The 2010 retail year has been a bit of a “cat-and-mouse” game between a hypersensitive buying environment and frustrated economists and retailers who are seeking some sense of finality on the state of the retail market. On the surface, August domestic same-store sales appear to be just what the market had yearned for on the heels of a disappointing July. Indeed, retail comps largely overachieved in August on precautious forecasts as stores attempted to incite back-to-school sales with bargain bin discounting and ramped-up promotions. Tax-free holiday weekends in states also contributed to strong comps as skittish consumers continue to go to extensive measures to stretch their dollar. Analysts, however, point to troubling themes that have materialized in the background behind the diversion of inflated retail numbers.
While there is understandable — and justifiable — optimism following a promising August retail month where two-thirds of chains surpassed expectations, economists worry that there may be rockier roads ahead as the second half takes shape. The aforementioned heightened promotions, for example, could eat into third quarter margins as “spoiled” shoppers protract their pursuits of deeply discounted goods. Retailers also worry that warmer-than-usual August weather — which has helped accounts clean out summer inventory while impairing sales of new products — could continue into September, further diminishing returns from fall/winter apparel and merchandise. Also, as has been the case for most of 2010, monthly comps for August were inflated by very weak year-ago numbers.
So, while many retailers saw favorable BTS returns in August, most economists agree that fiscal September will actually be a better measuring stick for the overall BTS buying period as kids and parents hit the stores during the fall buying season. For those with a “glass-half-full” approach, however, August was pretty darn good. As noted, two-thirds of reporting retailers came in better than forecasted. According to the International Council of Shopping Centers, which tracks 31 major retail chain stores, excluding Walmart, consolidated retail comps rose by 3.2% in August, which was better than expected.
Moreover, the ICSC reported that August results “continued to reflect a bifurcated and uneven performance with a group of very strong performers and a group of weak ones within the same subsector.”
For the always-capricious Teen segment, the story for August was all about promotions, especially for Abercrombie & Fitch (+6.0%), which seems to have finally discovered the value of carefully-timed discounting. The recent A&F “revival” has, expectedly, come at the expense of one of its top competitors. Aeropostale (-1.0%) whiffed on expectations of slight improvement for the month, and management said they saw better results in BTS regions, an indication that consumers are “shopping closer to need(s).”
Other teen retailers topping expectations were Wet Seal (+1.1%), Hot Topic (-3.7%), The Buckle (-3.5%), Zumiez (+9.1%) and The Gap (flat.) Wet Seal reported its first comp growth since March. American Eagle (+1.0%) narrowly missed estimates but noted “solid demand” for denim and knit tops during the month.
For department stores, the Luxury sub-segment once again buoyed consolidated comps, as Nordstrom (+6.3%) topped expectations and Saks (+1.0%) and Neiman Marcus (+2.9%) showed comp growth but missed estimates.
Among other department stores, standouts included Macy’s (+4.3%) and Kohl’s (+4.5%). Dillard’s (flat) and JC Penney (+2.3%) also outperformed analysts’ expectations. At Dillard’s, management said sales were above average in the Eastern and Central regions and below expectations in the Western region. Sales of shoes were “significantly above” expectations, which more than offset weakness from the home and furniture category.
At the other end of the spectrum, The Bon-Ton (-4.6%) missed on estimates while Stage Stores (+0.5%) showed slight growth but still missed expectations. Management at Bon-Ton said hot weather in August had hurt sales of early fall merchandise including coats, jackets and “most categories of clothing.”
At the Discounters, top performers included Ross (+5.0%), which was more than two percentage points above average expectations, and Stein Mart (+8.5%), which exceeded expectations by more than eight percentage points.
Management at Stein Mart said sales rose “far more than expected” due to a boost from an earlier-than-usual clearance sale. Strong performances came from SMRT’s home section along with women’s career clothing and accessories, while Sportswear continued to struggle.
Target (+1.8) just missed estimates, but management said BTS and food items boosted revenues along with strength from health and beauty products. TJX Cos. (+2.0%), which runs the T.J. Maxx and Marshalls chains, came up a bit short as well, although the Marmaxx Group turned in a respectable 3% improvement.
Among Warehouse Clubs, Costco (+7.0%) easily topped estimates while BJ’s Wholesale (+2.4%) missed slightly. At Costco, management attributed growth to gas prices and strong foreign currency translations. Disregarding these factors, comps were up about 5%. BJ’s management said sales rose in “all major regions with the exception of New York,” with growth from bakery, cigarettes, computer equipment, dairy, frozen, housewares, meat, milk produce, small appliances and snacks. Excluding gas, foot traffic for BJ’s was up about 3% with the average ticket price slipping about 1%.
Looking ahead, the ICSC anticipates September comps to be up about 3.0%.