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.
Monday October 26, 2009
Apparently Amazon.com gave customers 5.45 billion good reasons to open their wallets and let their credit cards breathe some fresh air this summer. While U.S. retail industry watchers were relentlessly scrutinizing every intention, sentiment, and minor mall movement of American consumers leading into the back-to-school season, Amazon kept itself busy processing payments and packaging purchases for a healthy fraction of its 98 million worldwide customers.
Last week was as big and wild for Amazon as the company's namesake South American waterway. In just two days Amazon gave retail industry "experts" 69% more self-doubt in their calculations with its greatly "unexpected" third quarter earnings report, it gave investors a 24% boost in their portfolios in a single day stock surge, and it gave members of the global retail industry more hope about economic recovery than could be quantified by a percentage sign.
Retail industry onlookers who oversimplify Amazon's counter-recessionary success as being nothing more than having the right products at the right price haven't been paying attention since 1994. Amazon is thriving not only because of the transactions that it is conducting today, but also because of the billions of transactions that it has conducted in its past, which positioned it as a trustworthy retailer that sincerely values its customer relationships. It may have taken the rest of us 15 years and a global recession to see the proof that these things really do matter, but Amazon knew it all along.
There are plenty of small and large retailers around the world who are already devoted followers of Amazon in general and CEO Jeff Bezos in particular. Undoubtedly the company's recent stellar success has created even more converts who, consciously or unconsciously, ask themselves, "What would Bezos do?" as they make decisions and lead their business every day.
Although I'm fairly certain that Bezos does not view himself as an omniscient retail messiah, it would be an interesting exercise to look at some of the U.S. retailers who have not been faring as well as Amazon recently and ask, "What Would Bezos Do?"
Blockbuster's Shrinking Market Share - What Would Bezos Do?
If Jeff Bezos was leading the world's largest movie rental chain... read more...
Monday October 19, 2009
While there is still a lot of uncertainty in retailing worldwide, one thing that the latest numbers tell us for certain is that the U.S. retail industry is definitely not stagnant. With 829 new store closings, 1486 new store openings, and Chapter 11 entries and exits, U.S. retailers are retracting, expanding, succumbing and defying all at the same time. What U.S. retailers are not doing at this stage of the recession cycle is sitting still.
Cafeterias Close
Included in the most recent 829 tally, Luby's added 25 of its cafeterias to the 2009 store closing list last week. These 25 restaurants had collectively lost $5.5 million in fiscal year 2009. Systemwide, Luby's lost $23.3 million in its latest quarter, which was seven times greater than its losses for the same time period last year. Considering those numbers, it seems pretty ambitious for Luby's to continue to operate at all.
It's sad to watch the Luby's chain slowly shrink in size and popularity. Not only is it a nostalgic part of Texas Americana, the chain was also built with a set of old-fashioned business practices that I want to believe could carry any restaurant through any difficulty.
Luby's survived beyond the Great Depression in the 30's by feeding homeless people with leftovers at the end of the day. Luby's survived beyond Hurricane Carla in 1961 by feeding emergency workers despite the damage to its own kitchen facilities. In both instances, Luby's customers repaid the restaurant chain for its human kindness with fiercely loyal patronage.
"Share the work, share the risk, share the profits." This was a guiding principle of the restaurant chain's founder, Harry Luby which was also embraced by his son, Bob. Because both men genuinely valued their management team, Luby's has been well-known throughout it's 98-year history for having some of the lowest employee turnover rates in the U.S. restaurant industry.
It would be great to see Luby's stick to its roots and prove to the world that profit and principles are not mutually exclusive. After observing banking meltdowns, excessive CEO compensation, outrageous executive bonuses, and widespread corporate chaos over the past few years, it is clear that the world could use some more principle-guided leadership. The past decade in Luby's history, however, has revealed that the company may be abandoning its own dedication to outstanding employee and customer relationships.
Current online customer reviews consistently complain that Luby's food quality is decreasing while its prices are increasing. Customer compliments in the past expressed the exact opposite opinion.
Employees don't seem to be as happy with Luby's any more either. In two high-profile cases in the past three years, Luby's paid substantial settlements to former employees in response to EEOC suits for disability bias and sexual harassment.
Investor satisfaction seems to be faltering for Luby's as well. Since well-known restauranteurs Chris and Harris Pappas took over leadership of the Luby's chain in 2001, they have been criticized for management conflicts of interest with their Pappas restaurants, and their leadership team has been in proxy fights with shareholders.
CEO Chris Pappas said in a teleconference last week that Luby's current profitability plunge is a result of "the challenging economic environment, including the unemployment rate rising to its highest level in over 20 years." But considering the pre-recession challenges that Luby's was having, perhaps the economy is not causing Luby's problems, but rather just revealing them.
Restaurants Reorganize
Another distressed restaurant chain seems to be having management problems as well. The famous Fatburger chain is still under bankruptcy court protection, six months after its filing. Included in the most recent retail Chapter 11 updates, Fatburger has recently announced the closing of eight company-owned restaurants that were collectively losing $1 million. The company also recently stated its intention to file its reorganization plans with the bankruptcy court before mid-November, which it hopes will include renegotiated leases and restructured debt.
In an overcrowded American burger market, Fatburger has one invaluable competitive advantage that other burger joints would fry for - unpaid celebrity endorsements. Sports, music, film, and television celebrities eat at Fatburger, rap about Fatburger, and own Fatburger franchises. Montel Williams, Kanye West, Queen Latifah, Ice Cube, and the Beastie Boys have all voluntarily associated themselves with the chain in one way or another. How could a restaurant chain not be able to capitalize on all that star power?
Since buying out the chain in 2003, CEO Andrew Wiederhorn has been on trial, in and out of jail, and fighting foreclosure on his personal residence. That may not be the cause of Fatburger's struggles, but it's at least got to be a little bit distracting.
It's difficult to keep track of how the company has been doing financially in the recession because apparently parent company Fog Cutter has been too busy planning its Fatburger expansion into China to file SEC paperwork for the past year or so. But that annoying little paperwork task is one thing that Widerhorn promises is high on his 2009 to-do list, right next to bankruptcy reorganization, of course.
Eateries Expand
While Fatburger has only Chapter 11 news to report, one of its biggest competitors was counted among the 1,486 store openings most recently tallied. In addition to approximately 60 openings that rival Smashburger added to the 2009 store opening list, the company has also confirmed that seven new airport locations will be among the 18 new locations it has contributed to the 2010 store openings tally.
Smashburger hasn't garnered high profile celebrity endorsements, but what it has successfully amassed is local appeal. If you attended the grand opening of the new Smashburger in Dayton, Ohio this weekend, you could have ordered the Buckeye Smashburger with fried pepper rings, and your smashing purchase would have contributed to the Thank You Foundation of Dayton. If you had stopped into the two-week old Tempe, Arizona Smashburger on Saturday, you could have ordered the Arizona Burger with habanero cheese, and your spicy appetite would have benefited the Sun Devil Family Charities.
Last month, avid Smashburger fans in Minneapolis saw the Spicy Baja Smashburger on Texas menus and decided that the southwest concoction would also be a smash hit in the great white north. So the Twin City smashies started campaigning via blog posts and Twitter tweets until the company agreed to add its jalapeno-chipotle-pepper-jack concoction to Minnesota menus.
Smashburger issued plenty of press releases about the whole affair, saying that it was glad to make the menu change for Twin City fans, which it did with plenty of fan-fare. Who needs celebrity endorsements when you've got food that creates its own burger buzz?
Luby's vs. Fatburger vs. Smashburger
Three different restaurant chains in the same economy find themselves in three different stages of their own business cycle. The critical difference? Luby's and Fatburger were already having internal conflict and management challenges before the recession hit. Smashburger, by comparison, seemed to be in hamburger heaven. External economic crisis caused further destabilization within the Luby's and Fatburger chains, while a self-built stabilization in Smashburger's operations has allowed it to buck the recession and move way ahead of the recovery curve.
So perhaps one of the big lessons of the Great Recession is that there is no such thing as a recession-proof business. Rather, there are businesses that are rendered crisis-proof by stable management teams with strong values and solid customer and employee relationships. Cash reserves help too. But even a big pile of money can't hide mismanagement forever.
