to all members of the family – not just teens.

Mass Merchants

For the quarters ending October 2012 and January 2013, the category average for mass merchants was up a paltry 0.9% and 0.7% respectively. Companies like Sam’s Club, Walmart and Target all posted low single digit comp store sales. The drag in this segment came from Kmart, which was down 4.8% and 3.7% over the same two quarters.

Walmart and Sam’s Club have long competed for shoppers. They both maintain a one-stop, stock-up appeal, with overlapping geographic reach and building which frequently share the same parking lot. Although competition between these formats is not new, it is intensifying as they seek to capture a greater share of a diminishing stock-up trip.

Unfortunately, Walmart and Sam’s Club also share an overlapping target audience. For more than a year, Walmart has placed a renewed emphasis on price-sensitive higher-income shoppers, who are likely to cross-shop between Walmart and clubs. According to ShopperScape®, 59% of past-four week Costco shoppers also shopped at Walmart in the same timeframe. In addition, Target is the #2 cross-shop destination for more affluent Walmart shoppers, with 53% of higher-income Walmart shoppers also shopping at Target in the past four weeks, according to ShopperScape®.  It appears Walmart is using both its Supercenter and Club formats to combat Target and Costco’s bulk-pack, stock-up appeals.

A look ahead

Three department stores released earnings for the latest quarter.  Although not as strong as the previous quarter, most indicators in this segment are positive:

  • Macy’s – Up 3.8%
  • Ross Stores – Up 7%
  • Kohl’s – Down 1.9%

Although comp store sales were down at Kohl’s, gross margin was up, mirroring Macy’s numbers. "After a slow start, sales improved considerably in April as the weather finally improved in our most weather-sensitive regions," Kohl's Chief Executive Kevin Mansell said in a statement.

Offering the right mix of name brand and private label products, department stores have incorporated e-commerce, mobile shopping and social engagement into a compelling store environment, and consumers are responding.

As with the department stores, comp store sales results for the most recent quarter in the specialty/vertically-integrated segment were not quite as strong as the previous quarter, although generally positive:

  • Limited Brands – Up 3%
  • The Buckle – Up 1.2%
  • American Apparel – Up 5%

International expansion has become a core growth strategy for many companies in this space. Gap has increased its national presence in some 40 countries over the last 6 years. The company will begin franchising with its Old Navy brand in the newly-entered Asian markets. In addition, Gap is going to target China initially to franchise up to 75 stores by the end of this year.

Similarly, in an effort to enhance its profit numbers, American Eagle Outfitters is planning on expanding in Eastern Europe, Northern Africa, and various parts of Asia.

With economic conditions in Europe and Asia mirroring the U.S., international expansion could prove to be far more challenging than companies anticipate.

Recent quarter comp store sales numbers in the mass merchant space may be the most interesting to review:

  • Costco – Up 6%
  • Walmart – Down 1.4%
  • Target – 0%

With Walmart and Costco flat to down, is Costco taking market share from them? Or perhaps Dollar General and Family Dollar, both with positive comps for the last three quarters, are benefiting from the economic pinch the Walmart and Target customer are feeling.

It’s clear that the election, sequestration, fickle weather and the stagnant economy all played a part in making comp store sales “weak.” But in the case of the segments mentioned here, missteps in management and healthy competition played a significant part in the “less than desirable” results.

Department Store  weather  economic recovery  Fast Fashion  comp store sales

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