Retailers Receive a Lump of Coal from Holiday Shoppers
This morning’s big news was the poor showing by retailers during the holiday shopping season, with retailers ranging from Nordstrom, Kohl’s, Circuit City, Target, and Macy’s all showing a YoY decrease in sales. In fact, 10 out of the 17 retailers tracked by the WSJ showed YoY decreases in sales, especially those within the apparel segment. Although November’s chart doesn’t represent the same exact retailers, only 2 of the 17 showed YoY declines for November. One explanation for the stark difference between November’s sales and December’s, is that consumers concentrated their spending around Black Friday’s sales and pulled back over the course of the rest of the holiday shopping season.
Nordstrom showing a YoY decrease in sales despite its base of high income customers indicates that those customers are either tightening their wallets, or last year’s sales were inflated by the housing “Wealth effect”/middle income consumers spending up.
Wal-Mart’s sales were in line with its estimate of 2-3% however it’s important to recognize that grocery and pharmacy sales drove well over ½ of that amount (judging by Q3s numbers), indicating that inflation played a significant part in their results.
Costco also had strong holiday season showing a YoY sales increase of 4% in the U.S., and 16% internationally (helped by the weak dollar). However, just like Wal-Mart Costco’s revenue numbers were also “goosed” by grocery and healthcare inflation.
Circuit City’s abysmal showing is nothing more than an indicator of a management team that is completely out of touch with its market segment and customers, when you consider the success other retailers are having selling electronics. If you can’t make money in a hot segment like electronics by selling nearly identical product line-ups as your competitors for very similar prices, it’s not the market it’s you. CC needs a complete top to bottom overall, if the company is going to remain viable.
A great place to start would be to improve the customer experience within their stores. Presently, the stores often appear dark (arguably dank), they don’t often have a cashier available and you often have to go to the customer service desk to pay for your items. It doesn’t take a retail Guru to figure out that you’re not going to make much money, if your customers find it difficult (if not annoying) to pay for their items.
Overall, the Christmas holiday results indicate what many have been saying for a couple of years now: the housing and consumer credit bubbles created a wealth effect that enabled consumers to spend above their means and inflate retail results. Now that the housing bubble has popped, the consumer credit one is deflating and consumers are struggling with real energy, grocery and healthcare inflation, they’re being forced to curtail their spending. However this shouldn’t necessarily be viewed as a bad thing, consumers need to pull back on their spending so they can get their finances in order and we can have a stronger economy later.
Rooting for the American consumer to continue to spend/dig themselves into a deeper hole, is analogous to telling someone with maxed out credit cards that the solution to their problem is to get more credit cards, not pay the current ones down. It’s time for investors, analysts, et al, to get realistic about the American consumer and start thinking about the long-term, not whether or not retailer ABC makes their numbers next month.
Sources:
The Wall St. Journal: “Retailers Post Weak December Sales” – Kevin Kingsbury,
January 10, 2008
The Wall St. Journal: “Sluggish Holidays” – January 10, 2008
The Wall St. Journal: “Chilly November” – December 6, 2007
Reuters: “Nordstrom Dec. same-store sales fall 4 pct” – Karen Jacobs, January 10, 2008
Forbes (Via Thompson Financial): “Wal-Mart Dec. same-store sales up 2.4%, excl. fuel; backs 4Q eps range” – January 10, 2008
Forbes (Via AP): “Costco December Sales Rise Sharply” – January 10, 2008
Bloomberg: “Circuit City Sales Fall 8.9%; Loss Forecast Repeated” – Duane D. Stanford and Mark Clothier, January 8, 2008
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