Tuesday November 24, 2009
In a survey released yesterday, the Conference Board reported that the average U.S. household plans to spend $390 on holiday shopping this year. This is a jaw-dropping 43% lower than the $683 per-person shopping budget that the National Retail Federation (NRF) predicted in its 2009 Holiday Consumer Intentions and Actions Survey. Both predictions represent sales declines from 2008, but the size of those predicted declines is disturbingly disparate when you consider that one prediction is per household and the other is per person.
It's obvious which of these two survey results we all want to believe. It may not be so obvious which survey deserves to be believed.
From a purely historical perspective, neither organization is particularly accurate in its holiday shopping predictions. In 2008 the NRF's holiday intentions survey predicted a 2.2% increase in holiday spending. The Conference Board predicted a 12% decrease. In reality, there was a 3.4% sales drop in the U.S. retail industry overall in the 2008 holiday season. So the NRF was really wrong in predicting a spending increase and the Conference Board was really wrong in predicting the size of the spending decrease.
The truth about holiday spending in 2009 will probably be found somewhere between the $390 household and the $683 individual budget that the each organization's research predicts. That is a scary big gap that nobody wants to believe the retail industry will plummet into this holiday season. Yes, Mr. Bernanke, there is a recession.
One major anomaly is going to skew the 2009 holiday shopping numbers towards the Conference Board's side of the gap. That is the fact that the "holiday shopping season" started well before Black Friday this year. Some of the "recovery" that was seen in October's 1.5% sales increase was actually early holiday spending, spurred on by holiday-oriented promotions that started well before Halloween.
Kmart was promoting its layaway program and introduced online layaway for holiday gifts in October. Parent company Sears (SHLD) also started running "Black Friday Now" sales in October, with discounts up to 70% off. Wal-Mart (WMT) launched its "100 toys under $10" promotion by rolling back prices at the end of September. Macy's (M) has been running Black Friday style one-day sales with early bird specials since September. Best Buy (BBY) slashed prices of PCs in October to coincide with the release of Windows 7. Stage Stores (SSI) launched a Christmas Club program months ago, which allowed shoppers to load money onto a gift card and earn 10% shopping "interest" on their card balance.
October, 2009, it seems, was not an indicator of 2009 holiday sales, but rather, October numbers actually included holiday sales. And if that is true, then Black Friday may not be the beginning of the 2009 holiday shopping season, but the end of it for many American consumers with tight budgets and frugal shopping lists.
Even though consumer spending behaviors have shifted dramatically this year, the U.S. retail industry is still held hostage by a traditional Black Friday monster of its own creation. To participate in extreme Black Friday sales is to set an expectation for promotional pricing that most retailers are vowing to resist this holiday season. To not participate wholeheartedly in Black Friday discount madness is to risk losing limited holiday budgets completely to competitors' cash registers. When it comes to Black Friday 2009, retailers may be in the red if they do, and in the red if they don't.
But for this year, participate they must and participate they will. Some of the more aggressive Black Friday strategies include:
- Amazon's "Black Friday Week of Deals" - Black Friday discounts started yesterday, and will run all the way through Cyber Monday on Amazon.com (AMZN). The world's largest e-tailer and U.S. retail's biggest winner of the 2008 holiday season has the distinct advantage of being able to peruse the Black Friday specials leaked by brick and mortar stores and pre-empt them with specials of their own.
Amazon has vowed to match or meet all the best Black Friday deals, and add a whole bunch of unique deals of their own, which can't be found anywhere outside of cyberspace. Amazon is hoping to capture a big portion of the American Black Friday budgets before the turkeys are even pulled out of the freezer for thawing.
- Turkey Day Trumps - Gap (GPS) brand stores will be winners of the Black Friday early opening race when they open their doors to bargain hunters on Thanksgiving Day. As if it isn't hard enough to time the Thanksgiving dinner, now a trip to the mall must be factored in as well. Gap stores will open at 9 a.m., Banana Republic at 11 a.m. and Old Navy at noon.
For those who want to risk missing the Turkey Day traditions altogether, Kmart, Wal-Mart, and Sports Authority will also be open for your Thanksgiving Day entertainment.
- Wal-Mart's In-Store Pajama Party - In an effort to avoid a repeat of the Black Friday trampling of 2008, Wal-Mart is keeping its 24-hour stores open for the 24 hours of Thanksgiving as well. With no store closings, there will be no mob-scene openings either. Instead of camping out in the Wal-Mart parking lot, bargain hunters will be allowed to wait inside the store, in a queue line set up beside each Black Friday megadeal. So, theoretically, there could be - and probably are - linoleum squatters in Wal-Marts across the country already.
I guess Wal-Mart executives figure that holding shoppers captive in its stores for a ridiculous number of hours in a row will prevent them from spending money anywhere else. I wonder if the extra queue monitors, restroom attendants, and store security labor hours will make the consumer pajama party worth the effort to the rollback retailer.
- TGI Black Friday iPhone App Participants - The high-tech must-have Thanksgiving newspaper sales flier alternative this year is the brand new "TGI Black Friday" app for iPhone users. All retailers that have their Black Friday deals, doorbusters and specials loaded into the app will be accessible to app users, who will be able to do a global comparison and find the absolutely best deals.
Also this year, since many Black Friday specials will be available online, shoppers might literally be sitting in the Wal-Mart campout queue, find a matching price at Target, make the purchase online, and go home. This phone app gives an amazing advantage to the retailers that truly have the lowest Black Friday prices. The biggest winners with this innovation, of course, are the app-using, bargain-hunting Black Friday fanatics that use it.
- Door Buster Besters - Those with the best limited-time Door Buster deals and showing-up freebies will give online shoppers a reason to drag themselves out of bed to do some offline shopping. But if thousands of people can only be motivated to do brick-and-mortar shopping on the day after Thanksgiving by extreme loss leaders and free gifts, you have wonder what the advantage will be this year for the retailers providing those promos.
My prediction is that Black Friday, 2009 will be more of a consuming frenzy than the U.S. retail industry can recall in recent years. That is, of course, until all of the crazy cheap barely-stocked uberdeals are gone. Then, I predict, there will be a black weekend shopping dropoff more steep than the U.S. retail industry has ever dared to imagine, as shoppers wait for the next wave of discounts, or their next paycheck, whichever comes first.
Retailers seem to think that if they carry less inventory, there will be no need for desperation discounts to move the inventory out the doors. The thinking is that shoppers may hold out for discounts, but if those discounts don't materialize, they will make full-price purchases anyway. After all, it's Christmas (and Hanukkah, and Kwanzaa) so everybody's gotta buy something, right?
The fallacy in that reasoning may be the "gotta buy" part. Consumers have been proving all year that in the absence of the false security that credit cards provide, the "gotta buy" impulse is not nearly as compelling as it used to be. In the absence of a really great deal, cash may become the gift of choice this holiday season, which the recipients may also hold onto until they can exchange it for a really great deal. Shoppers have proven in 2009 that they can wait to spend, which is a huge change in the immediate gratification psyche of the average American consumer.
As has been the undercurrent for the entire industry in 2009, U.S. retailers will be struggling this holiday shopping season to figure out how traditional retail practices fit in with a new consuming mindset. If Black Friday isn't the fabricated official beginning point that it used to be, then what is it? It's not clear that any brick-and-mortar retail chain is all that clear about how Black Friday is going to contribute substantially to the black ink it's supposed to create.
Perhaps somebody besides Amazon has a brilliant master plan, but for now, Black Friday seems like it might be a bad game of "Deal or No Deal" with lots of risk-taking and very few payoffs.
Tuesday November 17, 2009
Since recession-related purging has ended for most major chains, the numbers from the U.S. retail industry in the first half of November are now a reflection of retailing itself, not just a byproduct of economic chaos. There are real retail struggles behind store closings, real customers behind store openings, and real strategy behind 2010 expansion plans. Without so much recessionary noise, what November numbers show is a real struggle for U.S. retailers. That is, the struggle for retail relevance.
The latest chain to go the way of the irrelevant is Trans World Entertainment Corp (TWMC), which announced that it would be adding 125 f.y.e (for your entertainment) stores to the 2009 Store Closings list at the end of the holiday shopping season. This is just the latest downsizing move after the retail CD and DVD chain closed 101 stores last year and has operated for 11 consecutive quarters without turning a profit.
After three years of doing basically the same things in the same ways and expecting different results, f.y.e. has come up with an aggressive strategy for this holiday season. In 50 of its stores, all single music CDs will be selling for $9.99, a price which matches Apple's charge for an iTunes download. It's also a price point that will keep this last major music-movie-game retail chain competitive against all the thousands of electronics, discount, department, book stores, and other retail outlets that carry the same disc entertainment inventory.
Certainly f.y.e. needs to find a way to make itself equal to its competitors. But I'm not sure if "becoming the same" is a strong magnetic force that is going to draw people through its doors.
The chain's one definite unique selling proposition is its used inventory. Customers can't buy or sell used music, movies and games at their local Best Buy, Wal-Mart, or Borders. It seems like there would never be a better time to focus a spotlight on the ability to turn old stuff on your shelves into brand new Christmas gifts than in a holiday shopping season with record high unemployment. But f.y.e. would have to be confident that it could unload all that used merchandise, otherwise it will be ending the year having transformed itself into the world's largest garage sale.
Also losing the battle for relevance are bookstore chains B. Dalton (BKS) and Waldenbooks (BGP). Like CD's and DVDs, physical books are also being replaced by electronic and downloadable alternatives. By the time the new decade begins, the last 50 B. Dalton stores will be nothing more than a Wikipedia entry. The question is whether Waldenbooks and f.y.e. will follow B. Dalton into retail obsolescence, or whether they will find their way back to relevance. Hopefully their business models for the new decade include more than just a bet that enough people will stay stuck in the past to keep them alive.
Staying relevant is also a constant challenge in the restaurant sector of the retail industry. One chain that has risen to the challenge during the recession is quick-service chain, Panera Bread (PNRA). It's hard to believe that in the same year that the U.S. retail landscape became littered with shuttered, dark, and vacant spaces that a new Panera restaurant has opened just about every five days. In a year when Americans started buying store brand canned vegetables instead of eating out, Panera added 80 locations to the 2009 Store Openings tally.
Without any drastic menu changes or $5 meal deals, Panera saw its same-store sales grow 3.3%, its guest count rise 1.8%, and its average transaction increase 3.2% in its third quarter. While there is plenty to brag about in those numbers, the thing that CEO Ray Dellarco says he's most proud of is the fact that his chain serves "antibiotic-free, all natural, organic, low fat breads, bagels and pastries baked fresh throughout the day," according to a recent interview in the Cleveland Jewish News.
Dellarco also credits the chain's continued success to a fresh menu, and the new items that it adds to that menu five times a year. As a frequent Panera customer myself, I credit their success to something altogether different.
I have visited Panera in at least six different states and they all had two things in common - extremely friendly employees and extremely busy laptop users. The free WiFi is a definite draw and personally, I am willing to put up with the chain's rising prices, the shrinking portions, and the always dirty silverware in order to have a comfortable place to work which is run by employees who seem to be genuinely appreciative of my presence.
While I'm sure that the menu is a draw for a good number of people (fresh bread can be very addictive), what I noticed in the worst days of the recession was that Panera was filled with business people doing business when other restaurants were wondering where all their business had gone. The chain found a way to keep itself relevant by becoming a destination for people who want to eat, but need to work. In an uncomfortable economy, what could be better than comfort food eaten in a comfortable work space?
One more food-related retail chain that has remained relevant in the past year is Edible Arrangements, the special occasions fruit bouquet delivery chain. While Panera was opening one store every five days, a new Edible Arrangements store was being added to the 2009 Store Openings list about once every three days.
There is no lack of creativity for any special occasion at Edible Arrangements. They figured out at least 100 different ways to sculpt, skewer, and style produce so that it can rightfully take its place as the centerpiece of any gathering. Creative or not, though, it's not obvious how the chain has continued to thrive in the midst of a newfound American frugality.
Sending flowers is not cheap. Sending a "bouquet" of hand-cut chocolate dipped fresh fruit is even less cheap. But if given a choice between fresh-cut flowers that you can look at for less than a week, and a cornucopia of fresh-cut fruit that you can munch on for about that same period of time, the edible choice somehow seems less extravagant.
I have seen Edible Arrangements show up at a baby shower, a funeral luncheon, and a pre-surgery head-shaving party. Each of the senders of the edible bouquet made it known that they had received a gift of fruit themselves. I imagine it happens that way a lot.
Flowers are nice. Flowered shaped pineapples are memorable. Memorable trumps nice. Edible Arrangements keeps growing.
Leveraging its own success, Edible Arrangements has dared to launch a new concept called Frutation, in the hope that a flair for fruit can become relevant for everyday living. The Frutation menu includes FruSalads (greens and fruit), FruSalsas (pita and fruit dip), FruZees (drinkable fruit), fruit sundaes (banana split without the ice cream), and, of course, their famous dipped fruit creations.
It's risky to introduce a new concept into any economy, much less a deeply recessed one. It's even riskier to separate Frutation from its successful and well-established birth brand, but that's exactly what founder and CEO Tariq Farid has decided to do.
The first standalone Frutation opened in Puerto Rico in October, and one month later, Farid is confident that 50 Frutation franchise agreements will be signed before 2010 has barely begun. This is in addition to the new Edible Arrangement locations that Farid hopes will be opening every week in 2010. And since that's hardly enough to keep an innovator like Farid busy, he will be adding a new Isbanbul Edible Arrangements location to the 2010 Global Store Openings list just to keep things interesting.
Other retailers - like Abercrombie & Fitch (ANF) - that seem to be losing their relevance in their home country may be using global expansion as their workaround plan. But there are still plenty of U.S. retail chains that believe that there is more market share to be gained in America.
In fact the 2010 Store Openings list has more than 5,100 plans for expansion on it already. This is a completely different kind of U.S. retail industry list than was being amassed at this same time last year. Admittedly until lights are on, shelves are stocked, and doors are opened, this is still just a list of dreams. But the fact that such a wish list exists at all is completely relevant.
Tuesday November 10, 2009
After same store sales figures were released last week, U.S. retail industry experts got busy trying to figure out how they could predict holiday sales based on October's results. Reuters concluded that holiday sales would be "tepid." Deloitte Research says they'll be "unchanged." Retail Metrics says they will "rise modestly." A little more research would undoubtedly reveal some individual or organization that sees October same store sales as an indicator of an unexpected holiday boom, and another who's certain that the monthly figures are warning us about a startling seasonal bust.
One of the reasons why there are no consistent conclusions about what October's same store sales figures mean for the final two shopping months of 2009 is because using long-term measurements to predict short-term performance is about as scientific as the penicillin experiment growing in the back corner of my refrigerator.
If you want to compare and predict sequential months you need month-over-month sequential measurements, not year-over-year historical measurements. Or, to put it in a more holiday-friendly way, it's not the job of the ghost of Octobers past to reveal the visions of the holiday shopping season future.
So, instead of trying to make October same store sales figures mean something they don't, let's look at what they do tell us instead.
For instance, when looking at a multi-year comparison of October same store sales, it's easy to see that Dillard's (DDS), Stein Mart (SMRT), and Abercrombie & Fitch (ANF) haven't seen positive growth in four year's worth of Octobers. The fact that these three major U.S. retail chains have been consistently getting worse at figuring out what to do to make their Octobers productive is something pretty significant that year-over-year same store sales numbers can validly tell us.
Add to that a multi-year comparison of September same store sales figures, and we find that the same three major chains have declined in their Septembers as well. That is a same store sales revelation that indicates there might be three major retail chains in danger of becoming irrelevant on the U.S. retail landscape. (In fact, Dillard's was identified as being "high risk," and Abercrombie and Fitch was identified as being "medium risk" on one retail bankruptcy risk assessment in 2009.)
Comparing this October's same store sales results with past Octobers can also provide us with some other interesting revelations.
Chains with October, 2009 Sales Levels Higher Than Before the Recession:
- TJ Maxx (TJX)
- Ross (ROST)
Chains with Positive October 2009 Same Store Sales, That Are Still Performing At 2005 Sales Levels:
- Nordstrom (JWN)
- Bon-Ton (BONT)
Chains That Have Experienced Growth Every October Since the Recession Began:
Chains That Have Experienced Declines Every October Since the Recession Began:
Chains That Have Experienced Declines Every October Since Before the Recession Began:
While October trends can't accurately predict November and December results, four-year trends can certainly give some valid insight about a chain's relevance, leadership, innovation, resiliency, and consumer appeal. Based on that, here are my predictions for the 2009 holiday shopping season (because we don't have quite enough opinions expressed about this already).
Ross, TJX Stores, Aeropostale, Buckle, Walgreens, and BJ's Wholesale Club will see year-over-year sales growth. Stage Stores, Abercrombie & Fitch, Dillard's, and Stein Mart will experience declines and will have the chutzpah to try to play the "challenging economic environment" card at least one more time. Every other chain will be somewhere in between.
Overall, while consumers might not be as panicked as they were in the 2008 holiday shopping season, this year there are 10 million more consumers who don't have jobs, unemployment benefits, or medical insurance, who are burning through their savings, chronically unemployed and borderline desperate, and who won't be buying seasonal merchandise even if it's marked down 90% because they just can't.
Black Friday pre-opening crowds will be ridiculous in size, and the first hour of every store's Black Friday sales day will be out of control. Unfortunately I think there will be at least one senseless Black Friday consumer frenzy tragedy, and we will all get the opportunity once again to re-evaluate our unconscious and self-destructive addiction to the acquisition of stuff.
My word to describe this year's holiday results - because everybody else got a word - is "unsettled." I think that is the word that will accurately describe the condition of both retailers and consumers this holiday shopping season - with one foot in a past that no longer exists, and one foot that doesn't know exactly where to plant itself in a new reality that has yet to be clearly defined.
It's not exactly the most ho-ho-hopeful word, but it's not going to be the most jolly retail holiday on record either. Making peace with that in advance, though, takes some of the pressure off and it might even allow everyone in the U.S. retail industry to just relax and enjoy the season a little bit more.
Wouldn't a reduction in year-over-year stress represent a holiday improvement? It would be great if some analyst somewhere would create a way to quantify that. Except then we'd all have to worry about finding ways to beat those expectations too.
Monday November 2, 2009
When looking at the numbers from the U.S. retail industry in the second half of October, it appears that retail expansion will be gaining twice as much momentum as retail recession in the last two months of 2009. Included in the store opening figures, however, are 757 stores which have quickly popped up in the plentiful inventory of dark retail spaces across America, but which will disappear just as quickly when shoppers stop their holiday spending sprees. Seeing those empty retail spaces filled will add some cheer to the holiday shopping experience, but considering the fair weather retailers as part of an authentic trend is not really helpful.
Minus the holiday popups, the U.S. retail numbers go the other way, with nearly twice as many store closings as openings, along with a significant new batch of retail chains hanging in the balance after recently filing for Chapter 11 protection. A glimpse of real recovery is found in the 2010 Store Openings list, which is growing significantly each week. But until plans become reality, these future store openings are little more than holiday season ho-ho-hope for recovery as well.
The biggest contributor to the 2009 Store Closings list in the second half of October was Movie Gallery, the owner of the Hollywood Video chain. The company has closed 250 stores since September 1, and may close another 200 before the end of 2009. Reportedly the company has even set up a special toll-free number for the commercial landlords who haven't gotten paid lately. Establishing a dedicated unpaid rent hotline says a lot about the well-being of a company, I think.
It's interesting that earlier this month Movie Gallery staged a promotion which resulted in the donation of 20,000 DVDs to military families. For every two DVDs that customers purchased, Movie Gallery donated 3 DVDs to Operation Homefront.
Considering the company's recent downsizing activities, this DVD donation promotion could have been mostly an inventory reduction strategy. If so, clever points go to Movie Gallery. And no matter what the motivation, it was $300,000 worth of inventory well placed. It was also a great way for Movie Gallery to boost its brand higher than its main competitor, which is also busy closing 960 Blockbuster stores.
Meanwhile, last week we learned that the biggest nemesis of the two biggest movie rental chains has been busy creating more ways to make the brick-and-mortar DVD distribution system even more obsolete and irrelevant. Sony announced last week that Netflix is the partner of choice for delivering movie and television content via its PS3 systems. And strong rumors, still without credible confirmation, were also swirling around a similar partnership between Nintendo and Netflix last week. Can Wii movies be far behind?
It's been inspiring to watch little old Netflix take down two giant retailers with one strategic slingshot. For small companies with big ideas, this is a case study in the power of innovation and customer satisfaction. For large retail chains that are busy watching stock prices and each other, this is a case study in misdirected focus and short-sighted vision.
For home movie watching customers this is a case study in free enterprise at its finest. If there is a better, cheaper, faster way to deliver products, some enterprising retailer will likely find it, to the benefit of the average consumer. Right now Netflix is the American way.
Five Below is another diminutive chain that is hoping to borrow the Netflix slingshot and see what kind of damage it can do to the competition. This small regional chain, however, is not taking aim at just one or two competitors, though. Five Below is targeting an entire market segment that it wants to steal from a whole lot of different retail giants.
This new ultra discount specialty retail chain wants to steal the tween and teen customers from Best Buy with its electronic accessories, from Michael's with its art supplies, from Party City with its holiday stuff, from Bed, Bath and Beyond with its bedroom decor, and from Hot Topic with its vampire t-shirts. Five Below is also happy to lure young customers away from Wal-Mart, Dollar General, Target, Old Navy, and every other chain that carries all the cheap and unnecessary stuff that underage discretionary income can buy.
Apparently Five Below is successfully gaining "it" status with trendy cost-conscious teens already. The six new locations that it is contributing to the 2009 Store Openings list on November 6th, and the 98 stores it added to the 2010 store openings tally is proof of that.
The chain's popularity could have something to do with the fact that everything in its stores is priced below $5. But it probably also has something to do with its mission to sell "the trendiest, coolest, highest quality stuff that you just gotta have!" For now, at least, TISC! (If you don't know what that textonym means, you definitely aren't in Five Below's target market. So, if your kids drag you there, just head to the candy aisle.)
One company that wishes it still had its "it" status is Crabtree & Evelyn, which recently shuttered 25% of its chain and joined the Retail Chapter 11 list last week. It seems that the demand for pricey lotions and potions has decreased, causing Crabtree and Evelyn to downsize accordingly.
It also seems that using the Chapter 11 process as leverage to renegotiate rents and leases has become a U.S. retail standard practice this year. Chapter 11 as rent control is a strategy that won't be relevant or workable forever, so there's no time like the present for Crabtree & Evelyn to employ it.
It would have been easier if everyone in the U.S. would have made a blanket agreement at the beginning of 2009 to rollback everything - prices, salaries, net worth, etc. - by 25% across the board. That's where we're all going to land eventually anyway. Instead, the recessionary rollback has been happening in the slowest and most painful way possible because we've all been trying to hang on to an economic reality that was never all that real.
For the rest of 2009, retail momentum will probably still be rolling back overall. I think it will be key for retailers to not get panicked by the continuing decline, and not get too exhausted trying to create better results than the economy can support.
I recently watched a video about how to survive if you ever step into quicksand. (Other than Gilligan, I've never known anyone that got stuck in quicksand, but more is better when it comes to life survival strategies I think.) While I was watching this quicksand survival video, I was thinking that it was a perfect metaphor for U.S. retail industry recovery:
1) Stay calm.
2) Don't let the struggle suck you down.
3) Change your angle.
4) Wiggle free.
5) Crawl to solid ground.
If the strategy works for escaping one type of unstable soupy muck, it should work for any type of unstable external conditions that threaten to suck you down and make forward motion impossible.
The numbers in the second half of October indicate that U.S. retailers are still likely to find themselves in the middle of some more recessionary muck in the short-term. The key for retailers will be to not let it drag them down too far, find a different angle, and leave themselves some wiggle room.
Most important, retailers will have to abandon their pride if a slow and clunky crawl through the next few quarters is necessary before we all find ourselves on stable ground once again. No matter what the stock analysts think, it doesn't matter how pretty you look during the recovery process. What matters is that you manage to survive.
