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Retail Rap: You Win Some, You Lose Some


Overall holiday shopping season sales numbers have been rolling in, and the news confirms what many retail real estate analysts (including myself) suspected: 2014 holiday sales were strong. Nothing earth-shattering — but plenty good enough to chalk this one up as a win. There were some bright and not-so-bright spots (December sales were weaker than expected, for example, and numbers didn’t hit some of the more optimistic overall projections), but the takeaway is that we did see the anticipated increase that the industry was looking for. The aggregate figures are generally all up above 3.5% for the period, and several reports came in closer to 4%. The National Retail Federation announced that sales were up 4% to a total of $616.1 billion — a figure which represents the biggest year over year increase since 2011.

To me, however, the interesting story here is less about the headline number and more about what we see when we peel back the layers of the onion: the category- and brand-specific dynamics that tell us who were the holiday winners and who were the holiday losers in a few select segments:

Fashion forward

Teen fashion was bound to be an interesting holiday season test case, as the category is overstored and highly competitive right now. Teens are also fairly fickle, and the “hot” retail brand(s) tend to change from one year to the next. For Wet Seal, our first holiday loser of 2014, it’s been a very long time since it had a turn atop the podium. Wet Seal filed for bankruptcy in early January, not long after announcing that it would close 338 stores.

Wet Seal is the latest victim of pressure being applied from brands like Forever 21, H&M and Uniqlo, all of which are continuing to expand at a rapid rate and are really changing the way that teens view apparel. The notion of “fast fashion” embraced by these retailers offers a higher fashion concept at a significantly lower and more accessible price point. Honestly, I don’t see this changing anytime soon, and I suspect that we will see more losers in the months and years ahead, as names like Aeropostale, American Eagle, and Abercrombie struggle to compete in a fast-fashion-dominated category.

Penney for your thoughts

All eyes have been on Sears and J.C. Penney for some time now, with speculation growing about whether the two venerable retail giants could survive. There were two very different storylines coming out of the holidays this year, with J.C. Penney emerging as a surprise winner and Sears a definite loser. Higher-than-expected sales (a 3.7% same-store sales increase) led to a surge in J.C. Penney stock price. While the floundering and strategic misfires of the last 12-24 months have taken a toll and the iconic brand is not necessarily out of the woods, its modestly acceptable performance felt like a win. J.C. Penney has to feel like it has something to build on for the first time in years.

I see the key going forward is for J.C. Penney to establish more differentiators, perhaps (re)positioning itself to compete with off-price retailers like TJ Maxx or Marshalls. The biggest fly in that ointment would be the fact that J.C. Penney has significantly more square footage than these competitors, and consequently will have a tougher time making the value equation work.

Sears, on the other hand, is a clear 2014 holiday loser. An already grim trajectory got even steeper over the holidays, and the retailer followed up by announcing the planned closure of hundreds of Sears and Kmart stores this year. I’ve mentioned several times in the past in this space that, at this point, Sears is more of a real estate firm than a retailer. What isn’t clear to me is whether Sears is selling off real estate to support the retail business, or because the property value of certain assets has peaked. It is interesting to note that Sears closings don’t necessarily follow performance — so there have to be other reasons that are not exclusively retail/sales related. I suspect those reasons are driven primarily by real estate considerations, or perhaps they are simply opportunistic moves. What is clear is that this model isn’t sustainable for the long term. While the value of the Sears and Kmart real estate portfolio has remained high, this doesn’t help them as a retailer — which is where any meaningful turnaround would have to begin.

A mixed bag

Other holiday winners include Macy’s, Nordstrom, and, to some extent, Dillards, all of which reported all fairly strong numbers over the holidays. Macy’s may seem like a surprise, considering the fact that it has been closing some stores, but keep in mind that a healthy chain should always be closing underperformers to keep the portfolio strong.

One surprising loser was the electronics sector, which defied the widespread pre-holiday optimism from analysts and ended up with sales that were either flat or slightly down. As I write this, Best Buy’s numbers have not yet come in, but I suspect that the overall poor performance in this category does not bode well for the consumer electronics giant.

To my mind, perhaps the highest profile loser this past holiday season was clarity, the lack of which has been noteworthy. We have seen a dizzying variety of information being reported. From overall numbers to individual brand performances, the waters have never been murkier. The ongoing expansion of the holiday shopping season and the growing variety of ways in which information is reported and contextualized have made the task of finding clear answers harder than ever before. If you have any thoughts, however — clear or otherwise — about seasonal winners and losers, I’d love to hear what you have to say. Please feel free to reach out via email ([email protected]) or in the comments section below.

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