March’s Choppy Waters
If it’s true that a rising (or lowering) tide moves all boats, it appears that the waters in March were very choppy. The corporate releases commenting on March results were full of comments on the weather, the economy, fuel costs and the shift in Easter, factors that should affect similar retailers in a comparable way. As I reviewed the numbers, it became clear that in many cases the results for retailers with similar product mixes were dramatically different. I won’t attempt to rationalize the current results. Instead, I will share some observations from a recent analysis of the merchandising strategies of major chains and why I believe certain individual retailer trends are in place.
Target: The comp-store trend has been deteriorating for the past 12 months. Target appears to be so caught up in flair and sizzle it has lost sight of the volume products that drive everyday business. Differentiation is critical to its strategy, but so is serving the needs of their customers.
Kohl’s and Penney: Both of these retailers are experiencing deteriorating trends and for the same reason. They are both attempting to upgrade and move into the traditional department store space. By making this move, they are leaving their Super Sweet Spots and moving into the positions of Macy’s, Dillard’s and Bon-Ton. This change lessens their strength in the positions they have occupied and makes them a weak player in the department store space.
Chico’s: This is one of the most amazing stories in retail. Chico’s created a Super Sweet Spot serving affluent women 45 to 65 years old and through that strategy created one of the greatest successes in the history of women’s apparel retailing. Two years ago they started shifting their emphasis to a younger customer and converted a double-digit positive trend to a double-digit negative one. They have reduced the merchandise assortment that their business was built upon and have become less important to their traditional core customer. At the same time they have added a weak assortment to appeal to a younger customer, who is being better served by other retailers.
March Comp-Store Sales Results| Retailer | March 2008 | Previous 90 Days | Previous 6 Months | Previous 9 Months | Previous 12 Months |
| Target | –4.4% | –2.8% | 0.9% | 2.1% | 2.7% |
| Kohl’s | –15.5% | –9.4% | –3.8% | –3.3% | –1.4% |
| J.C. Penney | –12.3% | –6.3% | –3.9% | –2.4% | –1.6% |
| Chico’s | –20.7% | –16.2% | –13.3% | –11.5% | –8.8% |
| American Eagle | –12.0% | –3.3% | –2.5% | –0.3% | –0.9% |
| Costco US | –5.0% | –5.0% | –5.3% | –4.9% | –5.2% |
American Eagle: Like Chico’s, American Eagle has been a great success story. In this case it appears they have gotten drunk on their own liquor. Their brand name that was a tasteful and subtle component of many of their garments has become dominant and overwhelming. The core products they built their business on are still the same; the change has been in the over-execution of the logo.
Costco: This truly remarkable success story continues and is getting stronger. Despite the stores’ austere environment, the merchandise continues to get more exciting. Many premium national brands are now selling Costco. The quality of products is perfectly balanced across different categories of merchandise, a claim few retailers can make. At Costco the values are real. The magic is in selling steak cheap, rather than cheap steak.
It appears the next few months will be a challenge for most retailers. Hopefully the tide will start to rise before the critical second half of the year.
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