The International Council of Shopping Centers (ICSC) declared that March sales were the "best in 16 years." The L.A. Times said that "Pent-Up Demand Explodes for Retailers in March." CNNMoney announced that "super shoppers set records." With all those credible news sources screaming all those exuberant headlines, it's only logical to conclude that the U.S. retail industry must have been recovering, rebounding, rejuvenating, replenishing, and rebuilding the U.S. economy all at the same time in March.
All exuberant headlines aside, some clear-headed analysis of March's same store sales figures, in context with store closings and openings, unemployment numbers, and other underreported retail data tells the real story of the U.S. retail industry. In the real story, the plot is more complicated than the headlines suggest, and in the next chapter, as much as March figures were encouraging, the forecast for April is set up to be an equal disappointment.
According to the Thomson Reuters Same Store Sales Index, the 9.1% gain in same store sales in March was the biggest monthly gain since it began keeping records. Of that 9.1% year-over-year increase, six percentage points are attributed to an early Easter which motivated sales in the month of March, according to the ICSC. The record-breaking March sales figure is a comparison to the March 2009 index, which was down 5.0%, (excluding Wal-Mart (WMT) sales, which is today's norm). This is also on top of a March 2008 index decline of 2.1% (also excluding Wal-Mart).
Doing the math, 9.1%, take away 6 holiday percentage points, makes a 3.1% gain. A 3.1% gain on top of a 5.0% loss, on top of another 2.1% loss does not inspire as much euphoria as the headlines indicated we should all be feeling.
Basically, March stole sales from April, and April 2009 stole sales from March 2009, which is how the Easter dance goes each year. There will be no meaningful conclusions that can be made about retail recovery, rebound, rejuvenation, replenishment or economic rebuilding until April sales results come in and the two months are looked at together. And, so far, nobody is forecasting April sales to break any records, at least not any good records.
Even if overall March same store sales figures weren't as impressive as they seem to be on first impression, certainly there were some noteworthy individual chain results to be exuberant about, right?
Comparing the March 2009 same store sales with March 2010, it is obvious that a list filled with double-digit gains this year is preferable to a list full of double-digit losses last year. But once again, reason subdues the euphoria because same store sales is a year-over-year comparison, which means that unless you take both years into consideration, the figures have no meaning.
In March, 2009, only nine major retail chains managed to pull out a positive same store sales number. Besides these nine, every other gain this year is in comparison to a loss, and many of this year's headline writers seem to have forgotten how devastatingly large those March 2009 losses actually were.
It wasn't really difficult for Abercrombie & Fitch's (ANF) sales this year to best the 34.0% decline of March 2009. Nor was it a stretch for Neiman Marcus' sales numbers to look good compared to its 30.0% March, 2009 same store sales plummet. Saks' (SKS) 12.7% same store sales increase this year, was barely more than half of its 23.6% decline last March.
The March same store sale increases at American Eagle (AEO), Costco (COST), Zumiez (ZUMZ), Wet Seal (WTSLA), JC Penney (JCP), Stage Stores (SSI), and Dillard's (DDS) while positive this year, did not cover the losses that they posted in the same month last year. Their losses weren't recovered this year even with the holiday, warm weather, and pent-up demand that supposedly caused consumers to "come back from the dead," and sales to "surge" in March.
A look at a multi-year comparison of March same store sales provides even more perspective about the relativity of March's sales gains across the board for the U.S. retail industry.
Thinking logically, if retailers were unable to cover last year's losses in a perfect storm of positive conditions, what do we really expect they are going to be able to produce in a non-holiday April 2010 to compare with the Easter April of 2009? And when all four of those months are looked at together, do we really think we're going to be describing what we see as "explosive" or the "best in 16 years?"
Aren't we ever going to grow weary of the roller coaster ride of economic microanalysis and short-sighted predictions?
Certainly there were some same store sales winners in March, but most of them were not at the top of the list. Cato (CATO) is a chain that isn't generally seen as a U.S. retail industry pacesetter, so to find the conservative fashion retailer at the top of the same store sales figures list in March is definitely notable. Digging into its March history, though, reveals that Cato's March 2010 sales were just slightly higher than its 2005 sales, which diminishes the significance of the chain's March accomplishment.
Of the nine retailers that managed to eke out same store sales gains in 2009, three really stand out as no-excuses, consistent, positive performers this year.
Buckle (BKE) was at the top of the same store sales list in March, 2009, with a 14.7% increase. That March increase was on top of the 20.9% increase in March 2008, and a 10.7% increase in March, 2007. Buckle had the same holiday calendar, weather conditions, and economic pressures as every other retailer, and yet it still found a way to improve its performance for several challenging March's in a row. Although its March, 2010 same store sales increase was not a double digit and, therefore, was far from the top of the list this year, Buckle's year-over-year-over-year-over-year increases really are the most impressive of the month.
Walgreen (WAG) and Aeropostale (ARO) have a similar story line, with four years of consecutive year-over-year increases in March. And even though their March 2010 increases were even smaller than Buckle's percentage, both Walgreen and Aeropostale managed to stay in positive growth while also expanding in the midst of recession. This was no small feat. Walgreen opened 502 stores in the recessionary year of 2009. Aeropostale opened 40 stores last year, and also successfully launched the new P.S. from Aeropostale concept.
These are nice accomplishments in any year, but were particularly impressive in a year when most U.S. retailers were busy retracting at full speed. Buckle, Walgreen, and Aeropostale would have made Rudyard Kipling proud. They kept their heads about them when all other retailers around them were losing theirs and blaming it on the economy, the weather, the calendar, the banks, the government, and the consumers.
These three chains consistently had the right products at the right price in the right quantities at the right time. They practiced good, solid retailing before the recession, and the strength of their retailing practices carried them through an embattled retail environment unscathed.
Whatever happened to just plain good no-excuses retailing?
No matter what any other retail chain blamed their performance on in the past couple of years, Walgreen, Buckle and Aeropostale proved that a good retailing formula can work in any kind of economic environment. For all the other chains, anything less than total responsibility for their own retail execution is a somewhat empty "yeah-but."
Along those lines, I am compelled to give one response to Pier 1 (PIR) CEO Alex Smith who said, "Some of the parts of the country have come back from the dead, which is terrific." Reading the transcript from the investor teleconference where that remark was made, it's difficult to tell exactly what resurrection Smith was referring to, but the inference is that consumers had come back from the dead. This would be ironic since most retail observers have been viewing the Pier 1 concept as being on death's door much more than consumers.
It would actually be uncharacteristic of Smith to blame dormant consuming for anything. He has refreshingly admitted publicly that Pier 1's demise was "self-inflicted" by pricey merchandise that nobody wanted in a niche that became too narrow. But just in case Smith has gotten lured into the retail blame game that his competitors play quite deftly, here's one quick reminder about what the "cause of death" at Pier 1 really was.
The imports to the Pier were poorly crafted, the candles they sold lost their burnability after an hour, and almost every pillow, rug, placemat, sham, and textile good in their stores had to be dry cleaned, which cost more than the purchase price of the item itself. Wrong products, wrong price, wrong quantities, wrong time.
There's really never a good time for bad retailing practices, but it was easy for many retailers to get away with it in the times of free-flowing credit and careless spending. Most believe that it will be at least a decade before unconscious consuming will return. Some believe it's gone for good, or at least for a generation. So perhaps what really needs to come back from the dead is good and responsible retailing practices.
So, where does the U.S. retail industry stand, really?
In general, same store sales are just one of many measurements, and they cannot be relied upon in isolation to measure or predict anything. This never stops casual observers who draw unreasonable global conclusions based on same store sales figures every month. Those who are thoughtfully and responsibly looking for signs of recovery, though, take a more holistic view.
In the past couple of weeks, 230 more stores were added to the 2010 store closing list, and Blockbuster is still teetering on the brink of Chapter 11 bankruptcy. There were also 390 additions to the 2010 store openings list in a time period when unemployment remained at a perilously high level and average wages fell.
Consider this recent news from the Discover U.S. Spending Monitor, which tracks consumer confidence and spending on a daily basis:
- A growing number of people expected an income shortfall in March
- A majority of couples with children viewed both the economy and their personal finances as getting worse
- 57% of American consumers rate the economy as "poor," a perception that has not been improving in 2010.
The conclusion of the Discover Monitor survey was that "the positive trends we have recently seen in terms of spending may be short-lived."
Certainly optimism precedes recovery, and attitudes influence spending. But when that optimism is based on hasty headlines and premature predictions that don't materialize, not only will consumer confidence take a hit, but consumer trust will suffer too. Once lost, Consumer trust is much more difficult to turn around than consumer confidence, as the folks at Chrysler could tell you right about now.
From a retailing perspective, action that precedes substantive realignment can have disastrous conclusions if misinformed decisions result in poorly-timed moves. Thousands of retail operations are opening in spaces that were closed not that long ago because of lack of consumer demand. If the pre-recession economy was dependent on credit that is no longer available, and was funded by jobs that no longer exist, what is the pixie dust that recovery bulls think is going to make this magical spending power suddenly re-emerge?
Hopefully retailers that are aggressively expanding now aren't counting on "explosive" short-term ROI. And hopefully some of the effort that has been frantically focused on reigniting consumer spending in the U.S. will be re-focused soon on creating an economy that is less about consuming, and more about producing, and therefore sustainable in the long-term.
No matter how the retail recovery story plays out for the rest of 2010, the retailers that are going to win a respectable share of the consumer dollar this year are going to have to be really good retailers in order to be successful retailers. This forced improvement period will create a better U.S. retail industry eventually. Unfortunately, though, we can't skip any chapters to get to the happy ending faster. That's just not the way happy endings are created in the "real" world.
Comments
Good assessment. As a Sr Execuitve retailer who has been without a job for for 15 months, I get angry when I see such headlines. Any increases this year have to be evaluated in reference to 09 decreases, and that in most cases is still not good. Thanks for providing the REAL story.
Barbara Farfan once again has hit the nail on the head. There’s trouble in River City and it rhymes with FAIL. Retail is going to go through a transition as experienced with Mass Retailers, Deep Discount Drugs and Department Stores. The transition is a result of good times when business people believed that any retail concept will be a winner.
Sharper Image, Warner Stores, Disney Stores, KayBee Toy, and Kids R Us are just a few casualties of retail times gone by.
We are heading to a world of Hybrid Retailers based on the dynamics of retail. As grocery retailers needed higher gross product they introduced items other than food into the store assortment. As discounters failed on the apparel side to get the category successful they introduced food for the volume and turns. As drug stores regulated by insurance companies lost their cash cow, they became a convenience 7-11 with milk and everyday items. Put this trend all together and you have the same store offerings under the disguise of a Category Killer retailers.
The game is the same only the rules have changed. This rule book better include Customer Service, Experienced Store personnel, competitive pricing, never out key items, and exclusive product. As a Store Planner for over thirty years I have experienced the evolution of retailing. The good news is we will have stores to shop in and the parking lots will be turned into “Green Zones”.
Jerry Birnbach F.I.S.P.