November turned out to be one of the best retail months of the past five years, but analysts still expect the run-up to Christmas to be relentlessly promotional and hardly the harbinger of a boom in 2011.
“The U.S. consumer has a lot of optimism,” said Keith Jelinek, director in AlixPartners’ global retail practice. “But nobody’s feeling optimistic enough to replace their wardrobe.” Shoppers are hanging on to last season’s looks, opting instead to update their clothes with key items, Jelinek said, adding that 18- to 25-year-olds were the most willing to open their wallets.
Still, stores and those who follow them will take it. Eye-catching promotions on Black Friday and Cyber Monday — and even before — drove traffic and enticed consumers to buy in November, giving retailers stronger-than-expected comparable-store sales for the month and renewed hope for a bright holiday.
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The results, taken as a sign of a resurgent consumer, tickled investors, who pushed retail stocks to highs not seen since 2007. The S&P Index advanced 1.8 percent, or 8.86 points, to close at 507.94 — the index’s first close above 500 since July 2007. The Dow Jones Industrial Average rose a milder 1 percent, or 106.63 points, to 11,362.41.
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Despite a still difficult macroeconomic landscape, shoppers, fueled in part by pent-up demand for purchases for themselves, rang up sales both online and in-store, spending across all retail segments.
“Holiday 2010 is off to a strong start, with many retailers citing strength throughout the month and positive consumer response to their giftables categories,” said Citi broadlines analyst Deb Weinswig, who explained that “favorable weather” and “compelling deals” drove results. “We believe inventories are in good shape following the strong November,” said Weinswig .
Thomson Reuters put the growth in same-store sales at 6 percent, the best monthly result since the 6.3 percent rise in September 2006. The International Council of Shopping Centers placed the figure at 5.8 percent, the strongest performance since March 2010.
“The fact that consumers are still further behind on their shopping — 32.6 percent complete for the week ending Nov. 28…versus 42.2 percent complete for the week ending Nov. 27, 2009 — bodes well for December performance and suggests a stronger-than-expected holiday shopping season in total,” said chief economist and director of research Michael Niemira, who projected a 3 percent to 3.5 percent increase for December.
Some analysts are concerned that the early-season rush will be followed by a hiatus and then lots of shopping at the last minute.
“There will be a lull,” said Sherif Mityas, a partner in A.T. Kearney’s retail consulting practice. “Retailers are still going to need to drive some pretty strong deals to get consumers in stores.”
Expect aggressive online promotions, continued free shipping deals and “more dynamic promotions as we get closer to Christmas,” said Mityas, who predicted a 2 percent to 3 percent rise for holiday. “It will be a muted victory because sales are on heavy discounts.” The “must-have” holiday items will be trumped by price, he said, adding, “The trend is what’s on sale.”
Capturing the consumer with price is only part of the equation, as illustrated by teen retailer Abercrombie & Fitch Co.’s surprising 22 percent comp jump Thursday. Known as an upscale player in its space, the firm has recently become more competitive with price, pilfering share from rivals American Eagle Outfitters Inc. and Aéropostale Inc., which turned in comps that were flat and down 1 percent, respectively.
“There’s a price war going on in the teen space. Hollister decided it needed to take back the share it lost,” said Morgan Stanley specialty analyst Kimberly Greenberger, who pointed to storewide 30 percent off promotion.
She also noted that while many retailers ran Black Friday sales, both Hollister and A&F held weekend-long promotions, which helped it beat out competitors.
“I’m highly disappointed at American Eagle’s performance,” said Susquehanna analyst Thomas Filandro. “They need a stronger message of value. Hollister was a feeding frenzy on Black Friday. You’d think they were giving away free tickets to the best rock concert of the year.”
Department stores also fared well, with all stores reporting increases and the sector rising 6.6 percent versus a 3.9 percent estimate, according to Thomson Reuters. While luxury players Neiman Marcus Inc., Saks Inc. and Nordstrom Inc. finished with increases of above 5 percent, down-market players had more varied results, from J.C. Penney Co. Inc. and Dillard’s Inc.’s respective 9.2 percent and 8 percent gains to Macy’s Inc. and Kohl’s Corp.’s identical 6.1 percent advances.
Among the top retail gainers on Wall Street Thursday were Abercrombie & Fitch, ahead 11.1 percent to $56.02, and Dillard’s, 7.7 percent to $34.52. The decliners included Aéropostale, down 14 percent to $23.04, and American Eagle Outfitters, off 5.7 percent to $15.88.
The price-value balance resonated most evidently in the department store segment, which has slowly been battling back since the height of the recession, according to Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. For holiday, this segment should continue to produce “very good increases,” he said, while luxury chains are likely to turn in some of the strongest gains. Specialty retailers, on the other hand, will be a “mixed bag,” as mass merchants, which face tough year-ago comps, are likely to come in even, he added.
“It’s still going to be a day-by-day challenge,” Aronson said. “Wait for December for the whole story.”