Initial sales and traffic numbers indicate declines in brick-and-mortar retail, a shift to online shopping and an overall decline in enthusiasm for mall shopping.
Providing a “neutral” outlook on the sector and dubbing his latest note “May the Force be with Retailers,” Nomura Securities Inc. analyst Robert Drbul said his checks revealed that Macy’s Inc., Kohl’s Corp., Nike Inc., Tiffany & Co., Coach Inc. and Lululemon Athletica Inc. experienced the heaviest traffic during the holiday weekend.
“However, overall, we were underwhelmed by traffic levels Friday into Saturday as massive online initiatives continue to gain increased acceptance by consumers,” Drbul wrote. “In any case, store openings continued to creep earlier into Thanksgiving, with JCPenney opening at 3 p.m., Target/Kohl’s/Macy’s at 6pm, and Walmart open 24 hours with deals starting at 6pm. Additionally, we cannot ignore the increasingly significant impact of Amazon, offering numerous deals prior to and throughout the weekend.”
And while unseasonable weather has shouldered the blame for much of the revenue declines across the footwear-and-apparel space, Citi Research analyst Kate McShane said conditions during Black Friday were “ideal — cool and dry” across locations her team visited in the New York area — a good fit for mall shopping.
McShane acknowledged that Black Friday “could be becoming less meaningful, especially given the shift to online shopping,” but she found some upside in her research.
“Inventories going into the season were generally elevated (with some exceptions, like Foot Locker Inc.), putting increased pressure on Q4 gross margins,” McShane wrote. “However, demand for athletic remained very strong, led by tech fleece and Nike footwear.”
McShane also observed that there were fewer total sneaker releases over Black Friday weekend — 25 key releases in 2015, compared with 31 last year — and at slightly lower average selling prices ($149, versus $159 last year).
Meanwhile, analysts say the late shift to cooler temperatures this year has led to heavy discounting on seasonal outerwear.
“Time is running out for seasonal merchandise and for companies with major exposure in markets that rely on foreign tourism,” Sterne Agee CRT analyst Sam Poser wrote. “Slow sales in October can be overcome in November and December. However, poor sales in October and November cannot be remedied by even a very strong December. Checks indicate that sales of seasonal product over the all-important Thanksgiving weekend were down by double digits and would have been down more if not for aggressive promotional activity.”
Poser named Foot Locker, Skechers USA Inc. and Dick’s Sporting Goods this year’s big Black Friday winners, while citing concerns — mainly weather-related — about Deckers Brands and Ugg, as well as VF Corp.
“The unseasonably warm weather continues to hamper Ugg sales. … Beginning early last week, the brand began approving promotions on certain styles, including most Bailey Button and Bailey Bow styles,” Poser wrote. “[VF Corp.’s] The North Face is likely to be another casualty of the warm weather this holiday season. The most promotional retailer of The North Face was Macy’s, where most coats and outerwear from most brands were carte-blanche promoted at 25 percent to 60 percent off. [The North Face] was no exception to this onslaught.”
Canaccord Genuity Inc. analyst Camilo Lyon said the heightened levels of promotion that defined Black Friday is “consistent with what the retailers spoke of during their respective Q3 earnings calls… ”
What’s happens next, Lyon noted, is more important.
“We are turning our focus to the stocks that appear to have priced in these headwinds, and thus can lead to the sharpest recovery,” Lyon wrote. “These include Steve Madden, Under Armour and VF Corp. Despite lowering our estimates on Deckers, we believe the downside in the stock is less than 10 percent as the brand is not in decay, inventories at wholesale appear to have been worked down over the weekend, and the evolution of the Ugg product assortment likely mitigated further downside to the December quarter.”
During the remainder of the holiday rush, insiders say brands and retailers will likely have to ramp up their online efforts to compete with an unprecedented interest in the e-commerce channel.
Once the cold weather arrives, it will be crucial to respond quickly and determine the best methods, such as discounts or loyalty rewards, to unload inventory while protecting margins (easier said than done).